1991 (3) TMI 45 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the interpretation of whether interest accrued to the assessee during the accounting year when suits were pending for recovery of loans, and the application of the mercantile system of accounting in determining taxable income.

Judgment Details:

Issue 1:
The first issue pertains to whether the interest accrued to the assessee during the accounting year when suits were pending for recovery of loans. The assessee, a financial institution, maintained its accounts on the mercantile system of accounting. The Income-tax Officer added the interest amount to the profit and loss account, which the Appellate Assistant Commissioner disagreed with, stating that income of doubtful nature need not be considered for assessment. The Tribunal upheld this decision, emphasizing that interest does not accrue during the pendency of suits. The High Court agreed, citing the discretion of the court in awarding interest pendente lite as per section 34 of the Civil Procedure Code.

Issue 2:
The second issue questions the justification of delaying the accrual of interest despite following the mercantile system of accounting. The Supreme Court precedent highlighted that once income accrues, it cannot be negated by theories of real income. The Court held that carrying interest to a suspense account without treating it as bad debts is contrary to statutory provisions. The High Court distinguished this case from the present one, where suits were filed before the accounting year, and interest was pending court discretion, aligning with the Calcutta High Court's decision.

Issue 3:
The final issue concerns the inclusion of specific interest amounts in the total income of the assessee for different assessment years. The Tribunal's decision to exclude these interest amounts was upheld by the High Court, emphasizing the non-accrual of interest during the pendency of suits and the discretion of the court in awarding interest.

Conclusion:
The High Court ruled in favor of the assessee on all three issues, stating that interest did not accrue during the relevant accounting year due to pending suits for loan recovery. The Court relied on legal provisions and precedents to support its decision, ultimately answering all questions in favor of the assessee and against the Revenue.