Allahabad H.C : Whether the assessee is liable to tax on the interest income on “sticky advances” is concluded against the assessee by the decision of the Supreme Court in the case of State Bank of Travancore (supra)

Sections 5, 256(2)

Asst. Year 1978-79

Counsel Appeared

Upadhyaya for the Assessee

K. GULATI, J.:

These are two connected applications for the asst. yr. 1978-79, one arising out of proceedings under the IT Act, 1961, and the other under the Interest-tax Act. By these applications, the assessee, Benares State Bank Ltd., has desired that the Tribunal, Allahabad Bench, Allahabad, be directed to draw up a statement of the case and to refer certain questions, proposed in these applications for the opinion of this Court. As common questions have been raised, we propose to dispose of both these applications by a common order.

The assessee-bank, in the past, was maintaining its accounts on mercantile basis. In the immediately preceding year, relevant to the asst. yr. 1977-78, the assessee calculated the accrued interest on what is called “sticky advances” and instead of taking the same to the P&L a/c, such interest was kept in a separate account which was, however, brought to tax in the hands of the assessee. In the year in dispute, the assessee did not calculate the accrued interest on “sticky advances” nor did it credit any amount in its account books. On the failure of the, assessee to furnish the details of interest accrued on sticky loans, the ITO estimated such interest to be Rs. 15 lakhs and brought it to tax in the hands of the assessee.

In the first appeal against the assessment order, basically three contentions were raised. The first contention was that the assessee was not liable to tax on any amount being the accrued interest on sticky loans, on the ground that the recovery of the principal amount itself was doubtful. This contention, was repelled in view of the decision of the Supreme Court in the case of State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC). The second and alternate contention was about the quantum of interest which was brought to tax in the hands of the assessee on the ground that the same was excessive. On the second contention, the CIT (A) sent the matter back to the ITO for fresh adjudication. He observed that the assessee should furnish correct figures of interest to the IAC who shall determine the quantum of interest after verification and obtaining such other information from the assessee as may be necessary. The third and last contention was that out of the interest income assessed, a sum of Rs. 5,60,740 could not be assessed, as the same had already been taxed in the earlier year and the same was transferred by the assessee during this year from the suspense account and credited to the P&L a/c. The appellate authority observed that the interest amount credited to the suspense account but taxed in earlier assessment years was subjudice before the higher authorities. However, accepting the contention in principle, he directed the AO to allow the deduction only when the final decision of the higher authority on the disputed issue was received in favour of the Revenue. He further directed stay of collection of the demand on the disputed amount which may be found to have been taxed earlier.

On second appeal to the Tribunal at the instance of the assessee, the decision of the CIT (A) was confirmed. The assessee, thereafter, applied for a reference under s. 256(1) of the Act and the same having been rejected, the present applications have been filed, as noted earlier.

We have heard learned counsel for the parties. In our opinion, no statable question of law arises out of the order of the Tribunal on which any direction could be issued to the Tribunal to refer the case for the opinion of this Court.

The basic question whether the assessee is liable to tax on the interest income on “sticky advances” is concluded against the assessee by the decision of the Supreme Court in the case of State Bank of Travancore (supra). The questions proposed by the assessee in this regard are academic and do not survive for any further adjudication. On the question of quantum of interest and liability to tax of Rs. 5,60,740, the appellate authorities have remitted the matter to the AO for fresh adjudication without taking any final decision. The questions proposed by the assessee on these aspects do not arise out of the order passed by the Tribunal.

In the result, both these reference applications are without any substance and are accordingly rejected with costs.

[Citation :180 ITR 231]