Kerala High Court
Aspinwall And Company (Travancore) ... vs Commissioner Of Income-Tax on 18 October, 1989
Equivalent citations: [1990]184ITR56(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. The petitioner is a public limited company. It is engaged in the business of manufacture and sale of coir. It had advanced a loan of Rs. 1,50,000 to a sister concern, Messrs. Mambad Rubber and Produce Company Ltd. The loan was outstanding. We are concerned with the assessment year 1979-80 for which the previous year ended on December 31, 1978. Till the end of the prior year, the interest on the said loan was included in the accounts. The petitioner/assessee was maintaining its books of account on the mercantile basis. But, for the assessment year 1979-80, the interest on the said loan was not entered in the account books. The amount was not received. The Income-tax Officer included a sum of Rs. 30,000 being the interest on the said loan. In appeal, the Commissioner of Income-tax (Appeals) reversed the said decision. The Revenue took up the matter before the Income-tax Appellate Tribunal. The Appellate Tribunal held that the addition of Rs. 30,000 towards interest on the loan advanced to a sister concern is includible in the assessment for the year 1979-80, though there was no entry on that score in the accounts of the assessee. It is thereafter that the assessee moved the Appellate Tribunal, by an application under Section 256(1) of the Income-tax Act, to refer a question of law said to arise out of the appellate order dated September 11, 1987, for the decision of this court. The Appellate Tribunal declined to do so. Thereafter, the assessee has filed this original petition under Section 256(2) of the Income-tax Act to direct the Income-tax Appellate Tribunal to refer the following question of law, specified in ground D of the original petition, for the decision of this court:
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the notional interest on the loan of Rs. 1,50,000 advanced to Mambad Rubber Manufacturing Company Ltd. was includible in the income of the applicant ?"
2. We heard counsel. It is common ground that the assessee was maintaining its accounts on the mercantile basis. It had advanced a sum of Rs. 1,50,000 to a sister concern. Interest was payable by the debtor company. In the past, the assessee-company had credited the amount of interest to its profit and loss account. But, for the assessment year 1979-80, it did not do so. The assessee had no case that there was a modification of the contract for the payment of interest; nor had the assessee a case that the loan advanced became irrecoverable and the company passed a resolution to that effect or took steps in that regard. In view of the fact that the assessee was maintaining the accounts on mercantile basis, the interest on the loan accrued due. It is not the case of the assessee that the sister concern had gone into liquidation and there was any change regarding the payment of interest. In such circumstances, if it is not shown that there is variation in the original contract or that the amount advanced became irrecoverable and declared as bad debt, interest accrued to the assessee every year. The fact that the assessee did not credit such amount in the profit and loss account by itself will not absolve the assessee from the liability incurred as a result of the above accrual of interest. We are of the view that the addition made by the Income-tax Officer of Rs. 30,000 being interest on the loan advanced was correctly upheld by the Income-tax Appellate Tribunal. The decisions in Sutlej Cotton Milts Ltd. v. CIT, [1979] 116 ITR 1 (SC) ; CIT v. Kerala Financial Corporation, [1985] 155 ITR 228 (Ker) and State Bank of Travancore v. CIT, [1986] 158 ITR 102 (SC) are relevant in this context.
3. On the above reasoning, we are of the view that the question of law, formulated in ground D of the original petition and extracted herein-
above, is not a referable question of law and we decline to direct the Income-tax Appellate Tribunal to refer the said question of law for the decision of this court.
4. The original petition is without merit. It is dismissed.