COMMISSIONER OF INCOME-TAX VS MERCANTILE BANK LTD., 1998 PTD-BOMBAY-HIGH-COURT-INDIA 3090 (1995)

Income-tax---

----Income---Interest---Interest on sticky loans is taxable.

Held, that on the facts and in the circumstances of the case, the assessee was liable to be taxed in respect of the amount credited to the interest suspense account representing interest recoverable on sticky loans and advances and which was not taken to the profit and loss account.

State Bank of Travancore v. CIT (1986) 158 ITR 102 (SC) fol:

CIT v. Citibank N.A. (1994) 208 ITR 930 (Bom.) distinguished.

T.U. Khatri with J.P. Deodhar for the Commissioner.

Muralidhar for the Assessee.

JUDGMENT

DR. B.P. SARAF, J.---By this reference under section 256(1) of the' Income Tax Act, 1961, made at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the assessee is not liable to be taxed in respect of the amount credited to the 'Interest Suspense Account' representing interest recoverable on 'sticky loans and advances' and which is not taken to the profits and loss of the relevant account year?"

Learned counsel for the Revenue submitted before us that the controversy in the above question is squarely covered by the decision of the Supreme Court in the case of State Bank of Travancore v. CIT (1986) 158 ITR 102. Learned counsel for the assessee, however, submits that the decision of the Supreme Court in the above case does not apply, this controversy is covered by the decision of this Court in CIT v. Citibank N.A. (1994) 208 ITR 930.

We have carefully considered the decision of the Supreme Court and the decision of this Court. We have heard learned counsel for the assessee at length to enable him to satisfy us as to how, on the admitted facts and the question posed before us, the ratio of the decision of this Court in CIT v. Citibank N.A. (1994) 208 ITR 930 applies and not the decision of the Supreme Court in State Bank of Travancore v. CIT (1986) 158 102. We have pointed out to learned counsel that in the decision of this Court the assessee had not credited any amount of interest to its account on loans advanced to certain parties and had maintained the account of those parties on the cash system and it was on that basis only that the said decision was rendered. Learned counsel for the assessee wanted to be heard and accordingly he was heard. We, however, do not find any merit in any of the submissions he has made. We are of the firm opinion that the question on the face of it is squarely covered by the decision of the Supreme Court in the case of State Bank of Travancore v. CIT (1986) 158 ITR 102 and the decision of this Court in CIT v. Citibank N.A. (1994) 208 ITR 930 has no application whatsoever to the facts of the present case.

In view of the above, the question referred to us is answered in the negative and in favour of the Revenue. The assessee to pay cost of Rs.1,000 to the Revenue.

M.B.A./1571/FC Reference answered.