AGARCHAND CHUNNILAL Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS is a reference under Section 66(1), Income-tax Act.

(2.) THE assessee deals in gold, silver, grain and cotton, etc., and as a result apparently of forward contracts entered into through Messrs. Gangaram Asaram of Bombay he became heavily indebted to that firm. The debt due to Gangaram Asaram was shown in the assessees accounts, and interest on the debt was credited to Gangaram Asaram in the accounts each year. For the purposes of income-tax assessment the interest so credited was deducted from the assessee's profits.

(3.) THE income-tax authorities have held that this item of Rs. 54,225 is a revenue receipt and not a capital receipt. The Income-tax Appellate Tribunal remarked: The fact therefore remains that a certain remission was granted by the creditor in the account which included revenue items which have been previously claimed by the assessee in his trading account and allowed by the Department. It is common knowledge that traders do grant remission to each other at the time of the settlement of an account. The remission may relate to the charging of higher rate of interest than agreed upon or for some credit entries which have been wrongly entered in the account. During the preceding years' assessments large sums on account of interest have been credited to the account of the creditor and allowed by the Department as a revenue deduction from the appellant's assessable income.