Law:

Section:

Income tax---Interest Assessee Company advancing loan to another company---Subsequently becoming subsidiary .to debtor Company Relationship of debtor and creditor not undergoing any change Interest accruing after assessee Company became subsidiary of debtor Company¬ Assessable as income of assessee Company. JUDGMENT S. RANGANATHAN, J. The following question has been referred to this Court by the Income tax Appellate Tribunal under section 66(2) of the Indian I. T. Act, 1922. "Whether, on the facts and in the circumstances of the case, the entire interest of Rs. 6,000 was not assessable as income of the assessee-Company." The question arises out of the proceedings of assessment, for the assessment year 1961 62, of the Punjab Electrics Ltd. The relevant previous year ended on December 31, 1960. The assessee had advanced a sum of Rs. 1,46,614 to All India Finance and Commerce Ltd. (hereinafter referred to as the "debtor Company"). It is common ground that the amounts advanced were bearing interest at 12 % per annum. For the assessment year 1961 62, the assessee Company included in its Income tax return interest in respect of out standings due from the debtor Company only in respect of a period of 6 months, i.e. a period up to August 31, 1960. No interest for the rest of the accounting year was taken into consideration. It appears that in the course of the previous year the debtor Company had acquired 4,799 shares out of the total of 4,950 shares in the assessee Company, with the result that the assessee Company became a subsidiary of the debtor-Company w.e.f. that date. The I. T. O. was of opinion that the entire interest on the out standings up to December 31, 1960, was taxable as the income of the assessee and he thus added a sum of Rs. 6,000 referable also for the period September 1, 1960 to December 31, 1960. This was confirmed by the A. A. C. But, on further appeal, the Tribunal held as follows "In our opinion, there is justifiable reason for making some addition as and for interest since the All India Finance and Commerce Ltd., had become the parent Company with the assessee as a subsidiary. Certainly the relationship of a debtor and creditor had ceased to…

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