Rajes Kumar, J. - (1.) At the instance of the Revenue, the Income Tax Appellate Tribunal, Allahabad has referred the following question of law under Section 256(1) of the Income Tax Act, 1961. (hereinafter referred to as "the Act") relating to the assessment year 990-91 for opinion to this Court. "Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income could be properly deducted from the method of accounting employed by the assessee within the meaning of proviso to Section 145{1) of the Act only because it was in accordance with Section 209(3)(b) of the Companies Act as amended by the Government Notification of May 16, 1989 ?"
(2.) The brief facts of the case are as follows.
(3.) The assessee is an undertaking of the U.P. Government registered under the Companies Act, 1956. It is engaged in the business of financing medium and large-scale industries in U.P. It has originally been following mercantile system of accounting but w.e.f. 1.4.1980 it switched over to cash system of accounting which continued upto 31.3.1988. In view of the Amendment made in Section 209 of the Companies Act, 1956 by the Companies (Amendment) Act, 1988, it became obligatory for all the companies to maintain their account on mercantile system. However, in exercise of the powers conferred by Sub-section (1) of Section 620 of the Companies Act, 1956, the Department of Company Affairs Ministry of Industry. Government of India, by its notification dated 16.5.1989 directed that the provisions of Clause (b) of Sub-section (3) of Section 209 of the Act shall not apply to a Government Company engaged in the business of financing industrial projects and approved by the Central Government under Section 36(1) (viii) of the Income Tax Act, 1961 to the extent it relates to income from interest on loans and advances provided that such accrued income, which is not accounted for in the books of account, is disclosed by way of Note in the annual accounts. As these provisions cover the company, it claimed to have prepared the profit and loss account and balance sheet in compliance of this notification.;