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Section 28(i) , read with section 56 of the Income-tax Act, 1961 [Corresponding to section 10(1) read with section 12 of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessment years 1953-54 and 1954-55 - Whether where assessee followed mercantile system of accounting, interest accrued on loans became assessable even if it had not been received - Held, yes FACTS For the assessment years 1953-54 and 1954-55, the assessee did not include any income from interest accruing on loans advanced to a private company, even though he was being so assessed on such interest from year to year. The ITO estimated the said income and taxed him on interest accruing to him but not received. On second appeal, the Tribunal upheld the assessment. On reference : HELD Under sections 10 and 12 of the 1922 Act, the income of the assessee is to be assessed according to the system of accounting followed by him. Under the mercantile system of accounting the income becomes assessable when it accrues even if it is not received. In the instant case, since the assessee followed the mercantile system of accounting the income accrued to him at the end of the previous year relating to each of the two assessment years and he was therefore, liable to include this income in his return. Note : The case was decided in favour of revenue. JUDGMENT Gulati, J.- This is a reference under section 66(1) of the Income-tax Act. The assessee had advanced certain loans to a private limited company known as Virmani Refrigeration and Cold Storage Company Ltd. He was being assessed to tax on interest accruing on these loans from year to year. However, for the two assessment years 1953-54 and 1954-55, the assessee did not include any income from this source in its return. The Income-tax Officer estimated the income from…

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