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State Bank of Travancore Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 83 of 1973
Judge
Reported in[1977]110ITR336(Ker)
AppellantState Bank of Travancore
RespondentCommissioner of Income-tax
Appellant Advocate K.S. Paripoornan, Adv.
Respondent Advocate P.A. Francis and; P.K.R. Menon, Advs.
Cases ReferredCatholic Bank of India Ltd. v. Commissioner of Income
Excerpt:
- - the income-tax officer, the appellate assistant commissioner as well as the tribunal held against the assessee, which occasioned this reference......on the facts and circumstances of the case, the addition of rs. 35,331, representing interest on sticky advances, as income of the assessment year 1968-69 is valid in law '2. the assessed is the state bank of travancore, trivandrum. the assessment year, to which this reference relates, is 1968-69, the accounting year relevant being the calendar year 1967 ending with december 31, 1967. the question relates to interest accrued on what are called ' sticky advances '. the assessee follows the mercantile system of accounting. the assessee did not credit in its accounts the interest that had accrued on sticky advances because the assessee felt that the interest may not be paid. the assessee is a subsidiary of the state bank of india. although the assessee charged interest on the advances in.....
Judgment:

Khalid, J.

1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following question for our decision :

' Whether, on the facts and circumstances of the case, the addition of Rs. 35,331, representing interest on sticky advances, as income of the assessment year 1968-69 is valid in law '

2. The assessed is the State Bank of Travancore, Trivandrum. The assessment year, to which this reference relates, is 1968-69, the accounting year relevant being the calendar year 1967 ending with December 31, 1967. The question relates to interest accrued on what are called ' sticky advances '. The assessee follows the mercantile system of accounting. The assessee did not credit in its accounts the interest that had accrued on sticky advances because the assessee felt that the interest may not be paid. The assessee is a subsidiary of the State Bank of India. Although the assessee charged interest on the advances in question, the assessee considered it of doubtfulrecovery and, therefore, credited the interest so charged on those sticky advances to a separate account known as ' interest suspense account '. The assessee, however, disclosed such interest amount separately and claimed that the said amount was not taxable in his hands as income. The Income-tax Officer, the Appellate Assistant Commissioner as well as the Tribunal held against the assessee, which occasioned this reference.An identical question raised by the same assessee was decided by this court in I.T.Rs. Nos. 27, 28 and 29 of 1971 and this court answered the question in favour of the department and against the assessee. In the said decision, reference was made to a decision of this court in Catholic Bank of India Ltd. v. Commissioner of Income-tax [1964] KLT 653 (Ker). In that case, the court held, in similar circumstances, that there was accrual of income and considering the method of accounting regularly adopted by the assessee, the accrued income should have been entered in the accounts and the income will have to be determined in accordance with the accounts regularly maintained by the assessee.

3. The ratio of that case was sought to be distinguished before the Division Bench in I.T.Rs. Nos. 27, 28 and 29 of 1971, on the ground that in that case, there was a specific direction by the Reserve Bank of India not to credit the interest accrued on the said advances. This court held in I.T.R. Nos. 27, 28 and 29 of 1971, that

'The facts of the case are indistinguishable from that of the decision in Catholic Bank of India Ltd. v. Commissioner of Income-tax [1964] KLT 653 (Ker), excepting that there has been no direction from the Reserve Bank of India to the assessee that the interest accruing from sticky advances need not be credited in the accounts. There was such a direction to the assessee. whose case was dealt with in the decision in Catholic Bank of India Ltd. v. Commissioner of Income-tax [1964] KLT 653 (Ker). The absence or presence of such a direction from the Reserve Bank cannot determine the question whether there was accrual of income or not. '

4. The case on hand is identical with the case, I.T.Rs. Nos. 27, 28 and 29 of 1971.

5. The only question that has to be considered here is, whether there was accrual of income or not This cannot be denied and, therefore, the assessee was not justified in not crediting the interest accrued on sticky advances. We, therefore, hold that there has been an accrual of income which is liable to income-tax.

6. In the result, we answer the question referred to us in the affirmative, that is, in favour of the department and against the assessee. No costs.

7. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.


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