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TMI Blog1994 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... leading financial institutions of the country, the answer has to be not on "sticky ground" but on terra firma. We would not, however, be required to labour hard to base our conclusion on firm ground because much of the ground has already been covered by a three-judge Bench of this court which decided the case of State Bank of Travancore v. CIT [1986] 2 SCC 11 ; [1986] 158 ITR 102 (SC). Those advances are called "sticky" in commercial parlance whose recovery becomes highly improbable or doubtful. The interest accruing on such advances are debited to the concerned parties by those institutions which maintain their accounts on the mercantile system, and at the same time instead of carrying such an interest to the profit and loss account, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrual has taken place or not must be judged on the principles of the real income theory ; and in determining whether the income is hypothetical or real, various factors have to be taken into account. The learned judge observed that it would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then become a value judgment only. It was opined that the question has to be considered from the point of view of real income "taking the probability or improbability of realisation in a realistic manner and dovetailing of these factors together" ; but once the accrual takes place, on the conduct of the parties subsequent to the year of closing, an income which has accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence to show that no real income has accrued to the assessee or been treated as such by the assessee. (8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognised limits." In so far as the method of accounting is concerned, which has been dealt with by section 145 of the Act, to which our attention has been invited by Shri Salve also, Mukharji J. stated in paragraph 46 (at page 140) that the method of accountancy regularly employed by the assessee helps the computation of income, profits and gains under section 28 of the Act and the taxability of that income under the Act will then have to be deter mined. The questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd specialities of the situation and cannot be determined by adopting a purely theoretical or doctrinaire or legalistic approach. The learned judge then observed in paragraph 19 (at page 126 of 158 ITR) that he failed to understand why interest on sticky loans, which has theoretically accrued but has not factually resulted or materialised at all should not be regarded as hypothetical income and not real income ? He further opined that there was no reason why the factum of stickiness of loans operating throughout the accounting period should not have, on being objectively established to the satisfaction of the taxing authorities as distinguished from the mere ipse dixit of the assessee, the effect of preventing the accrual of interest as rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r exempting income from taxation, as opined in Mapp v. Oram [1969] 3 All ER 215 (HL), no injustice would really be caused in the cases at hand, inasmuch as if the advance in question can ultimately be established to have become a bad debt, the assessee would be entitled to refund of the tax already paid by him in this regard. This has not been disputed by Shri Ramamurthy appearing for the Revenue. May it be stated that another two-judge Bench of this court of which one of us (Kuldip Singh J.) was a member, had also accepted the majority view in State Bank of Travancore v. CIT [1990] 186 ITR 187 (SC), as correct because of which the appeal and application for intervention were dismissed. Shri Salve has made heroic efforts to satisfy us tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, that circulars can override any provision of the Act or, to put it in the language of Mukharji J., detract from the Act. Though Shri Salve has urged that the decision in Varghese's case [1981] 131 ITR 597 (SC) has been affirmed by a Constitution Bench in C. B. Gautam v. Union of India [1993] 199 ITR 530 (SC), reference to that case shows that Varghese's case [1981] 131 ITR 597 (SC) was mentioned in paragraph 22 (at page 548 of 199 ITR) while stating that the conclusion arrived at, namely, that the provisions of Chapter XX-C of the Act are to be resorted to only where there is significant undervaluation of the immovable property with a view to evading tax, finds support from the decision in Varghese's case [1981] 131 ITR 597 (SC). This s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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