COMMISSIONER OF INCOME TAX Vs. MODI RUBBER LTD

JUDGEMENT

(1.) THIS is an application under section 256(2) of the Income Tax Act, 1961, filed by the revenue seeking a mandamus to the Tribunal for drawing up a statement of case and referring the following two questions for the opinion of the High Court : '(i) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in allowing interest of Rs. 40,67,364 due from Bombay Tyre International Ltd., in spite of the fact that the deduction was actually waived off by directors in 1986 ? (2) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that for the purpose of applying rule 6D a disallowance should have been made by aggregating expenditure incurred on various tours undertaken by an employee in a year ?'

(2.) SO far as question No. 1 is concerned the brief relevant facts are that the assessed had sold goods to Bombay Tyre International Ltd. The purchaser did not promptly pay the sale price. Consequently, the price of the goods became a trade debt. On such trade debt, the assessee -company raised a demand of interest, issued a debit note and made a corresponding entry in the books of account maintained in the mercantile system of accounting. However, the debit notes raised by the assessee -company were not honoured by the debtor. In the subsequent year, the amount was written off. The assessing officer and the Commissioner (Appeals) both held that so far as the assessment year in which the debit entry was made is concerned, the amount of interest will be treated as an income accrued and then it could be treated as a bad debt in the year in which it was written off.

(3.) LEARNED counsel for the assessed has submitted that the question stands concluded by two Supreme Court decisions, namely, Godhra Electricity Co. Ltd. v. CIT : [1997]225ITR746(SC) and CIT v. Shoorji Vallabhdas and Co. : [1962]46ITR144(SC) . In both the above said cases, the law laid down by their Lordships is that income -tax is a levy on income. Though 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 on 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.