ADDITIONAL COMMISSIONER OF INCOME-TAX VS SWADESHI CLOTH DEALERS, 1992 PTD-ALLAHABAD-HIGH-COURT-INDIA 917 (1990)

Income-tax---

----Income---Interest---Accrual---Assessee advancing amounts to firm from time to time on interest ---Assessee stopping charging of interest from financial year 1964-65---Debtor also not crediting interest to assessee's account in his books ---Assessee filing suit for recovery of amounts with interest---Implies that there was an agreement between assessee and debtor to pay interest at an agreed rate---Interest accrued to assessee even after 1-4-1964.

The assessee had been advancing certain amounts from time to time to a firm from the year 1956-57 onwards at the rate of 6 per cent. per annum and the amount so calculated as on March 31, 1964, came to Rs.37,04,316. From the financial year 1964-65 onwards, the assessee stopped charging interest. The debtor was also not crediting interest to the assessee's account in its own books. For the assessment years 1965-66 and 1966-67, the Income-tax Officer added certain amounts representing interest at the rate of 6 per cent. to the assessee's income notwithstanding the fact that no such interest was shown in the account books of the assessee. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. The Tribunal held that during the two previous years, there was no agreement between the parties to charge and pay interest nor any agreement with respect to the rate of interest and hence no amount could be added on account of interest to the income of the assessee. On a reference:

Held, that the assessee had filed a suit against the debtor on March 13, 1968, for recovery of Rs.42,70,362.42 with interest at 6 per cent per annum. The averments made by the assessee in the plaint (suit) filed by him expressly claimed not only interest for the period subsequent to March 13, 1964, at the rate of 6 per cent per annum, but they expressly asserted that interest was claimed at the agreed rate of 6 per cent. Therefore, there was an agreement to pay interest at the rate of 6 per cent per annum during the two previous years relevant to the assessment years concerned and such agreement continued even subsequent thereto. Therefore, the Tribunal was not justified in holding that no interest accrued to the assessee after April 1,1964.

M. Katju for the Commissioner.

Bharatji Agarwal for the Assessee.

JUDGMENT

B.P. JEEVAN REDDY, CJ.---At the instance of Revenue, the Tribunal has referred the following two questions under section 256(2) of the Income Tax Act, 1961:

"(1) Whether, on the facts and in the circumstances of the case, there was material before the Tribunal to hold that there was no agreement to charge interest from April 1, 1964, and onwards?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that no interest accrued to the assessee after April 1, 1964?"

The assessee is a public limited company. The assessment years concerned are 1965-66 and 1966-67. Previous year is the respective financial year. The assessee had been advancing certain amounts, from time to time, to a partnership firm, Messrs Ram Lai Raja Ram from the year 1956-57 onwards. At the end of each accounting year, account was being taken including interest charged at the rate of 6% per annum. The amount so calculated as on March 31, 1964, came to Rs.37,04,316. From the financial year 19(A-65 onwards, the assessee stopped charging interest. It appears that the debtor was also not crediting interest to the assessee's account in its own books. For the assessment years 1.965-66 and 1966-67, the Income-tax Officer took the view that an amount representing interest at the rate of 6% per annum should be added to the assessee's income, notwithstanding the fact that no such interest is shown in the account books of the assessee. Accordingly, he added the appropriate amount. On appeal, it was affirmed by the Appellate Assistant Commissioner. On further appeal, however, the Tribunal took a different view. The Tribunal was of the view that, during the two previous years concerned, there was no agreement between the parties to charge and pay interest nor any with respect to the rate of interest. The Tribunal was of the view that, in such a situation, no amount could have been added on account of interest to the income of the assessee. It is thereupon that the Revenue obtained reference of the aforesaid two questions.

The main question that arises in this case is whether there was an agreement between the assessee and the debtor to pay interest for the period concerned herein and if so at what rate. This question has to be decided with reference to the averments made by the assessee in the plaint (suit) filed by him in the Calcutta High Court on March 13, 1968. As disclosed by the assessment order, the assessee filed a suit for recovery of Rs.42,70,362.42 with interest at the rate of 6% per annum. The suit amount was calculated in the following manner:

Rs. P.

Balance due as on March 31, 1966:????????????????????????????????????????????????????????????????? 41,17,443.63

(after adjustment of payment of Rs.30,000

?on June 23, 1965), and after calculating

?interest at 6% on the balance of

?Rs.37,04,315.71 due on March 31, 1964.

Interest from April 1, 1966 to January 31,???????????????????????????????????????????????????????? 4,52,919.84

1968, at the agreed rate of 6% per annum???????????????????????????????????????????????????????? 45.70.363.47

It may be noticed that, as on March 31, 1964, the amount payable as per account books of the assessee was Rs.37,04,316. (The statement of case shows that no further advances were made by the assessee after March 13, 1964; there was only a small repayment of Rs.30,000 by the debtor on June 23, 1965). The plaint expressly claims not only the interest for the period subsequent to March 13, 1964, at the rate of 6% per annum, it expressly asserts that interest is claimed at the agreed rate of 6 per cent per annum.

Now, the question is: what do the aforesaid averments in the plaint indicate? We must reiterate that there is no other material except the above averments to determine the said question. In our opinion, the plaint averments do clearly indicate and affirm that there was an agreement to pay interest at the rate of 6 per cent annum during the two previous years relevant to the assessment years concerned herein and that such an agreement continued even subsequent thereto. The Tribunal has clearly misread the said averments in the plaint, which misreading has resulted in its recording a finding for which there is absolutely no basis. There cannot be any better evidence than the assessee's own statements. The Tribunal's finding lies in the face of clear material. We are, therefore, of the opinion that the two questions referred to us must be answered in the following terms:

Question No.1 is answered in the negative, i.e., in favour of the Revenue and against the assessee. Similarly, question No.2 also is answered in the negative, i.e., in favour of the Revenue and against the assessee. There shall be no order as to costs.

M.B.A./1588/T??????????????????????????????????????????????? ??????? ??? ????????Reference answered in negative.