D.K. Seth, J.—In this case the following question has since been referred to for our opinion :

"Whether, on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was justified in deleting the addition of Rs. 2,04,000 made by the Assessing Officer and confirmed and enhanced by the Commissioner of Income Tax (Appeals) to Rs. 2,69,685 on account of interests from the Hindu undivided family debtor on accrual basis "

2. The Assessing Officer had held that the income had accrued and, therefore, had directed the addition of Rs. 2,04,000. On appeal the Commissioner (Appeals) had confirmed the order of the Assessing Officer and found that the addition would be enhanced to Rs. 2,69,685. The learned Tribunal, however, deleted the said addition.

3. The relevant assessment year was 1988-89 relating to the accounting year (previous year) 1986-87 ending with October, 1987. The assessee had advanced loan to one Tulsidas Rajivlochan (HUF) on February 25, 1983. The said loan was carrying interest at the rate of 12 per cent. per annum. Interest was paid on the said loan for some time. But after May 30, 1986, no interest was paid. There were correspondences. The debtor pleaded that it had some difficulty in the repayment and payment of the loan and the interest, respectively. It had requested the assessee to waive the arrear interest after June 30, 1986. It had agreed to repay the principal amount. By a resolution dated August 1, 1987, this suggestion was ultimately accepted by the assessee in its commercial wisdom, having regard to the commercial viability of the situation. In the said resolution, the board of the assessee had decided to waive interest after June 30, 1986, provided the debtor repays the amount of principal together with interest up to June 30, 1986, by instalments payable monthly commencing from January, 1988. It had claimed the sum of Rs. 22,16,593.55 inclusive of principal and interest accrued till June 30, 1986. Such instalment was payable before the expiry of the relevant month. In default, the assessee should be entitled to claim full interest till the loan was repaid and exercise its right to recover the loan and the interest payable thereon. Pursuant to this decision, the debtor had paid three instalments for the months of January, February and March, 1988. But thereafter no instalment was paid. After having served a notice in March, 1989, the assessee had filed a suit before this court being Suit No. 301 of 1999 praying for a decree of the sum inclusive of principal and interest up to March, 1989. The said claim included a sum of Rs. 2,59,686 as interest for the period July 1, 1986, to June 30, 1987. The suit was pending on the date when the learned Tribunal had decided the matter. Till then only issues were framed. The learned Tribunal had occasion to look into the issues and record its observation that the debtor had denied the liability not only in respect of interest but also the principal. In this background the question has to be looked into as to whether the interest for the period July 1, 1986, till June 30, 1987, could be charged to tax and liable to be added to the returns submitted by the assessee. Mr. Jaydeb Saha, learned counsel for the Revenue, submitted that the concept of real income applies before the income accrues. Admittedly, the assessee was following the mercantile system of accounting. Under the said system, it is not the actual receipt but the accrual of the income, which is maintained and shown in the accounts. Admittedly, interest shown to have been accrued in the return of the earlier year ending with June 30, 1986, and was charged to tax. Admittedly, in the books of account for the period 1986-87 the accrual of income was not shown. According to Mr. Saha whether the accrual has been entered in the books of account or not is wholly immaterial. It is on the basis of the accrual of interest that the income becomes chargeable. Subsequent waiver will not enable the assessee to claim the allowance. According to him, the decisions to waive interest was taken only on August 1, 1987, namely, after the closing of the accounting of the previous year 1986-87. Unless the accrual was prevented, the income was liable to be charged. He had relied on the decisions in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, ; State Bank of Indore Vs. Commissioner of Income Tax, ; Mercantile Bank Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, ; State Bank of Indore Vs. Commissioner of Income Tax, ; Mercantile Bank Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala,

; State Bank of Indore Vs. Commissioner of Income Tax, ; Mercantile Bank Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

; State Bank of Indore Vs. Commissioner of Income Tax, ; Mercantile Bank Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

State Bank of Indore Vs. Commissioner of Income Tax, ; Mercantile Bank Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

State Bank of Indore Vs. Commissioner of Income Tax,

; Mercantile Bank Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

; Mercantile Bank Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Mercantile Bank Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Mercantile Bank Ltd. Vs. Commissioner of Income Tax,

; Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

; Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., ; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd.,

; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

; Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, ; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax,

; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

; Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Commissioner of Income Tax Vs. Kerala Financial Corporation, ; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Commissioner of Income Tax Vs. Kerala Financial Corporation,

; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

; Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Commissioner of Income Tax Vs. M. Sarojini Devi, and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Commissioner of Income Tax Vs. M. Sarojini Devi,

and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

and Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, to support his contention. We shall refer to these decisions at the appropriate stage.

Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others,

to support his contention. We shall refer to these decisions at the appropriate stage.

to support his contention. We shall refer to these decisions at the appropriate stage.

4. Mr. R. N. Bajoria, learned senior counsel assisted by Mr. J. P. Khaitan, learned counsel for the assessee, on the other hand, contended that the crux of the point is to be found within the ratio decided in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, . According to him, under the mercantile system of accounting, the income accrues notionally when it is due to accrue and becomes chargeable to tax, but what is charged is the income. Unless there is an income no tax can be levied. Similarly, even if an income is described in any manner otherwise than an income, still, then tax cannot be avoided if there is an income in reality. The Income Tax Act had made such provisions in different sections dealing with different kinds of situations to prevent evasion of taxes. At the same time, it had provided for protection where taxes are exigible. In case there is no income in reality, though under the mercantile system of accounting, the income is deemed to have accrued in theory, the same cannot be charged to tax in view of the concept of real income. But this concept can be put to misuse very often than not by the assessee. Therefore, the apex court in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, had laid down some proposition. However, it had observed that no straight-jacket formula can be evolved and it cannot be applied in all cases. A principle of law is applicable only in the facts and circumstances of each case. A principle cannot be applied without the basis of fact. The apex court had laid down in the penultimate paragraph in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, , the norms, which are to be followed in order to ascertain where the real income concept can be applied and the safeguards to avoid abuse. He has also contended that the question of accounting is determined after the end of the previous year and a decision taken at the time of settlement of accounts would be effective for the period covering the previous year. In support he had relied on the decision in COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, . According to him, under the mercantile system of accounting, the income accrues notionally when it is due to accrue and becomes chargeable to tax, but what is charged is the income. Unless there is an income no tax can be levied. Similarly, even if an income is described in any manner otherwise than an income, still, then tax cannot be avoided if there is an income in reality. The Income Tax Act had made such provisions in different sections dealing with different kinds of situations to prevent evasion of taxes. At the same time, it had provided for protection where taxes are exigible. In case there is no income in reality, though under the mercantile system of accounting, the income is deemed to have accrued in theory, the same cannot be charged to tax in view of the concept of real income. But this concept can be put to misuse very often than not by the assessee. Therefore, the apex court in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, had laid down some proposition. However, it had observed that no straight-jacket formula can be evolved and it cannot be applied in all cases. A principle of law is applicable only in the facts and circumstances of each case. A principle cannot be applied without the basis of fact. The apex court had laid down in the penultimate paragraph in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, , the norms, which are to be followed in order to ascertain where the real income concept can be applied and the safeguards to avoid abuse. He has also contended that the question of accounting is determined after the end of the previous year and a decision taken at the time of settlement of accounts would be effective for the period covering the previous year. In support he had relied on the decision in COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala,

