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If an assessee acquires a right to receive the income, the income can be said to have accrued to him though the actual receipt may fall later after being ascertained. Thus the basic conception for charge of income tax is that he must have acquired a right to receive the income. In other words there must be a debt owed to him by somebody.

In an all time decision of the Supreme Court in the case of E. D. Sassoon and Co. Ltd. v. CIT [1954] 26 ITR 27 (SC), it was explained that the expression “accrue” describes the right to receive profit and that there must be a debt owed to the assessee by somebody. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.

Further in the case of Commissioner of Income-tax Vs. National Electric Supply and Trading Corporation (P.) Ltd. (248ITR794) the Delhi High Court explained that a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation. The High Court for this purpose also referred to the decision of the Supreme Court of California in People v. Arguello [1869] 37 Calif. 524, in which case the Court observed as under:

“Standing alone, the word ‘debt’ is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds, ‘solvendum in praesenti’ and ‘solvendum in futuro’ . . . A sum of money which is a certainty and in all events payable is a debt without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt or does not become a debt, until the contingency has happened.”

Often employees draw loans from the employer which are concessional interest bearing either at their beginning or are made interest free subject however to certain obligations/conditions. In the second case if such obligations are not met the employer has a liberty to recover interest from retrospect date in making the full and final settlement. Also it is common that the employer in some cases choose to waive such interest. In such cases where the waiver is exercised there may arise a tax liability upon the employer since such cases are in real effect amounts to the voluntary giving up of the whole or a part of the interest. It can be claimed by the assessing officer that the interest had accrued first on the outcome of a contingency and only then there was a giving up of such right to charge interest. Such being the position, it is extremely important to first ascertain the extent of liability that may cast on the employer from such voluntarily giving up and furthermore necessary to exercise adequate precautions to avoid such liability and that too only when one is able to substantiate by ample evidence that the right to receive any amount did not arise or accrue at all.

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