1986 (8) TMI 102 - AT - Income Tax

Summary

Issues:
1. Taxability of amounts credited to Interest Suspense account (Suit filed Accounts)
2. Calculation of deduction under section 36(1)(viii)
3. Charging of interest under sections 215 and 216

Analysis:

Issue 1: Taxability of amounts credited to Interest Suspense account (Suit filed Accounts)
The Assessee, a State Financial Corporation, filed a return declaring income of Rs. 2,34,99,280 for the relevant assessment year. The primary issue was the taxability of amounts credited to the Interest Suspense account. The Income Tax Officer (ITO) held that the amounts totaling Rs. 1,16,96,604 were taxable as the Assessee maintained its accounts on a mercantile basis. However, the Commissioner of Income Tax (Appeals) (CIT(A)) ruled in favor of the Assessee, stating that the amounts were not taxable on an accrual basis but only on a realization basis, citing a previous Tribunal decision. The Revenue appealed, relying on a Supreme Court decision emphasizing that under the mercantile system of accounting, interest income accrued to the Assessee was assessable irrespective of being credited to an "Interest Suspense Account."

Issue 2: Calculation of deduction under section 36(1)(viii)
The Revenue's next ground of appeal concerned the calculation of deduction under section 36(1)(viii) at 40% of the income before deducting special reserve, as directed by the CIT(A) in line with a precedent. The Tribunal upheld the CIT(A)'s order on this point.

Issue 3: Charging of interest under sections 215 and 216
Regarding the charging of interest under sections 215 and 216, the ITO did not pass a speaking order on this matter. The CIT(A) noted that after granting relief to the Assessee, no interest would be chargeable. However, in light of the Tribunal's decision to restore the main ground regarding interest to the ITO, the matter was also remanded to the ITO to pass a speaking order if interest under sections 215-216 was deemed chargeable.

In conclusion, the Tribunal partly allowed the Revenue's appeal, restoring the matter related to interest to the ITO for fresh consideration. The Tribunal also directed the ITO to calculate the deduction under section 36(1)(viii) as per the CIT(A)'s direction and to address the issue of charging interest under sections 215 and 216 if necessary.