. According to him, under the mercantile system of accounting, the income accrues notionally when it is due to accrue and becomes chargeable to tax, but what is charged is the income. Unless there is an income no tax can be levied. Similarly, even if an income is described in any manner otherwise than an income, still, then tax cannot be avoided if there is an income in reality. The Income Tax Act had made such provisions in different sections dealing with different kinds of situations to prevent evasion of taxes. At the same time, it had provided for protection where taxes are exigible. In case there is no income in reality, though under the mercantile system of accounting, the income is deemed to have accrued in theory, the same cannot be charged to tax in view of the concept of real income. But this concept can be put to misuse very often than not by the assessee. Therefore, the apex court in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, had laid down some proposition. However, it had observed that no straight-jacket formula can be evolved and it cannot be applied in all cases. A principle of law is applicable only in the facts and circumstances of each case. A principle cannot be applied without the basis of fact. The apex court had laid down in the penultimate paragraph in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, , the norms, which are to be followed in order to ascertain where the real income concept can be applied and the safeguards to avoid abuse. He has also contended that the question of accounting is determined after the end of the previous year and a decision taken at the time of settlement of accounts would be effective for the period covering the previous year. In support he had relied on the decision in COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

. According to him, under the mercantile system of accounting, the income accrues notionally when it is due to accrue and becomes chargeable to tax, but what is charged is the income. Unless there is an income no tax can be levied. Similarly, even if an income is described in any manner otherwise than an income, still, then tax cannot be avoided if there is an income in reality. The Income Tax Act had made such provisions in different sections dealing with different kinds of situations to prevent evasion of taxes. At the same time, it had provided for protection where taxes are exigible. In case there is no income in reality, though under the mercantile system of accounting, the income is deemed to have accrued in theory, the same cannot be charged to tax in view of the concept of real income. But this concept can be put to misuse very often than not by the assessee. Therefore, the apex court in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, had laid down some proposition. However, it had observed that no straight-jacket formula can be evolved and it cannot be applied in all cases. A principle of law is applicable only in the facts and circumstances of each case. A principle cannot be applied without the basis of fact. The apex court had laid down in the penultimate paragraph in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, , the norms, which are to be followed in order to ascertain where the real income concept can be applied and the safeguards to avoid abuse. He has also contended that the question of accounting is determined after the end of the previous year and a decision taken at the time of settlement of accounts would be effective for the period covering the previous year. In support he had relied on the decision in COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, had laid down some proposition. However, it had observed that no straight-jacket formula can be evolved and it cannot be applied in all cases. A principle of law is applicable only in the facts and circumstances of each case. A principle cannot be applied without the basis of fact. The apex court had laid down in the penultimate paragraph in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, , the norms, which are to be followed in order to ascertain where the real income concept can be applied and the safeguards to avoid abuse. He has also contended that the question of accounting is determined after the end of the previous year and a decision taken at the time of settlement of accounts would be effective for the period covering the previous year. In support he had relied on the decision in COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala,

had laid down some proposition. However, it had observed that no straight-jacket formula can be evolved and it cannot be applied in all cases. A principle of law is applicable only in the facts and circumstances of each case. A principle cannot be applied without the basis of fact. The apex court had laid down in the penultimate paragraph in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, , the norms, which are to be followed in order to ascertain where the real income concept can be applied and the safeguards to avoid abuse. He has also contended that the question of accounting is determined after the end of the previous year and a decision taken at the time of settlement of accounts would be effective for the period covering the previous year. In support he had relied on the decision in COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

had laid down some proposition. However, it had observed that no straight-jacket formula can be evolved and it cannot be applied in all cases. A principle of law is applicable only in the facts and circumstances of each case. A principle cannot be applied without the basis of fact. The apex court had laid down in the penultimate paragraph in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, , the norms, which are to be followed in order to ascertain where the real income concept can be applied and the safeguards to avoid abuse. He has also contended that the question of accounting is determined after the end of the previous year and a decision taken at the time of settlement of accounts would be effective for the period covering the previous year. In support he had relied on the decision in COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, , the norms, which are to be followed in order to ascertain where the real income concept can be applied and the safeguards to avoid abuse. He has also contended that the question of accounting is determined after the end of the previous year and a decision taken at the time of settlement of accounts would be effective for the period covering the previous year. In support he had relied on the decision in COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala,

, the norms, which are to be followed in order to ascertain where the real income concept can be applied and the safeguards to avoid abuse. He has also contended that the question of accounting is determined after the end of the previous year and a decision taken at the time of settlement of accounts would be effective for the period covering the previous year. In support he had relied on the decision in COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

, the norms, which are to be followed in order to ascertain where the real income concept can be applied and the safeguards to avoid abuse. He has also contended that the question of accounting is determined after the end of the previous year and a decision taken at the time of settlement of accounts would be effective for the period covering the previous year. In support he had relied on the decision in COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., . He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA.,

. He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

. He had also relied on the decision in Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II,

, in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

, in order to support his contention as to when the debt becomes bad. Referring to the facts of this case, Mr. Bajoria contends that omissions to enter the accrual in the account coupled with the decision to waive the interest are facts and conducts on which the assessee had treated the debt as bad debt and had treated that the interest did not accrue and as such it comes within the concept of real income exigible from taxation.

5. This question had occupied the attention of different High Courts and the apex court from time to time starting right from the decision in Commissioner of Income Tax, Bombay City I Vs. Shoorji Vallabhdas and Co., . In the said decision, it was held that (headnote) : ". . . the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account."

Commissioner of Income Tax, Bombay City I Vs. Shoorji Vallabhdas and Co., . In the said decision, it was held that (headnote) : ". . . the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account."

Commissioner of Income Tax, Bombay City I Vs. Shoorji Vallabhdas and Co.,

. In the said decision, it was held that (headnote) : ". . . the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account."

. In the said decision, it was held that (headnote) : ". . . the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account."

6. While referring to the decision in Commissioner of Income Tax, Bombay City I Vs. Shoorji Vallabhdas and Co., , the apex court in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, had observed that (page 144) : "This decision and the use of the expression that entry was made of the hypothetical income is often misunderstood in the sense that after the accrual, if the income did not materialise then on the basis of the actuality or reality of the situation, it should not be considered to be income at all." After having discussed the facts, it observed further that (page 145) : "Shoorji Vallabhdass case must be understood on the footing that because of the desire in November, 1947, the commission did not accrue at the end of the accounting year. In that sense, there was no accrual of the income. It may be reiterated that in some limited fields where something which, in the reality of the situation, prevents the accrual of the income, then the notion of real income, i.e., making the income accrue in the real sense of the term, can be brought into play, but the notion of real income as it shall presently be indicated cannot be brought into play, where income has accrued according to the accounts of the assessee and there is no indication by the assessee to treat the amount as not having accrued. Suspended animation following inclusion of the amount in the suspense account does not negate accrual and after the event of accrual, corroborated by appropriate entry in the books of account on the mere ipse dixit of the assessee, no reversal of the situation can be brought about. . .

Commissioner of Income Tax, Bombay City I Vs. Shoorji Vallabhdas and Co., , the apex court in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, had observed that (page 144) : "This decision and the use of the expression that entry was made of the hypothetical income is often misunderstood in the sense that after the accrual, if the income did not materialise then on the basis of the actuality or reality of the situation, it should not be considered to be income at all." After having discussed the facts, it observed further that (page 145) : "Shoorji Vallabhdass case must be understood on the footing that because of the desire in November, 1947, the commission did not accrue at the end of the accounting year. In that sense, there was no accrual of the income. It may be reiterated that in some limited fields where something which, in the reality of the situation, prevents the accrual of the income, then the notion of real income, i.e., making the income accrue in the real sense of the term, can be brought into play, but the notion of real income as it shall presently be indicated cannot be brought into play, where income has accrued according to the accounts of the assessee and there is no indication by the assessee to treat the amount as not having accrued. Suspended animation following inclusion of the amount in the suspense account does not negate accrual and after the event of accrual, corroborated by appropriate entry in the books of account on the mere ipse dixit of the assessee, no reversal of the situation can be brought about. . .

