Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment years 2000-01 to 2003-04 - Assessee-company was engaged in business of investment, lending and trading - In last quarter of year 1999, it advanced certain amount to company 'K' against mortgage of a part of land owned by 'K' - Company 'S' stood as guarantor for repayment of loan - Right from date of granting loan, borrowers had neither paid principal amount nor interest amount - Company 'S' had become sick and had been referred to BIFR - According to assessee, enforceability of mortgage as a mode of recovery also appeared to be a complicated process by reason of suit proceedings taken by 20 persons claiming ownership over that portion of property and further mortgaged property being part of larger extent of land it was difficult to identify same - In that view of matter, assessee did not show accrued interest on aforesaid loan for assessment years 2000-01 to 2002-03 - Ultimately, mortgaged property was sold during assessment year 2003-04 - Assessee after deducting principal amount from sale consideration offered balance amount as interest in return for assessment year 2003-04 - Whether so long as assessee had benefit of mortgaged property, there could be hardly any reason in eye of law to suggest that assessee was incapacitated in offering interest income in its return for assessment years starting from 2000-01 onwards - Held, yes - Whether difficulty that assessee may encounter in successfully enforcing mortgage in event of decree passed in its favour would make debt bad - Held, no - Whether assessee could take advantage of guarantor company having become sick company - Held, no - Whether in absence of any material shown as to efforts taken to defend its rights as mortgagee, assessee was justified in relying on any of above circumstances as a hurdle in way of realizing money - Held, no - Whether, therefore, interest was assessable on accrual basis in assessment years 2000-01 to 2002-03 and amount of such interest would be reduced from amount of interest offered in assessment year 2003-04 - Held, yes [Partly in favour of revenue] Section 28(i) of the Income-tax Act, 1961 - Business…

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