COMMISSIONER OF INCOME TAX MYSORE Vs. KDODDABASAPPA

JUDGEMENT

(1.) By these applications, the Commissioner of Income-tax requires the Appellate Tribunal to refer certain questions of law which are said to arise out of the Tribunal's consolidated order in I.T.As. Nos. 11870 to 11872 of 1959-60, dated December 11, 1961, to the High Court of Mysore at Bangalore. Inasmuch as, in our opinion of law does arise out of Tribunal's order, we accordingly state an agreed case and refer it to High Court. As the facts are common consolidated statement of the case is drawn.

(2.) The assessee is Hindu undivided family. It carried on money-lending business. It maintained its accounts on cash basis. The advances were mostly to agriculturists on pronotes. The rate of interest varied from 6 to 18 per cent. but the general rate of interest was 12 per cent. Interest income is accounted by the assessee at the time of final settlement of accounts by the assessee at the time of final settlement of accounts by the debtors. The whole method adopted by the assessee is as under : Advances are given to various parties. The account of each is debited with the amount of the advance. When moneys are received from them they are credited to their accounts. No apportionment between capital and interest is made, if there is continuity of dealings with the dealings with the debtor. But when the debtor comes for settlement then adjustments are made towards interest. If, for example, there is a continuity of transactions over a period of 10 years, and in 10th year the account is settled, then interest is taken for credit in the year of receipt for the whole period. Similarly, if the account is settled in the same year, interest is adjusted in same year. If the settlement is not cash but for other consideration, say, by way of transfer of land, then the value of the land is credited to the debtor's account and interest is also taken credit. The following transactions of assessee with one party will serve as an instance. L.F. 91 : KAMPLY SARANAPPA : Assessment year Debits Credits Rs. Rs. Opening balance 12,428 3,240 1953-54 700 40 1954-55 1,184 128 1955-56 100 1956-57 280 1957-58 514 (interest) 24,000 12,200 Debits show the advances to the debtor from year to year and the credits, the receipts. No interest was accounted from the beginning up to 1957-58. The entries in 1957-58 are for debits for interest. The credit for Rs. 24,000 represented the value of the lands taken over by the assessee from the debtor. A sum of Rs. 12,200 was paid to square the account as the value of the land taken exceeded the debits inclusive of interest by that amount.

(3.) The assessee had been following the method described above since 1925-26. It had been accepted by the department till 1955-56.