Ramaswami, J.

1. In this case, the assessee is a public limited company called Sitalpur Sugar Works Limited which carried on the business of manufacture of sugar. The assessee follows the mercantile system of accounting. The assessment year is 1945-46 and the accounting year of the assessee is the year ending with 30-6-1944. In 1936 the company bought a second hand sugar manufacturing machine from Java. After working the machinery for two years the company resolved to sell the machinery. -On 30-8-1938 a contract was executed between the company and Lakshmiji Sugar Mills. It was agreed that the machinery would be sold for a sum of Rs. 5,15,000 and that half of the amount will be paid by 31-3-1939 and the other half will be paid in equal instalments on 31-3-1940 and on 31-3-1941. There was a clause in the contract that these two instalments would carry interest at the rate of 5 per cent. Lakshmiji Sugar Mills also agreed that for these two instalments they would furnish a guarantee or execute a mortgage bond. On 31-3-1939 Lakshmiji Sugar Mills paid half the sale price as agreed upon. For the balance of the purchase price Lakshmiji Sugar Mills executed a mortgage of the machin