Commissioner of Income Tax, Bombay City I Vs. Shoorji Vallabhdas and Co.,

, the apex court in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, had observed that (page 144) : "This decision and the use of the expression that entry was made of the hypothetical income is often misunderstood in the sense that after the accrual, if the income did not materialise then on the basis of the actuality or reality of the situation, it should not be considered to be income at all." After having discussed the facts, it observed further that (page 145) : "Shoorji Vallabhdass case must be understood on the footing that because of the desire in November, 1947, the commission did not accrue at the end of the accounting year. In that sense, there was no accrual of the income. It may be reiterated that in some limited fields where something which, in the reality of the situation, prevents the accrual of the income, then the notion of real income, i.e., making the income accrue in the real sense of the term, can be brought into play, but the notion of real income as it shall presently be indicated cannot be brought into play, where income has accrued according to the accounts of the assessee and there is no indication by the assessee to treat the amount as not having accrued. Suspended animation following inclusion of the amount in the suspense account does not negate accrual and after the event of accrual, corroborated by appropriate entry in the books of account on the mere ipse dixit of the assessee, no reversal of the situation can be brought about. . .

, the apex court in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, had observed that (page 144) : "This decision and the use of the expression that entry was made of the hypothetical income is often misunderstood in the sense that after the accrual, if the income did not materialise then on the basis of the actuality or reality of the situation, it should not be considered to be income at all." After having discussed the facts, it observed further that (page 145) : "Shoorji Vallabhdass case must be understood on the footing that because of the desire in November, 1947, the commission did not accrue at the end of the accounting year. In that sense, there was no accrual of the income. It may be reiterated that in some limited fields where something which, in the reality of the situation, prevents the accrual of the income, then the notion of real income, i.e., making the income accrue in the real sense of the term, can be brought into play, but the notion of real income as it shall presently be indicated cannot be brought into play, where income has accrued according to the accounts of the assessee and there is no indication by the assessee to treat the amount as not having accrued. Suspended animation following inclusion of the amount in the suspense account does not negate accrual and after the event of accrual, corroborated by appropriate entry in the books of account on the mere ipse dixit of the assessee, no reversal of the situation can be brought about. . .

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, had observed that (page 144) : "This decision and the use of the expression that entry was made of the hypothetical income is often misunderstood in the sense that after the accrual, if the income did not materialise then on the basis of the actuality or reality of the situation, it should not be considered to be income at all." After having discussed the facts, it observed further that (page 145) : "Shoorji Vallabhdass case must be understood on the footing that because of the desire in November, 1947, the commission did not accrue at the end of the accounting year. In that sense, there was no accrual of the income. It may be reiterated that in some limited fields where something which, in the reality of the situation, prevents the accrual of the income, then the notion of real income, i.e., making the income accrue in the real sense of the term, can be brought into play, but the notion of real income as it shall presently be indicated cannot be brought into play, where income has accrued according to the accounts of the assessee and there is no indication by the assessee to treat the amount as not having accrued. Suspended animation following inclusion of the amount in the suspense account does not negate accrual and after the event of accrual, corroborated by appropriate entry in the books of account on the mere ipse dixit of the assessee, no reversal of the situation can be brought about. . .

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala,

had observed that (page 144) : "This decision and the use of the expression that entry was made of the hypothetical income is often misunderstood in the sense that after the accrual, if the income did not materialise then on the basis of the actuality or reality of the situation, it should not be considered to be income at all." After having discussed the facts, it observed further that (page 145) : "Shoorji Vallabhdass case must be understood on the footing that because of the desire in November, 1947, the commission did not accrue at the end of the accounting year. In that sense, there was no accrual of the income. It may be reiterated that in some limited fields where something which, in the reality of the situation, prevents the accrual of the income, then the notion of real income, i.e., making the income accrue in the real sense of the term, can be brought into play, but the notion of real income as it shall presently be indicated cannot be brought into play, where income has accrued according to the accounts of the assessee and there is no indication by the assessee to treat the amount as not having accrued. Suspended animation following inclusion of the amount in the suspense account does not negate accrual and after the event of accrual, corroborated by appropriate entry in the books of account on the mere ipse dixit of the assessee, no reversal of the situation can be brought about. . .

had observed that (page 144) : "This decision and the use of the expression that entry was made of the hypothetical income is often misunderstood in the sense that after the accrual, if the income did not materialise then on the basis of the actuality or reality of the situation, it should not be considered to be income at all." After having discussed the facts, it observed further that (page 145) : "Shoorji Vallabhdass case must be understood on the footing that because of the desire in November, 1947, the commission did not accrue at the end of the accounting year. In that sense, there was no accrual of the income. It may be reiterated that in some limited fields where something which, in the reality of the situation, prevents the accrual of the income, then the notion of real income, i.e., making the income accrue in the real sense of the term, can be brought into play, but the notion of real income as it shall presently be indicated cannot be brought into play, where income has accrued according to the accounts of the assessee and there is no indication by the assessee to treat the amount as not having accrued. Suspended animation following inclusion of the amount in the suspense account does not negate accrual and after the event of accrual, corroborated by appropriate entry in the books of account on the mere ipse dixit of the assessee, no reversal of the situation can be brought about. . .

7. An acceptable formula of co-relating the notion of real income in conjunction with the method of accounting for the purpose of the computation of income for the purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation. It must depend upon the facts and circumstances of each case. When and how does an income accrue and what are the consequences that follow from accrual of income are well settled. The accrual must be real taking into account the actuality of the situation. Whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then become a value judgment only. What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view of real income taking the probability or improbability of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing an income which has accrued cannot be made no income."

8. These decisions point out that the tax is payable on the income. It is only when the accrual is prevented in the real sense the notion of real income can be brought into play. But where the income is accrued according to the accounts of the assessee and there is no indication by the assessee to treat the income as not having accrued there is no suspension of the accrual of the income. The concept of real income cannot be so used as to make accrued income non-income simply because after the event of accrual, the assessee neither decides to treat it as a bad debt nor claims deduction but still enters the same with a diminished hope of recovery in the suspense account. Extension of the concept of real income to this field to negate accrual after the amount had become payable is contrary to the postulates of the.

9. Dealing with the decision in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, , the apex court had dealt with various other decision by different High Courts. It had referred to the decision in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., and observed that (page 150) "The Bombay High Court in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., held that under Income Tax law, receipt of income, either actual or deemed, is not a condition precedent to taxability. These were assessable if these had arisen or accrued or were deemed to have accrued or arisen under the. This principle would be attracted even in cases where an assessee followed the mercantile system of accounting. However, in examining any transaction or situation, the court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect. It was held in that case after discussing the facts that there were hardly any receipts in respect of items of interest or that the bona fides of the assessee in not charging interest were not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real income in respect of the items of interest as none of the debts due by the several debtors was written off by the assessee and no evidence was produced to show that interest in respect of the debts was given up. The High Court, therefore, held that there was no giving up and these incomes were assessable."

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, , the apex court had dealt with various other decision by different High Courts. It had referred to the decision in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., and observed that (page 150) "The Bombay High Court in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., held that under Income Tax law, receipt of income, either actual or deemed, is not a condition precedent to taxability. These were assessable if these had arisen or accrued or were deemed to have accrued or arisen under the. This principle would be attracted even in cases where an assessee followed the mercantile system of accounting. However, in examining any transaction or situation, the court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect. It was held in that case after discussing the facts that there were hardly any receipts in respect of items of interest or that the bona fides of the assessee in not charging interest were not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real income in respect of the items of interest as none of the debts due by the several debtors was written off by the assessee and no evidence was produced to show that interest in respect of the debts was given up. The High Court, therefore, held that there was no giving up and these incomes were assessable."

