K.C.Agarwal, CJ. - (1.) This is a reference made at the instance of the Commissioner of Income-tax, West Bengal, Calcutta, referring the following two questions of the Income-tax Appellate Tribunal, dated May 25, 1988, for decision of the High Court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that interest credited to the suspense account cannot be added to the income of the assessee ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 cannot be applied to the facts of this case ?"
(2.) The brief facts of the case are that the assessee is an insurance company, carrying on general insurance business. For the assessment year 1983-84, interest on loans was kept in suspense account and according to the assessee credit for the same would be taken in the year of realisation. The question that arises in this reference for determination is whether the decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 could be applicable to the case of an insurance company.
(3.) The assessee is the insurance company. In the proceeding for assessment of tax for the accounting year relating to the assessment year 1983-84, the Assessing Officer noticed that an amount of interest of Rs. 37.35 lakhs on certain mortgage loans where the mortgagors were defaulters or where the rate of interest is disputed had been kept in suspense account. The Assessing Officer relying on the decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 added the aforesaid amount to the total income of the assessee. The assessee relied upon the provision of Section 44 of the Income-tax Act read with the First Schedule thereto and it was argued that inclusion of Rs. 37.35 lakhs was arbitrary and illegal. Before the appellate authority, the following copy of interest suspense account was furnished ; -------------------------------------------------------------------------------- Rs. P. "Opening balance as on 1-1-1982 41,80,124.89 Add : Interest accrued and interest outstanding for the year 1982 : Interest accrued Interest o/s Rs. P. Rs. P. Dansingh Bawa 18,551.86 3,65,260.20 Empire Investment 1,541.10 88,762.84 Kiran Theatres 4,515.07 3,67,497.96 Ravi Industries 1,590.41 -------------------------------------------------------------------------------- 66,107.79 -------------------------------------------------------------------------------- 25,998.44 8,87,648.79 9,13,647.23 -------------------------------------------------------------------------------- 50,93,772.12 Less : Interest received during the year 1982 : Onkarmal Ishardas (p.) Ltd. 4,39,800.32 Dady Tej (P.) Ltd. 2,50,000.00 K. R. Kothandaraman 37,179.16 -------------------------------------------------------------------------------- 7,26,979.48 -------------------------------------------------------------------------------- 43,66,792.64 Less : Due to compromise approved by HD amount removed from interest suspense account : Onkarmal Ishardas (P.) Ltd. 20,325.32 Dady Tej (P.) Ltd. 6,11,723.86 -------------------------------------------------------------------------------- 6,32,049.18 -------------------------------------------------------------------------------- Balance as on 31-12-1982 37,34,743.46" -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ;