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TMI Blog1978 (9) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend stand guaranteed by the Kerala State Government under s. 6 of the State Financial Corporation's Act referred to above. Besides, the share capital finances for carrying on the business are raised by way of loans from the Reserve Bank of India and by the issue of debentures as provided in s.7 of the Act referred to above. The business of the assessee corporation consists of advancing moneys for starting industries in Kerala State and for carrying on approved business. Long term loans are granted which are payable over a period extending to 20 years in half yearly instalments. The Managing Director of the assessee corporation is an Officer of the State Government and the other Directors are all nominees of the State Government, Reserve Bank of India, Industrial Development Bank of India, those elected by the Schedule Banks, Life Insurance Corporation of India, Co-operative Banks and other financial institutions in the manner as provided in s.10 of the Act referred to above. The assessee corporation has been keeping its accounts from its inception on mercantile basis. Hence, interest accruing on the various loans advanced by it has been credited to the interest account though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts of the debtors. Whenever, any portion of the interest was realised the same was transferred to the interest account and from there to the profit and loss account. Though the circular of the Reserve Bank was received by the assessee in Nov, 1973, the above method was adopted by it even for the accounting year ending 31st March, 1973. It appears that Rs. 2,31,590.92, Rs. 2,39,010.66, Rs. 2,44,737.13 and Rs. 11,65,621.70 were so credited in the 'interest suspense account' for the accounting years ending 31st March, 1973, 31st March, 1974, 31st March, 1975 and 31st March, 1976 respectively. 5. The assessee corporation filed returns disclosing income of Rs. 11,11,410 for the asst. yr. 1974-75 and Rs. 25,13,240 for the asst. yr. 1975-76. In so doing it had included Rs. 2,39,010.16 and Rs. 2,44,737.13 which had been credited by it in the interest suspense account as stated above. The ITO completed the assessments determining the taxable income of the assessee as Rs. 16,66,556 for the asst. yr. 1974-75 and Rs. 25,88,330 for the asst. yr. 1975-76. The CIT was of the view that Rs. 2,39,010.66 and Rs. 2,44,737.13 being the interest credited by the assessee in the interest suspense acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting. He, therefore, by his order dt. 15th Nov., 1976 held that Rs. 2,39,010 being the interest credited to the interest suspense account for the year ending 31st March, 1974 was to be included in the assessment for the asst. yr. 1974-75. The CIT, who dealt with the matter for the asst. yr. 1975-76 also came to the same conclusion and following the aforesaid decision of Kerala High Court, held that Rs. 2,44,737 being the amount credited in the interest suspense account for the accounting year ending 31st March, 1975 was to be included as taxable income in the assessment for the asst. yr. 1975-76. Hence, these appeals. 6. It was contended before us by the assessee's authorised representative that the view taken by the CIT is not correct. It was pointed out that under s. 145 income assessable under the head profits and gains of business has to be computed in accordance with the method of accounting regularly employed by an assessee that it is open to an assessee to make a change of the regular method adopted by him upto a particular time, provided such change is made Bona fide and not with a view to avoid the payment of the correct tax and that the only requirement is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld also be considered as its income for the two assessment years under consideration. He further contended that the letter issued by the CBDT dt. 16th April, 1973 to the Haryana State Government could not be considered as instructions issued by the Board under s. 119 of the IT Act, 1961 and, therefore, the same was not binding on the ITO or even the Commissioner. 9. As already stated, the assessee has been keeping its account in mercantile basis and upto the accounting year 31st March, 1972 it had been crediting the interest accrued on the various loans advanced by it to various parties in the 'interest account'. A change was made only from the accounting year ending 31st March, 1973. From that year onwards, interest from such loans which had not been realised for three years, was not credited in the interest account but credited in a different account styled as "interest suspense account", though debit entries were made in the account of the respective debtors for the amount of interest accrued. This change came to be made because of the circular issued by the Reserve Bank of India dt. 21st Nov., 1973 to which reference has been already made. That was a circular issued to all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was litigation between the partners with the result that the debtors of the firm refused to pay interest since they did not know which of the partners would ultimately be entitled to it. Consequently, the actual amount received for interest was very much less than the amount shown in the books as accrued interest. That being so, the assessee desired to change its method of accounting from mercantile method to cash method. The Commissioner did not agree. It was held by the Bombay High Court that the assessee was entitled to change the method of accounting. It was pointed out that the change must be Bona fide and not for the purpose of avoiding any tax. 11. To the same effect is the decision of the Madras High Court in Indo-Commercial Bank Ltd. vs. CIT, Madras(7). There also it was pointed out that so long as the change did not result in income escaping tax, the same had to be given effect to. The decision of the Calcutta High Court relied upon by the assessee's authorised representative are also to the same effect. 12. In CIT, Madras (1), vs. E.A.E.T., Sundararaj (8), it has been pointed out that an assessee may employ one method of accounting for one part of his business or o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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