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TMI Blog1990 (12) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. The mistake is said to be that the facts in the case of M/s James Finaly Co. vs. CIT (1981) 22 CTR (Cal) 289 : (1982) 137 ITR 698 (Cal) care identical with the facts of the assessee's case and in as much as the said decision of the Calcutta High Court has been approved by the Supreme Court in the case of State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC) the ratio of the Supreme Court is applicable to the assessee's case also. Hence the petitions for rectification. 3. At the time of hearing, Shri P. Thiagarajan, the learned counsel for the Department stated that upto the asst. yr. 1972-73 the assessee following the mercantile method of accounting offered interest from doubtful debtors as income. In the asst. yr. 1973-74, such interest was credited to the suspense account and carried over to the Balance Sheet. The Tribunal treated it as a change in the method of accounting and excluded such interest. However, only in the asst. yr. 1984-85 there was a complete change in the method of accounting regarding the sources of income as well as expenses. In other words, the assessee had switched over to the cash method of accounting i.e., receipt ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the aforesaid rulings and dicta of the Courts the learned counsel for the Revenue urged that there is a clear mistake in para 5 of the order of the Tribunal making out a different case and exclusion of the interest on sticky loans which is contrary to the judgment of the Supreme Court in the case of State Bank of Travancore. Therefore, he vehemently urged that the order of the Tribunal should be rectified, revised or reconsidered. 6. The learned counsel for the assessee, on the other hand, submitted that the assessee is neither a bank nor a public limited company but a development body. In respect of sticky loans proceedings are to be initiated against those parties in various Courts either under s. 29 or under s. 31 of the State Financial Corporation Act, 1951. No Court fee is to be paid in respect of suits. Prayer for interest has to be made under s. 34 of the said Act pendente lite interest is granted by the Court at its discretion. It is only on the basis of actual receipt after the termination of litigation the assessee has been returning interest and such interest is governed by s. 78 of the Interest Act. Therefore, the receipt of such interest was not dependent on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even before going to Court and resorting to Court proceedings was only the means off recovery. As regards the contention of the learned counsel for the assessee that the matter having been referred to the High the miscellaneous applications could not be allowed he submitted that in case the miscellaneous applications are allowed the reference application before the High Court would be withdrawn consequentially. 9. We have considered the submissions of the parties, the record and the paper book filed. At the outset, it may be stated that the order of the Tribunal dt. 7th Oct., 1980 recorded a clear finding that the assessee had effected change of its method of accounting properly and such method was regularly followed from 1st April, 1973. This is a finding of fact based on the material on record. Based on this order the Tribunal also dismissed the reference applications filed by the Revenue for the asst. yrs. 1974-75 to 1976-77 on 9th Oct., 1987. The judgment of the Supreme Court in the case of State Bank of Travancore was rendered on 8th Jan., 1986 while the Tribunal passed its order for the asst. yrs.1974-75 to 1976-77 on 7th Oct., 1980. The order of the Tribunal for asst. yr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so asked to be referred to the High Court. The very issue raised in the miscellaneous applications is under consideration before the Hon'ble High Court. 12. In this connection, it is relevant to highlight the observations of their Lordships in the case of State Bank of Tranvancore at page 126 of the report which reads as under : "It will thus be clear that even under the mercantile system of accounting whenever adopted, it is only the accrual of real income which is chargeable to tax, that accrual is a matter of substance and that it is to be decided on commercial principles having regard to the business character of the transactions and the realities and specialities of the situation and cannot be determined by adopting purely theoretical or doctrinaire or legalistic approach. If, therefore, for the purpose of determining whether there has been accrual of real income or not, regards is to be had to the business character of the transactions and the realities and specialities of the situation in preference to theoretical, doctrinaire or legalistic approach. I fail to appreciate why interest on sticky loans, which has theoretically accrued but has not factually resulted or mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of closing an income which has accrued cannot be made "no income". 15. From the above extracts it is clear that the accrual of income must be real according to the actuality of the situation and should be judged on the principles of real income theory. Based on these principles the Tribunal concluded that the interest on sticky loans was not to be taxed. 16. At the time of hearing, the learned counsel for the assessee produced the Balance Sheet to show that the interest kept in the suspense account to ascertain the financial worth of the Corporation is reflected both on the debit side under the head 'Accrued Interest Suspense Account' and also on the credit side of the Balance Sheet under the head 'Interest Suspense Account' for equal amounts. In other words, the reflection of interest in suspense account on both sides of the Balance Sheet neutralises each other 17. In this context, it is not correct to contend that the facts of the assessee's case are similar to the facts in the Calcutta case of James Finaly Co. which has been approved by the Supreme Court and consequently the ratio of the Supreme Court applies to the assessee's case because there is a clear finding o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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