STATE BANK OF TRAVANCORE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

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

(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 doubtful recovery 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 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.