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala,

, the apex court had dealt with various other decision by different High Courts. It had referred to the decision in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., and observed that (page 150) "The Bombay High Court in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., held that under Income Tax law, receipt of income, either actual or deemed, is not a condition precedent to taxability. These were assessable if these had arisen or accrued or were deemed to have accrued or arisen under the. This principle would be attracted even in cases where an assessee followed the mercantile system of accounting. However, in examining any transaction or situation, the court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect. It was held in that case after discussing the facts that there were hardly any receipts in respect of items of interest or that the bona fides of the assessee in not charging interest were not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real income in respect of the items of interest as none of the debts due by the several debtors was written off by the assessee and no evidence was produced to show that interest in respect of the debts was given up. The High Court, therefore, held that there was no giving up and these incomes were assessable."

, the apex court had dealt with various other decision by different High Courts. It had referred to the decision in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., and observed that (page 150) "The Bombay High Court in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., held that under Income Tax law, receipt of income, either actual or deemed, is not a condition precedent to taxability. These were assessable if these had arisen or accrued or were deemed to have accrued or arisen under the. This principle would be attracted even in cases where an assessee followed the mercantile system of accounting. However, in examining any transaction or situation, the court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect. It was held in that case after discussing the facts that there were hardly any receipts in respect of items of interest or that the bona fides of the assessee in not charging interest were not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real income in respect of the items of interest as none of the debts due by the several debtors was written off by the assessee and no evidence was produced to show that interest in respect of the debts was given up. The High Court, therefore, held that there was no giving up and these incomes were assessable."

Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., and observed that (page 150) "The Bombay High Court in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., held that under Income Tax law, receipt of income, either actual or deemed, is not a condition precedent to taxability. These were assessable if these had arisen or accrued or were deemed to have accrued or arisen under the. This principle would be attracted even in cases where an assessee followed the mercantile system of accounting. However, in examining any transaction or situation, the court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect. It was held in that case after discussing the facts that there were hardly any receipts in respect of items of interest or that the bona fides of the assessee in not charging interest were not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real income in respect of the items of interest as none of the debts due by the several debtors was written off by the assessee and no evidence was produced to show that interest in respect of the debts was given up. The High Court, therefore, held that there was no giving up and these incomes were assessable."

Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd.,

and observed that (page 150) "The Bombay High Court in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., held that under Income Tax law, receipt of income, either actual or deemed, is not a condition precedent to taxability. These were assessable if these had arisen or accrued or were deemed to have accrued or arisen under the. This principle would be attracted even in cases where an assessee followed the mercantile system of accounting. However, in examining any transaction or situation, the court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect. It was held in that case after discussing the facts that there were hardly any receipts in respect of items of interest or that the bona fides of the assessee in not charging interest were not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real income in respect of the items of interest as none of the debts due by the several debtors was written off by the assessee and no evidence was produced to show that interest in respect of the debts was given up. The High Court, therefore, held that there was no giving up and these incomes were assessable."

and observed that (page 150) "The Bombay High Court in Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., held that under Income Tax law, receipt of income, either actual or deemed, is not a condition precedent to taxability. These were assessable if these had arisen or accrued or were deemed to have accrued or arisen under the. This principle would be attracted even in cases where an assessee followed the mercantile system of accounting. However, in examining any transaction or situation, the court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect. It was held in that case after discussing the facts that there were hardly any receipts in respect of items of interest or that the bona fides of the assessee in not charging interest were not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real income in respect of the items of interest as none of the debts due by the several debtors was written off by the assessee and no evidence was produced to show that interest in respect of the debts was given up. The High Court, therefore, held that there was no giving up and these incomes were assessable."

Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd., held that under Income Tax law, receipt of income, either actual or deemed, is not a condition precedent to taxability. These were assessable if these had arisen or accrued or were deemed to have accrued or arisen under the. This principle would be attracted even in cases where an assessee followed the mercantile system of accounting. However, in examining any transaction or situation, the court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect. It was held in that case after discussing the facts that there were hardly any receipts in respect of items of interest or that the bona fides of the assessee in not charging interest were not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real income in respect of the items of interest as none of the debts due by the several debtors was written off by the assessee and no evidence was produced to show that interest in respect of the debts was given up. The High Court, therefore, held that there was no giving up and these incomes were assessable."

Commissioner of Income Tax, Bombay-I Vs. Confinance Ltd.,

held that under Income Tax law, receipt of income, either actual or deemed, is not a condition precedent to taxability. These were assessable if these had arisen or accrued or were deemed to have accrued or arisen under the. This principle would be attracted even in cases where an assessee followed the mercantile system of accounting. However, in examining any transaction or situation, the court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect. It was held in that case after discussing the facts that there were hardly any receipts in respect of items of interest or that the bona fides of the assessee in not charging interest were not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real income in respect of the items of interest as none of the debts due by the several debtors was written off by the assessee and no evidence was produced to show that interest in respect of the debts was given up. The High Court, therefore, held that there was no giving up and these incomes were assessable."

held that under Income Tax law, receipt of income, either actual or deemed, is not a condition precedent to taxability. These were assessable if these had arisen or accrued or were deemed to have accrued or arisen under the. This principle would be attracted even in cases where an assessee followed the mercantile system of accounting. However, in examining any transaction or situation, the court would have more regard to the reality of the situation rather than purely theoretical or doctrinaire aspect. It was held in that case after discussing the facts that there were hardly any receipts in respect of items of interest or that the bona fides of the assessee in not charging interest were not disputed, were circumstances which were by themselves insufficient to support the conclusion that there was no real income in respect of the items of interest as none of the debts due by the several debtors was written off by the assessee and no evidence was produced to show that interest in respect of the debts was given up. The High Court, therefore, held that there was no giving up and these incomes were assessable."

10. The principles enunciated therein are in consonance with the decision of the Calcutta High Court in James Finlay and Co. Vs. Commissioner of Income Tax, , where all the relevant authorities including H.M. Kashiparekh and Co., Ltd. Vs. Commissioner of Income Tax, Bombay North, Kutch and Saurashtra, as well as Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) Ltd., , have been discussed and analysed. In that case, the assessee was following the mercantile system of accounting and the Income Tax Officer treated both the items of interest as the assessees income for 1970-71. The assessee used to credit the interest to its profit and loss account. It urged that it had decided to change with effect from January 1, 1968, its method of accounting in respect of interest which was doubtful of recovery and that such interest was thenceforward credited to the suspense account. The alteration of practice in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. The High Court further held in James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

James Finlay and Co. Vs. Commissioner of Income Tax, , where all the relevant authorities including H.M. Kashiparekh and Co., Ltd. Vs. Commissioner of Income Tax, Bombay North, Kutch and Saurashtra, as well as Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) Ltd., , have been discussed and analysed. In that case, the assessee was following the mercantile system of accounting and the Income Tax Officer treated both the items of interest as the assessees income for 1970-71. The assessee used to credit the interest to its profit and loss account. It urged that it had decided to change with effect from January 1, 1968, its method of accounting in respect of interest which was doubtful of recovery and that such interest was thenceforward credited to the suspense account. The alteration of practice in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. The High Court further held in James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

James Finlay and Co. Vs. Commissioner of Income Tax,

, where all the relevant authorities including H.M. Kashiparekh and Co., Ltd. Vs. Commissioner of Income Tax, Bombay North, Kutch and Saurashtra, as well as Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) Ltd., , have been discussed and analysed. In that case, the assessee was following the mercantile system of accounting and the Income Tax Officer treated both the items of interest as the assessees income for 1970-71. The assessee used to credit the interest to its profit and loss account. It urged that it had decided to change with effect from January 1, 1968, its method of accounting in respect of interest which was doubtful of recovery and that such interest was thenceforward credited to the suspense account. The alteration of practice in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. The High Court further held in James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

