Assessment of State Financial Corporation-Change in method of accounting of interest from mercantile to cash-Regarding - Income Tax - 491/1987

Assessment of State Financial Corporation-Change in method of accounting of interest from mercantile to cash-Regarding Circular No. 491 Dated 30/6/1987 To All Chief Commissioners (Admn.) Commissioner of Income-tax. Sir, Subject: Assessment of State Financial Corporation-Change in method of accounting of interest from mercantile to cash-Regarding The Supreme Court has in its judgment in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 held that the interest accruing on sticky loans is taxable to income-tax on accrual basis where the assessee follows the mercantile system of accounting. 2. Some State Financial Corporations have changed the method of accounting of interest from mercantile to cash basis. 3. State Financial Corporations are governed by the directives of the Reserve Bank of India and IDBI. If these authorities are satisfied that the change in the system of accounting of interest from mercantile to cash basis by the concerned State Financial Corporation is legal, valid and bona fide, the Income-tax Department may accept the cash system of accounting of interest. 4. These instructions may be brought to the notice of all the officers working in your charge. 5. Hindi version will follow shortly. Yours faithfully, (Sd.) Mrs. S. Basu, Secretary, Central Board of Direct Taxes.