1991 (3) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of interest on sticky advances and/or debts doubtful of recovery credited to the interest suspense account.
2. Applicability of the Supreme Court's majority judgment in State Bank of Travancore v. CIT regarding the taxability of interest on sticky loans credited to the interest suspense account.
3. Allowability of the claim for initial contribution to the Staff Pension Scheme under section 36(1)(iv) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Taxability of Interest on Sticky Advances:
The assessee argued that the interest on sticky advances (Rs. 2,40,77,729) credited to the interest suspense account should not be taxable, citing the Central Board of Revenue's Circular No. 41(V-6) D of 1952 and subsequent circulars. The Income-tax Officer proposed disallowance based on the withdrawal of the 1952 circular by the CBDT's Circular dated June 20, 1978. The Commissioner of Income-tax (Appeals) upheld this addition, relying on the Kerala High Court's decision in State Bank of Travancore v. CIT [1977] 110 ITR 336. The Tribunal also upheld this view, citing the Supreme Court's decision in State Bank of Travancore v. CIT [1986] 158 ITR 102, which concluded that interest on sticky loans credited to the interest suspense account is taxable.

2. Applicability of Supreme Court's Judgment in State Bank of Travancore v. CIT:
The Tribunal held that the Supreme Court's decision in State Bank of Travancore v. CIT [1986] 158 ITR 102 conclusively determined that interest on sticky loans credited to the interest suspense account is taxable. The Supreme Court had observed that circulars being executive in character cannot alter the provisions of the Act and that the concept of real income must be judged in light of the Act's provisions, accounting principles, and feasibility. The Tribunal dismissed the assessee's appeal, emphasizing that the Supreme Court's judgment had addressed the issue comprehensively.

3. Allowability of Initial Contribution to Staff Pension Scheme:
The third question regarding the allowability of the initial contribution to the Staff Pension Scheme under section 36(1)(iv) of the Income-tax Act, 1961, was covered by the judgment in CIT v. Union Carbide (India) Ltd., delivered on February 5, 1990. Following this decision, the court answered the third question in the negative and in favor of the assessee.

Conclusion:
The court answered the first and second questions in the affirmative and in favor of the Revenue, affirming the taxability of interest on sticky advances credited to the interest suspense account based on the Supreme Court's judgment in State Bank of Travancore v. CIT. The third question was answered in the negative and in favor of the assessee, following the precedent set in CIT v. Union Carbide (India) Ltd. There was no order as to costs.