, where all the relevant authorities including H.M. Kashiparekh and Co., Ltd. Vs. Commissioner of Income Tax, Bombay North, Kutch and Saurashtra, as well as Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) Ltd., , have been discussed and analysed. In that case, the assessee was following the mercantile system of accounting and the Income Tax Officer treated both the items of interest as the assessees income for 1970-71. The assessee used to credit the interest to its profit and loss account. It urged that it had decided to change with effect from January 1, 1968, its method of accounting in respect of interest which was doubtful of recovery and that such interest was thenceforward credited to the suspense account. The alteration of practice in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. The High Court further held in James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

H.M. Kashiparekh and Co., Ltd. Vs. Commissioner of Income Tax, Bombay North, Kutch and Saurashtra, as well as Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) Ltd., , have been discussed and analysed. In that case, the assessee was following the mercantile system of accounting and the Income Tax Officer treated both the items of interest as the assessees income for 1970-71. The assessee used to credit the interest to its profit and loss account. It urged that it had decided to change with effect from January 1, 1968, its method of accounting in respect of interest which was doubtful of recovery and that such interest was thenceforward credited to the suspense account. The alteration of practice in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. The High Court further held in James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

H.M. Kashiparekh and Co., Ltd. Vs. Commissioner of Income Tax, Bombay North, Kutch and Saurashtra,

as well as Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) Ltd., , have been discussed and analysed. In that case, the assessee was following the mercantile system of accounting and the Income Tax Officer treated both the items of interest as the assessees income for 1970-71. The assessee used to credit the interest to its profit and loss account. It urged that it had decided to change with effect from January 1, 1968, its method of accounting in respect of interest which was doubtful of recovery and that such interest was thenceforward credited to the suspense account. The alteration of practice in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. The High Court further held in James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

as well as Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) Ltd., , have been discussed and analysed. In that case, the assessee was following the mercantile system of accounting and the Income Tax Officer treated both the items of interest as the assessees income for 1970-71. The assessee used to credit the interest to its profit and loss account. It urged that it had decided to change with effect from January 1, 1968, its method of accounting in respect of interest which was doubtful of recovery and that such interest was thenceforward credited to the suspense account. The alteration of practice in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. The High Court further held in James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) Ltd., , have been discussed and analysed. In that case, the assessee was following the mercantile system of accounting and the Income Tax Officer treated both the items of interest as the assessees income for 1970-71. The assessee used to credit the interest to its profit and loss account. It urged that it had decided to change with effect from January 1, 1968, its method of accounting in respect of interest which was doubtful of recovery and that such interest was thenceforward credited to the suspense account. The alteration of practice in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. The High Court further held in James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) Ltd.,

, have been discussed and analysed. In that case, the assessee was following the mercantile system of accounting and the Income Tax Officer treated both the items of interest as the assessees income for 1970-71. The assessee used to credit the interest to its profit and loss account. It urged that it had decided to change with effect from January 1, 1968, its method of accounting in respect of interest which was doubtful of recovery and that such interest was thenceforward credited to the suspense account. The alteration of practice in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. The High Court further held in James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

, have been discussed and analysed. In that case, the assessee was following the mercantile system of accounting and the Income Tax Officer treated both the items of interest as the assessees income for 1970-71. The assessee used to credit the interest to its profit and loss account. It urged that it had decided to change with effect from January 1, 1968, its method of accounting in respect of interest which was doubtful of recovery and that such interest was thenceforward credited to the suspense account. The alteration of practice in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. The High Court further held in James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

James Finlay and Co. Vs. Commissioner of Income Tax, , that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

James Finlay and Co. Vs. Commissioner of Income Tax,

, that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

, that though there was difficulty in realising the interest in the year of account, there was no material to show that there was any agreement with the debtors to waive the interest or to keep these in suspense account. Hence, the claim for interest had not been given up. The amounts accrued and continued to remain accrued and were, therefore, income assessable to tax.

11. In State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, the apex court had laid down the following propositions (page 155) :

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, the apex court had laid down the following propositions (page 155) :

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala,

the apex court had laid down the following propositions (page 155) :

the apex court had laid down the following propositions (page 155) :

"(1) It is the income which has really accrued or arisen to the assessee that is taxable. Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. (2) The concept of real income would apply where there has been a surrender of income which in theory may have accrued but in the reality of the situation, no income had resulted because the income did not really accrue. (3) Where a debt has become bad, deduction in compliance with the provisions of the should be claimed and allowed. (4) Where the applies, the concept of real income should not be so read as to defeat the provisions of the. (5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee. (6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. (7) Mere improbability of recovery, where the conduct of the assessee is unequivocal, cannot be treated as evidence of the fact that income has not resulted or accrued to the assessee. After debiting the debtors account and not reversing that entry--but taking the interest merely in suspense account cannot be such evidence to show that no real income has accrued to the assessee or been treated as such by the assessee. (8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognised limits.

We were invited to abandon legal fundamentalism. With a problem like the present one, it is better to adhere to the basic fundamentals of the law with clarity and consistency than to be carried away by common cliches. The concept of real income certainly is a well-accepted one and must be applied in appropriate cases but with circumspection and must not be called in aid to defeat the fundamental principles of the law of Income Tax as developed."

12. Mr. Saha also relied on this decision ( State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, but he has sought to distinguish the facts in its application to the present case. According to him, since the accounting was kept under the mercantile system, therefore, income had accrued and the subsequent decision to waive will not make the income as non-income. In support, he had relied on the decision in Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, . In the said decision, the apex court had held that if the decision to waive interest was taken after the closing of the accounts, then the same cannot be brought within the concept of real income where the facts were identical. But in the said decision, that was not the only ground on which the income was treated as not assessable to tax. The other relevant factor that weighed with the apex court in that case was that the Tribunal had found as a fact that the waiver was not based upon any commercial considerations and that the directors of the assessee were also interested in the firm of the debtor and that some of the partners/directors were common. Therefore, the said decision does not help us in the present facts and circumstances of the case inasmuch as it was the act and conduct of the parties which were relevant and on such act and conduct it was found not to come within the scope and ambit of the proposition laid down in the case of State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, .

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, but he has sought to distinguish the facts in its application to the present case. According to him, since the accounting was kept under the mercantile system, therefore, income had accrued and the subsequent decision to waive will not make the income as non-income. In support, he had relied on the decision in Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, . In the said decision, the apex court had held that if the decision to waive interest was taken after the closing of the accounts, then the same cannot be brought within the concept of real income where the facts were identical. But in the said decision, that was not the only ground on which the income was treated as not assessable to tax. The other relevant factor that weighed with the apex court in that case was that the Tribunal had found as a fact that the waiver was not based upon any commercial considerations and that the directors of the assessee were also interested in the firm of the debtor and that some of the partners/directors were common. Therefore, the said decision does not help us in the present facts and circumstances of the case inasmuch as it was the act and conduct of the parties which were relevant and on such act and conduct it was found not to come within the scope and ambit of the proposition laid down in the case of State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, .

