1990 (4) TMI 9 - HC - Income Tax

Summary

Issues:
Interpretation of tax law regarding the treatment of interest on sticky advances for assessment year 1974-75.

Analysis:
The case involved a dispute over the treatment of interest on sticky advances by the assessee, a banking company, for the assessment year 1974-75. The interest accrued on certain loans that had become doubtful of recovery was credited to the suspense account instead of the profit and loss account, amounting to Rs. 36,25,303. The Inspecting Assistant Commissioner considered this interest as income accrued during the year and added it back to the total income of the assessee. The Commissioner (Appeals) allowed the claim of the assessee based on Board's instructions and deleted the entire amount. The Revenue appealed to the Tribunal, which upheld the Commissioner's decision based on a previous order in a similar case. The Supreme Court's decision in State Bank of Travancore v. CIT was cited, emphasizing that interest on sticky advances is taxable income even if kept in suspense account. The Supreme Court clarified that circulars providing concessions do not alter tax law provisions, and the taxability of such interest is not affected by accounting treatment. The Court rejected the assessee's argument and ruled in favor of the Revenue, answering the question in the negative.

This judgment clarifies the tax treatment of interest on sticky advances, emphasizing that such interest is taxable income regardless of the accounting treatment. The Court relied on the Supreme Court's decision in a similar case to establish the taxability of the interest. The judgment highlights that executive circulars providing concessions do not override statutory tax provisions. The Court's decision reinforces the principle that the real income concept prevails in determining tax liability, irrespective of accounting practices. The judgment serves as a precedent for cases involving the tax treatment of interest on doubtful loans and advances, setting a clear guideline for assessing such income for taxation purposes.