Law:

Section:

Section 256 of the income-tax act, 1961-Reference-Tribunal's finding of fact-In assessment year 1967-68 assessee lent money on interest to a firm in which her sons were partners-Up to assessment year 1972-73, assessee showed interest income on accrual basis-For assessment year 1973-74 assessee contended no interest income had accrued relying on two letters : one by firm asking assessee to withdraw deposits and other by assessee letting firm to retain money without interest-Assessee as well as partners of firm filed affidavits saying that no interest was received by or payable to assessee-Tribunal considered entire material on record and held that interest had accrued to assessee in relevant assessment year-Whether tribunal justified in so holding in spite of fact that both the assessee and partners of firm had filed affidavits that no interest was receivable or payable-Held, on facts, yes Facts During the accounting year relevant for the assessment year 1967-68, the assessee had lent money on interest to a firm, in which her sons were partners. Right from the said year up to the assessment year 1972-73, the assessee had declared interest income from the said loan which was taxed on accrual basis. For the assessment year 1973-74, the assessee declared no income from interest on the ground that interest had not accrued to her on the credit balance in the books of the firm as on 1-4-1972. In support of her claim, the assessee placed reliance on two letters : one by the firm asking the assessee to withdraw the deposits and the other by the assessee informing the firm that the firm could continue to hold deposits without interest. The assessee also filed affidavits of the partners of the firm as well as her own affidavit, stating that no interest was received by or payable to the assessee. The ITO held that interest had accrued to the assessee during the relevant assessment year and, consequently, included the estimated amount of interest in the total income of the assessee. On appeal, the assessee contended that she had foregone the right to receive interest before it had accrued to her. The AAC held that the only reason for not charging the interest was the offer…

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