COMMISSIONER OF INCOME TAX Vs. COSMOPOLITAN TRADING CO

JUDGEMENT

(1.) MESSRS, Cosmopolitan Trading Co., the assessee, derives its income from the sale of cloth and money-lending business. On March 25, 1960, it advanced a sum of Rs. 3 lakhs to MESSRS. New Bhopal Textile Co. Ltd., on an interest of 7% per annum besides commission at the rate of 1/2% per annum. It was agreed that the interest and commission will be receivable by the assessee every quarter. The company adopted the mercantile system of accounting. Up to the assessment year 1963-64, the interest receivable from the debtor-company was shown in the assessee's books on mercantile basis.

(2.) FOR the assessment year 1964-65, the assessee did not show the receipt of any interest and commission on the footing that it had not received interest or commission even in the year 1962, much less during the period of accounting which was October 26, 1962, to November 14, 1963. The assessee took up the case that for purposes of this transaction of loan it adopted cash system of accounting for the assessment year 1964-65 onwards. The ITO, however, rejected the claim of the assessee. He held that there was no justifiable reason for changing the accounting system. He calculated the interest and commission due from the company at Rs. 46,567 and included the same in the assessee's income.

(3.) THE assessee went up to the Tribunal. THE Tribunal held :