Law: Income Tax Act, 1961

Section: 37

(a) Income-tax---Income---Accrual of income---Interest on hire purchase of machinery on loans and penal interest---Interest had accrued and was assessable though due dates of payment fell after 31st March of relevant previous year. (b) Income-tax--- ----Business expenditure---Land taken by assessee from Government--­Estimated interest on cost of land---Contingent liability---Not deductible--- Indian Income Tax Act, 1961, S.37. Held, (i) that the interest on hire purchase of machinery and on loans had accrued. The Tribunal noted that the assessee had admitted that the penal interest stood on the same footing. The Tribunal was right in holding that the accrued interest on hire purchase of machinery on loans and penal interest were liable to be included in the total income, notwithstanding the fact that the due dates of payment fell after March 31, of the relevant previous year. (ii) That the amount estimated by the assessee as interest on land taken over from the Government had admittedly not been paid in the relevant year: Such estimation could not be regarded as an item of expenditure when the liability had not- accrued, and the amount also had not been paid. The amount was not deductible. State Bank of Travancore v. CIT (1986) 158 ITR 102 (SC) and Kerala Financial Corporation v. CIT (1994) 210 ITR 129 (SC) applied. JUDGMENT R. JAYASIMHA BABU, J.---The questions referred to us for our decision . at the instance of the assessee for the assessment year 1977-78 are: "(1) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the accrued interest on hire purchase of machinery on loans and penal interest are liable to be included in the total income, notwithstanding the fact that the due dates of payment fell after 31st March, of the relevant previous year? (2) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 91,012 being estimated interest on the cost of land taken over by the assessee from the Government was not allowable as an expenditure as it was in the nature of contingent liability only?° As regards the first question, the Tribunal has, in the course of its…

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