SHANKAR THEATRES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the following two questions are referred :

(2.) THE assessee is a registered partnership firm with three partners : Shri S. L. Rathi, Shri S. Y. Solao and M/s. Saroj Screens P. Ltd., Amravati. For the assessment year 1962 -63 relevant to the accounting period ending on July 31, 1961, the assessee claimed allowance for interest amounting to Rs. 7,517 on borrowed capital under s. 36(1)(iii) of the I.T. Act. 1961. The ITO found that the debit balance of Shri Rathi amounted to Rs. 97,399. Since interest on this sum at 9 per cent. per annum exceeded the amount of interest for which deduction was claimed, it was disllowed. The assessee also claimed allowance for Rs. 1,200 paid by it as municipal taxes in respect of its branch, M/s. Rajkamal Talkies. The taxes paid were in respect of the year 1954 -55 to 1958 -59. Under the agreement, the assessee was liable to pay municipal taxes at the maximum rate of Rs. 200 per year, and the liability accrued every year. As the account books of the assessee were on mercantile basis and not on cash basis, the ITO allowed the claim of allowance to the tune of Rs. 200 only and disallowed the claim in respect of the earlier period. The AAC and the Tribunal upheld this order.

(3.) ADMITTED position is that the accounts of the assessee are on mercantile basis. The liability of taxes to the extent of Rs. 200 accrued every year. Under these circumstances, the fact of actual consolidated payment for five years in the relevant assessment year does not entitle the assessee to claim the entire deduction in one year. Consequently, question No. 2 is also answered in the negative and in favour of the Revenue. The assessee to bear the costs of this reference.