Hansaria, J. - (1.) In this batch of appeals, we are concerned with the question as to how interest accruing on 'sticky advances' has to be taxed. The appellants being various 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. Commr. of Income-tax, (1986) 2 SCC 11:158 ITR 102.
(2.) 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 mercantile system, and at the same time instead of carrying such an interest to the Profit and Loss Account, the same is credited to a separate account styled as Suspense Account or Interest Suspense Account.
(3.) In State Bank of Travancore's case (supra) this Court was called upon to decide as to how accrual of interest on such advances has to be taxed under the Income-tax Act, 1961 (hereinafter referred to as the Act). The Bench differed in its ultimate conclusion and the majority view was taken by Mukharji, J. as he then was, with whom Misra, J. as he then was, agreed. Tulzapurkar, J. was in minority. As leading legal luminaries of the taxation world had appeared to assist this Court in answering the aforesaid question, all that could reasonably be said on both the sides was done by persuasive and forceful arguments advanced, inter alia, by Shri Palkiwala, Shri Desai and Dr. Pal. Fundamentals of law and principles of taxing income were brought to the notice of the Court along with many decided cases of various Courts of the country and the English law.;