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala,

but he has sought to distinguish the facts in its application to the present case. According to him, since the accounting was kept under the mercantile system, therefore, income had accrued and the subsequent decision to waive will not make the income as non-income. In support, he had relied on the decision in Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, . In the said decision, the apex court had held that if the decision to waive interest was taken after the closing of the accounts, then the same cannot be brought within the concept of real income where the facts were identical. But in the said decision, that was not the only ground on which the income was treated as not assessable to tax. The other relevant factor that weighed with the apex court in that case was that the Tribunal had found as a fact that the waiver was not based upon any commercial considerations and that the directors of the assessee were also interested in the firm of the debtor and that some of the partners/directors were common. Therefore, the said decision does not help us in the present facts and circumstances of the case inasmuch as it was the act and conduct of the parties which were relevant and on such act and conduct it was found not to come within the scope and ambit of the proposition laid down in the case of State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, .

but he has sought to distinguish the facts in its application to the present case. According to him, since the accounting was kept under the mercantile system, therefore, income had accrued and the subsequent decision to waive will not make the income as non-income. In support, he had relied on the decision in Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, . In the said decision, the apex court had held that if the decision to waive interest was taken after the closing of the accounts, then the same cannot be brought within the concept of real income where the facts were identical. But in the said decision, that was not the only ground on which the income was treated as not assessable to tax. The other relevant factor that weighed with the apex court in that case was that the Tribunal had found as a fact that the waiver was not based upon any commercial considerations and that the directors of the assessee were also interested in the firm of the debtor and that some of the partners/directors were common. Therefore, the said decision does not help us in the present facts and circumstances of the case inasmuch as it was the act and conduct of the parties which were relevant and on such act and conduct it was found not to come within the scope and ambit of the proposition laid down in the case of State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, .

Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others, . In the said decision, the apex court had held that if the decision to waive interest was taken after the closing of the accounts, then the same cannot be brought within the concept of real income where the facts were identical. But in the said decision, that was not the only ground on which the income was treated as not assessable to tax. The other relevant factor that weighed with the apex court in that case was that the Tribunal had found as a fact that the waiver was not based upon any commercial considerations and that the directors of the assessee were also interested in the firm of the debtor and that some of the partners/directors were common. Therefore, the said decision does not help us in the present facts and circumstances of the case inasmuch as it was the act and conduct of the parties which were relevant and on such act and conduct it was found not to come within the scope and ambit of the proposition laid down in the case of State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, .

Commissioner of Income Tax, Amritsar Vs. Shiv Prakash Janak Raj and Co. Pvt. Ltd. and Others,

. In the said decision, the apex court had held that if the decision to waive interest was taken after the closing of the accounts, then the same cannot be brought within the concept of real income where the facts were identical. But in the said decision, that was not the only ground on which the income was treated as not assessable to tax. The other relevant factor that weighed with the apex court in that case was that the Tribunal had found as a fact that the waiver was not based upon any commercial considerations and that the directors of the assessee were also interested in the firm of the debtor and that some of the partners/directors were common. Therefore, the said decision does not help us in the present facts and circumstances of the case inasmuch as it was the act and conduct of the parties which were relevant and on such act and conduct it was found not to come within the scope and ambit of the proposition laid down in the case of State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, .

. In the said decision, the apex court had held that if the decision to waive interest was taken after the closing of the accounts, then the same cannot be brought within the concept of real income where the facts were identical. But in the said decision, that was not the only ground on which the income was treated as not assessable to tax. The other relevant factor that weighed with the apex court in that case was that the Tribunal had found as a fact that the waiver was not based upon any commercial considerations and that the directors of the assessee were also interested in the firm of the debtor and that some of the partners/directors were common. Therefore, the said decision does not help us in the present facts and circumstances of the case inasmuch as it was the act and conduct of the parties which were relevant and on such act and conduct it was found not to come within the scope and ambit of the proposition laid down in the case of State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, .

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, .

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala,

.

.

13. The principle that has been laid down is clear and unambiguous. It is when the debt seems to be bad, there is a question of non-accrual of interest by reason of conduct of the parties. In Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , it was held that whether a debt has become a bad debt is an objective fact. If the finding of that question of fact is vitiated by any factor, then undoubtedly the court would consider whether the Income Tax Officer was right in coming to the conclusion that the particular debt was a bad debt. If the assessee is able to satisfy the court that the conclusion is vitiated by any gross error or refusal to take into consideration any material evidence, the court would be entitled to answer the question in favour of the assessee although there may be a clear conclusion against the assessee. It is not the question when the recovery becomes impossible, then only it would be a bad debt or that proceeding with the recovery proceeding would render it to be something other than bad debt. Its commercial viability and possibility of recovery have to be taken into account. Each income is to be assessed as a unit of a particular previous year and the facts relevant for that year are to be taken into account and to be proceeded with.

Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II, , it was held that whether a debt has become a bad debt is an objective fact. If the finding of that question of fact is vitiated by any factor, then undoubtedly the court would consider whether the Income Tax Officer was right in coming to the conclusion that the particular debt was a bad debt. If the assessee is able to satisfy the court that the conclusion is vitiated by any gross error or refusal to take into consideration any material evidence, the court would be entitled to answer the question in favour of the assessee although there may be a clear conclusion against the assessee. It is not the question when the recovery becomes impossible, then only it would be a bad debt or that proceeding with the recovery proceeding would render it to be something other than bad debt. Its commercial viability and possibility of recovery have to be taken into account. Each income is to be assessed as a unit of a particular previous year and the facts relevant for that year are to be taken into account and to be proceeded with.

Jethabhai Hirji and Jethabhai Ramdas Vs. Commissioner of Income Tax, Bombay City-II,

, it was held that whether a debt has become a bad debt is an objective fact. If the finding of that question of fact is vitiated by any factor, then undoubtedly the court would consider whether the Income Tax Officer was right in coming to the conclusion that the particular debt was a bad debt. If the assessee is able to satisfy the court that the conclusion is vitiated by any gross error or refusal to take into consideration any material evidence, the court would be entitled to answer the question in favour of the assessee although there may be a clear conclusion against the assessee. It is not the question when the recovery becomes impossible, then only it would be a bad debt or that proceeding with the recovery proceeding would render it to be something other than bad debt. Its commercial viability and possibility of recovery have to be taken into account. Each income is to be assessed as a unit of a particular previous year and the facts relevant for that year are to be taken into account and to be proceeded with.

, it was held that whether a debt has become a bad debt is an objective fact. If the finding of that question of fact is vitiated by any factor, then undoubtedly the court would consider whether the Income Tax Officer was right in coming to the conclusion that the particular debt was a bad debt. If the assessee is able to satisfy the court that the conclusion is vitiated by any gross error or refusal to take into consideration any material evidence, the court would be entitled to answer the question in favour of the assessee although there may be a clear conclusion against the assessee. It is not the question when the recovery becomes impossible, then only it would be a bad debt or that proceeding with the recovery proceeding would render it to be something other than bad debt. Its commercial viability and possibility of recovery have to be taken into account. Each income is to be assessed as a unit of a particular previous year and the facts relevant for that year are to be taken into account and to be proceeded with.

14. Now coming back to the facts here in this case, in the earlier years interest was charged and taxes were paid though, in fact, interest was not received by the assessee. It is not in dispute that the debtor had difficulties in payment of interest and had been requesting the assessee to waive interest. However, the assessee declined to waive interest till June 30, 1986, but agreed to waive interest from July 1, 1986, on certain conditions. This decision was taken on August 1, 1987, pursuant to the debtors letter dated June 25, 1987. After this decision was taken, the instalments were paid in terms of the conditions for three months, namely, January, February and March, 1988. Therefore, till March, 1988, the question of waiver remained good and only on default after March, 1988, the question of payment of interest revived. Therefore, for the year 1986-87, the waiver remained operative. This fact is also supported by the conduct of the assessee omitting to enter the accrual of interest in the books of account. Therefore, the conduct of the assessee treated that the income did not accrue for that particular year. The revival of accrual of interest would be a revival of the right to recover the interest but whether income had accrued in reality or not is to be determined on the principle laid down in State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, .

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala, .

State Bank of Travancore Vs. Commissioner of Income Tax, Kerala,

.

.

