KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. Vs. COMMISSIONER OF INCOME TAX
HIGH COURT OF KERALA
KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD.
COMMISSIONER OF INCOME TAX
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P.R. Raman, J. -
(1.) THIS is an appeal filed by the assessee - the Kerala State Industrial Development Corporation Ltd. - a Government concern, the entire shares having subscribed by the Government. The assessment relates to the year 1995 -96. The object of the appellant -assessee is to render financial assistance by granting of loans to industries to carry out the object of industrial promotion in the State. For the year 1995 -96, the appellant filed its return. The appellant has adopted cash system of accounting in respect of its income by way of interest and on the basis chargeable interest was computed while submitting the return. But the assessing officer computed the chargeable interest under Section 145 of the Income Tax Act on accrual basis and made certain additions and imposed tax on the enhanced chargeable interest. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Trivandrum. The Commissioner dismissed the appeal on the point following the decision of the Income Tax Appellate Tribunal in the case of the appellant for the assessment year 1993 -94 though, on other points the appeal was allowed. Thereafter, the appellant preferred a second appeal before the Income Tax Appellate Tribunal, Cochin Bench as Interest Tax Appeal 8 of 1998. The appellate tribunal by its common order dated 21.3.2002 dismissed the same on the issue of computation of chargeable profits and upheld the order of the assessing officer and that of the Commissioner (Appeals) holding that the chargeable interest shall be computed on accrual basis and not on cash basis. Impugning the said decisions, the appellant has preferred this appeal.
(2.) THE short question that arises for consideration is as to whether on the facts and circumstances of the case and by virtue of the incorporation of Section 145 of the Income Tax Act in Section 21 of the Interest Tax Act the decision of the Appellate Tribunal that the chargeable interest under the Interest Tax Act should be computed on accrual basis instead of cash basis regularly employed by the assessee in respect of interest income and accepted and followed by the Income Tax authorities under the Income Tax Act, 1961 is correct in law? Accordingly to the learned counsel appearing for the appellant the interest income from loans and advances should be treated on receipt basis and not on accrual basis as held by the authorities below. The assessee, for the assessment year 1995 -96, filed the return on 27.11.1995 declaring chargeable interest of Rs. 13,07,93,320/ - and the assessing officer computed the chargeable interest at Rs. 28,15,05,700/ - while completing the assessment under Section 8(2) of the Interest Tax Act. Accordingly to the learned counsel. Section 5 of the Interest Tax Act which is subject to the other provisions of the Act must yield to Section 21 of the said Act and in view of the fact that Section 21 of the Interest Tax Act incorporates Section 145 of the Income Tax Act, the method of accounting accepted under the Income Tax Act should be accepted under Interest Tax Act also. According to him, Section 145 of the Income Tax Act is introduced in Section 21 of the Interest Tax Act only with effect from 1.10.1991 and before 1.10.1991 the assessee had no option but to follow accrual system. But after the introduction of Section 145 as aforesaid the assessee had an option to follow the system of accounting followed under the Income Tax Act for Interest tax also.
(3.) THE Tribunal, following the judgment of this Court in I.T.R. 250 of 1997 reported in Kerala State Industrial Development Corporation Ltd. v. : 246ITR330(Ker) in the case of the same assessee for the assessment year 1993 -94 decided the issue in favour of the Revenue and accordingly, the Tribunal dismissed the appeal filed by the assessee. The assessee had raised another ground that from the chargeable interest taken on accrual basis, the assessing officer may be directed to exclude the interest in relation to categories of bad or doubtful debts referred to in Section 43D of the Income Tax Act as per proviso to Section 5 of the Interest Tax Act. Thus, except to exclude the interest accrued or deemed to be accrued on bad and doubtful debts, the Tribunal confirmed the order of the lower authorities holding that the interest income is chargeable on accrual basis under the Interest Tax Act.;
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