15. The assessee cannot escape the liability to tax by omitting to make an entry or making a wrong entry in the accounts. The date of taxability of income is the date when the appropriate entries are made or should be made in the accounts in accordance with the method of accounting regularly employed by the assessee, The substantive part of section 36(1)(vii) makes it clear that the income is to be computed "in accordance with the method of accounting regularly employed". The Income Tax Officer may include in the computation of income an amount which does not figure in the accounts but the inclusion of which is required by the assessees method of accounting that is to say, the Income Tax Officer may, without deviating from the assessees method, make such adjustments in the profit and loss account as are necessary for giving full and true effect to that method itself. Having adopted a regular method of accounting, the assessee cannot be allowed to change it or depart from it for a particular year or for part of the year or in respect of particular transaction.

16. In this country, by and large, two systems of account keeping are followed --cash and mercantile. Plainly speaking, the cash system postulates actual receipt of money for the exigibility of Income Tax. Such receipt from business, profession or vocation or from other sources has to be actual in the relevant year of account. The mercantile system, on the other hand, is one where accounts are maintained on the basis of entitlement to credit and/or debit. A sum of money, as soon as it becomes payable, is taken into account without reference to actual receipt and a debit becomes admissible when liability to pay is created even though the sum of money is yet to be paid.

17. It is settled that the income of the assessee is to be determined according to the provisions of the in consonance with the method of accountancy regularly employed by the assessee. The method of accounting regularly employed by the assessee helps the computation of income, profits and gains u/s 28 of the and the taxability of that income under the will then have to be determined. The question is, whether the income, which has been computed according to the method of accounting followed regularly by an assessee can be diminuted or diminished by any notion of real income. This has to be judged in the light of the well-settled principles.

18. In COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., , this court had held that (headnote): "the accounts of a company are generally made up for every year after a particular date at a later point of time. A company is entitled in law to finalise later as to what was the position of its accounts up to a particular date. A company can similarly finalise its accounts for various purposes at a later date with retrospective effect. In the instant case, in the accounts necessary entries were made for writing off the debt as bad in the light of the facts and circumstances of the case. Recommendation was moved by the concerned branch of the bank to write off the amounts in dispute, which was forwarded to the board of directors for approval. The board of directors accepted and approved the recommendation and adopted resolution to that effect. In view of the process involved in the preparation of accounts, until the recommendation was accepted and resolution passed by the directors, the accounts did not become final. In such a case the approval of the board of directors could not have been obtained before the close of the accounting year. The resolution, approving and accepting the recommendation relating to the treatment of certain items, must be related back to the date up to which the accounts were finalised and such determination or approval must be treated as being effective from that date. Hence, the Tribunal was justified in allowing the assessees claim."

COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA., , this court had held that (headnote): "the accounts of a company are generally made up for every year after a particular date at a later point of time. A company is entitled in law to finalise later as to what was the position of its accounts up to a particular date. A company can similarly finalise its accounts for various purposes at a later date with retrospective effect. In the instant case, in the accounts necessary entries were made for writing off the debt as bad in the light of the facts and circumstances of the case. Recommendation was moved by the concerned branch of the bank to write off the amounts in dispute, which was forwarded to the board of directors for approval. The board of directors accepted and approved the recommendation and adopted resolution to that effect. In view of the process involved in the preparation of accounts, until the recommendation was accepted and resolution passed by the directors, the accounts did not become final. In such a case the approval of the board of directors could not have been obtained before the close of the accounting year. The resolution, approving and accepting the recommendation relating to the treatment of certain items, must be related back to the date up to which the accounts were finalised and such determination or approval must be treated as being effective from that date. Hence, the Tribunal was justified in allowing the assessees claim."

COMMISSIONER OF INCOME TAX Vs. UNITED BANK OF INDIA.,

, this court had held that (headnote): "the accounts of a company are generally made up for every year after a particular date at a later point of time. A company is entitled in law to finalise later as to what was the position of its accounts up to a particular date. A company can similarly finalise its accounts for various purposes at a later date with retrospective effect. In the instant case, in the accounts necessary entries were made for writing off the debt as bad in the light of the facts and circumstances of the case. Recommendation was moved by the concerned branch of the bank to write off the amounts in dispute, which was forwarded to the board of directors for approval. The board of directors accepted and approved the recommendation and adopted resolution to that effect. In view of the process involved in the preparation of accounts, until the recommendation was accepted and resolution passed by the directors, the accounts did not become final. In such a case the approval of the board of directors could not have been obtained before the close of the accounting year. The resolution, approving and accepting the recommendation relating to the treatment of certain items, must be related back to the date up to which the accounts were finalised and such determination or approval must be treated as being effective from that date. Hence, the Tribunal was justified in allowing the assessees claim."

, this court had held that (headnote): "the accounts of a company are generally made up for every year after a particular date at a later point of time. A company is entitled in law to finalise later as to what was the position of its accounts up to a particular date. A company can similarly finalise its accounts for various purposes at a later date with retrospective effect. In the instant case, in the accounts necessary entries were made for writing off the debt as bad in the light of the facts and circumstances of the case. Recommendation was moved by the concerned branch of the bank to write off the amounts in dispute, which was forwarded to the board of directors for approval. The board of directors accepted and approved the recommendation and adopted resolution to that effect. In view of the process involved in the preparation of accounts, until the recommendation was accepted and resolution passed by the directors, the accounts did not become final. In such a case the approval of the board of directors could not have been obtained before the close of the accounting year. The resolution, approving and accepting the recommendation relating to the treatment of certain items, must be related back to the date up to which the accounts were finalised and such determination or approval must be treated as being effective from that date. Hence, the Tribunal was justified in allowing the assessees claim."

19. In Commissioner of Income Tax Vs. M. Sarojini Devi, , on which Mr. Sana had relied, we do not find anything, which goes to support us. In fact, in the said decision, it was held that the Assessing Officer need not wait till the final decision of a pending proceeding for the purpose of taxing the interest accrued on the amount enhanced in a land acquisition proceeding since in case the assessee is unsuccessful, he can ask for rectification of the assessment or refund of the tax paid.

Commissioner of Income Tax Vs. M. Sarojini Devi, , on which Mr. Sana had relied, we do not find anything, which goes to support us. In fact, in the said decision, it was held that the Assessing Officer need not wait till the final decision of a pending proceeding for the purpose of taxing the interest accrued on the amount enhanced in a land acquisition proceeding since in case the assessee is unsuccessful, he can ask for rectification of the assessment or refund of the tax paid.

Commissioner of Income Tax Vs. M. Sarojini Devi,

, on which Mr. Sana had relied, we do not find anything, which goes to support us. In fact, in the said decision, it was held that the Assessing Officer need not wait till the final decision of a pending proceeding for the purpose of taxing the interest accrued on the amount enhanced in a land acquisition proceeding since in case the assessee is unsuccessful, he can ask for rectification of the assessment or refund of the tax paid.

, on which Mr. Sana had relied, we do not find anything, which goes to support us. In fact, in the said decision, it was held that the Assessing Officer need not wait till the final decision of a pending proceeding for the purpose of taxing the interest accrued on the amount enhanced in a land acquisition proceeding since in case the assessee is unsuccessful, he can ask for rectification of the assessment or refund of the tax paid.

20. The meanings of the words "accrues", "arises" and "is received" are three distinct terms as was distinguished in Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., . In the said case, it was held that as soon the assessee acquires a right to receive the income, the income accrues to him, though the same may be received later. A mere claim to income without an enforceable right cannot be regarded as accrued income for the purpose of the. So far as the receiving of income is concerned, there cannot be any difficulty. It conveys a clear and definite meaning. The words "accrue" and "arise" are not definite in the, but these three expressions have been used in Section 5 of the. The word "accrues" should be taken as synonym to arise. The word "accrue" connotes an idea of a growth or accumulation whereas the word "arise" connotes growth or accumulation with a tangible receivable shape.

Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd., . In the said case, it was held that as soon the assessee acquires a right to receive the income, the income accrues to him, though the same may be received later. A mere claim to income without an enforceable right cannot be regarded as accrued income for the purpose of the. So far as the receiving of income is concerned, there cannot be any difficulty. It conveys a clear and definite meaning. The words "accrue" and "arise" are not definite in the, but these three expressions have been used in Section 5 of the. The word "accrues" should be taken as synonym to arise. The word "accrue" connotes an idea of a growth or accumulation whereas the word "arise" connotes growth or accumulation with a tangible receivable shape.

Commissioner of Income Tax Vs. Jai Hind Travels (P.) Ltd.,

. In the said case, it was held that as soon the assessee acquires a right to receive the income, the income accrues to him, though the same may be received later. A mere claim to income without an enforceable right cannot be regarded as accrued income for the purpose of the. So far as the receiving of income is concerned, there cannot be any difficulty. It conveys a clear and definite meaning. The words "accrue" and "arise" are not definite in the, but these three expressions have been used in Section 5 of the. The word "accrues" should be taken as synonym to arise. The word "accrue" connotes an idea of a growth or accumulation whereas the word "arise" connotes growth or accumulation with a tangible receivable shape.

. In the said case, it was held that as soon the assessee acquires a right to receive the income, the income accrues to him, though the same may be received later. A mere claim to income without an enforceable right cannot be regarded as accrued income for the purpose of the. So far as the receiving of income is concerned, there cannot be any difficulty. It conveys a clear and definite meaning. The words "accrue" and "arise" are not definite in the, but these three expressions have been used in Section 5 of the. The word "accrues" should be taken as synonym to arise. The word "accrue" connotes an idea of a growth or accumulation whereas the word "arise" connotes growth or accumulation with a tangible receivable shape.

21. The decision in Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, is distinguishable and cannot be attracted to the facts of this case. Inasmuch as in the said case, though the interest accrued on the loan advanced to the sister concern of the assessee was not entered in the books of account, but the assessee never treated the same as irrecoverable nor had it taken any resolution to that effect nor were any steps taken in that regard. Since the assessee was maintaining accounts on the mercantile basis, the interest on the loan had accrued and was chargeable to tax. Therefore, the question was answered in the negative on the facts.

Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax, is distinguishable and cannot be attracted to the facts of this case. Inasmuch as in the said case, though the interest accrued on the loan advanced to the sister concern of the assessee was not entered in the books of account, but the assessee never treated the same as irrecoverable nor had it taken any resolution to that effect nor were any steps taken in that regard. Since the assessee was maintaining accounts on the mercantile basis, the interest on the loan had accrued and was chargeable to tax. Therefore, the question was answered in the negative on the facts.

Aspinwall and Company (Travancore) Ltd. Vs. Commissioner of Income Tax,

is distinguishable and cannot be attracted to the facts of this case. Inasmuch as in the said case, though the interest accrued on the loan advanced to the sister concern of the assessee was not entered in the books of account, but the assessee never treated the same as irrecoverable nor had it taken any resolution to that effect nor were any steps taken in that regard. Since the assessee was maintaining accounts on the mercantile basis, the interest on the loan had accrued and was chargeable to tax. Therefore, the question was answered in the negative on the facts.

is distinguishable and cannot be attracted to the facts of this case. Inasmuch as in the said case, though the interest accrued on the loan advanced to the sister concern of the assessee was not entered in the books of account, but the assessee never treated the same as irrecoverable nor had it taken any resolution to that effect nor were any steps taken in that regard. Since the assessee was maintaining accounts on the mercantile basis, the interest on the loan had accrued and was chargeable to tax. Therefore, the question was answered in the negative on the facts.

22. The concept of real income is now an accepted proposition. But it has to be applied in a given case depending on the facts and circumstances. No straight-jacket formula can be evolved. In the mercantile system of accounting, income accrues as soon it is due to accrue. Such accrual of income is required to be reflected in the books of account. The system of accounting cannot be altered or changed. Once it is entered in the books of account that the income has accrued, the same becomes chargeable to tax. Such chargeability continues even if the assessee waives or gives up the interest subsequently. But despite the income having accrued under the mercantile system, the income is not entered in the books of account in the relevant previous year, then such non-entry can be construed to establish that the income has not accrued. But this is dependent on the facts and circumstances of the case and the conduct of the assessee. Whether the facts and circumstances of the case and the conduct of the assessee establish that the income has not accrued is a question of fact. The Assessing Officer has to decide this question having regard to the facts and circumstances of each case. The subsequent attempt to recover the income will not negative the non-entry in the books of account and render the income to have accrued. If the debt becomes bad and the assessee treats the same as a bad debt and such treatment is apparent from the facts of the case and the conduct of the assessee and it can be so concluded by the Assessing Officer. In that event, subsequent attempt to recover the bad debt would not mean that the income had accrued in that particular previous year. It is not when the amount becomes recoverable and not when the assessee gives up the claim that the debt becomes bad. It is not that if the debt is not easy to recover, the debts become bad. A debt becomes bad when the recovery is commercially inviable. At the same time, it is not that when the debt becomes irrecoverable, the debt becomes bad but depends on the facts of each case to ascertain whether the debt was bad. This bad debt is to be determined on the basis of the evidence that might be on record with relation to the facts as well as the conduct of the parties as to how it was treated. If it appears that after a debt is treated to be a bad debt and then in the subsequent year the debt appears to have been recovered, then it would be treated to be deferment of income to avoid taxability in a particular year. By introducing the concept of real income, an assessee cannot be allowed to defer an income to the subsequent previous year in order to avoid taxability of the income in the relevant previous year. But filing of a suit for recovery of the amount would definitely be a factor coupled with the conduct of the parties to establish that the debt has become bad debt and requires to be recovered through a long drawn proceeding of a suit. When the assessee treats a debt to have become bad and waives the accrual of the income by omitting to enter the income in the books of account, then the concept of real income comes into play. The accounting is finalised at the end of the previous year, therefore, even if a decision is taken after the end of the previous year, but within a reasonable proximity pursuant to a consideration, which weighed with the assessee during the course of the previous year fructifying into a formal resolution after the close of the previous year, then the decision cannot be said to be inapplicable in respect of the relevant previous year for which the decision was taken. If in case there was nothing to indicate that this question was not under consideration of the assessee before closing of the previous year, then the question might be otherwise the concept of reality of the income and the actuality of the situation depending on the conduct of the parties are relevant factors which go to the making of the accrual of the income. But once accrual takes place and income accrues, the same cannot be defeated by any theory of real income.

23. In the present case, it appears that the decision was taken on August 1, 1987, yet it would be applicable in respect of the previous year beginning from July 1, 1986, as it appears from its implementation from January 1988. A subsequent failure was not conceived of by the assessee at the time when the decision was taken. Therefore, the same would not be relevant for the purpose of treating the situation differently when one kind of treatment was given by the assessee to the accrual of the income. In the present case, the assessee had omitted to enter the accrual of the income in the books of account and, therefore, the conduct had supported his case that the assessee had treated that there was no income in reality. In the present case, even though income had accrued, yet it cannot be said to have been accrued in reality even if the mercantile system is followed when in reality no interest had accrued and subsequent revival would not make the same liable to tax and for that particular year it may be liable to tax after it succeeds and the amount is received by the assessee. But it is to be seen whether having regard to the facts and circumstances of the case, the assessee was abusing or misusing the concept of real income or not. In the present case, there is no allegation that there are any mala fides on the part of the assessee for postponing or shifting the income to subsequent years for the purpose of taxation. In fact, the suit is still pending and it is yet to be decided.

24. Applying the test as discussed above, in the present case, in our view, the income cannot be treated to have accrued as was rightly found by the learned Tribunal. We, therefore, answer the question in the affirmative in favour of the assessee.

25. All parties are to act on a signed xerox copy of this dictated order on the usual undertaking.

R. N. sinha, J.

26. I agree.