TMI Blog1997 (5) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... Briefly stated, the assessee is a banking company and is a subsidiary the State Bank of India. The assessee filed returns declaring chargeable interest at Rs. 6,46,03,760 for the assessment year 1986-87 and at Rs. 25,17,25,333 for the assessment year 1985-86. In the returns the assessee did not offer interest, on dead and doubtful sticky loans and export subsidy received from the Reserve Bank of India, to tax. The assessment under section 8 of the Interest-tax Act was framed in which the claim of the assessee with regard to the interest on sticky loans and export subsidy was allowed by the Assessing Officer.The CIT exercised his revisional jurisdiction under section 19 of the Interest-tax Act, and set aside the order of the Assessing Officer after holding that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. Aggrieved by the order of the CIT the assessee is before us. 4. The learned counsel for-the assessee, Shri Dinesh Vyas, senior advocate, has submitted that the return for the assessment year 1986-87 was accompanied by a covering letter dated 27th May, 1986 in which the assessee has specifically mentioned in para 16 that the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be erroneous simply because in his order he did not make an elaborate discussion in that regard. 5. The learned counsel has also relied on the judgment of the M.P. High Court in the case of CIT v. Ratlam Coal Ash Co. [1988] 171 ITR 141/[1987] 34 Taxman 443 in which their Lordships have held that if the ITO has considered the requisite information furnished by the assessee and completed the assessment,the order of revision by the CIT on the ground that the Assessing Officer has not made proper inquiries would not hold good. Mr. Vyas further relied on the judgment of the Calcutta High Court in the case of Russell Properties (P.) Ltd. v. A. Chowdhury Addl. CIT [1977] 109 ITR 229 in which their Lordships have held that the order passed by the ITO following the decision of the Appellate Tribunal cannot be held to be erroneous and as such order cannot be revised. The learned counsel has drawn our attention to the notice issued by the CIT under section 19 of the Act which is placed at page no. 67 of the assessee's compilation and submitted that the said notice was issued on the ground that the order of the Assessing Officer appears to be erroneous and prejudicial to the interests of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions:-- (i) CIT v. Govindram Seksariya Charity Trust [1987] 166 ITR 580/32 Taxman 62 (MP), (ii) CIT v. Co-operative Processing Marketing Society [1995] 216 ITR 632 (MP) (iii) CIT v. K.L. Rajput [1987] 164 ITR 197 (MP) and (iv) Mannesmann Demag A.G. v. Dy. CIT [1995] 53 ITD 533 (Delhi). 7. In oppugnation, the learned Departmental Representative, Mrs. Swati Patil, has submitted that the claim of the assessee with regard to export subsidy and interest on sticky loans is not an ordinary claim. It requires proper adjudication by the Assessing Officer. She did not dispute the order of the Tribunal for the assessment year 1961-62 in which the accounting system of the assessee was approved but she has submitted that in the year 1986 the Hon'ble Supreme Court has delivered a land mark judgment in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102/24 Taxman 337 in which their Lordships have held that the interest on sticky advances accrued to the assessee are exigible to tax. Their Lordships have further held that carrying a certain amount which has accrued as interest without treating it as a bad debt or irrecoverable interest, but keeping it in a suspense acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to the order sheet of the Assessing Officer for the assessment year 1986-87 which is placed at page 49 of the compilation of the revenue and submitted that the proceedings for assessment under the Interest-tax Act were started on 28-10-1988 by the predecessor of the Assessing Officer Mr. Swatantrakumar, but the proceedings were concluded on 6-1-1989 without going into the merits of the case. The said facts are reflected from the two entries made on 6-1-1989 and the assessment order under the Interest-tax Act was passed horridly. She has further argued that the same Assessing Officer has taken two contrary views in two assessment orders passed within an interval of about two months. She has further drawn our attention to the two letters written by the assessee which dealt with the claim of capital subsidy and the interest on sticky loans and submitted that these letters were available on record before the Assessing Officer but he has not considered the same while adjudicating the claim of the assessee. The facts available on record are sufficient to establish that the Assessing Officer has not applied his mind while passing an order and as such his order is erroneous a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his treatment to the interest on sticky loans. Besides, the assessee has also filed two letters in which he has justified his claim of non-offering the export subsidy and interest on sticky loans to tax. The assessment order was passed on 6-1-1989 after assessment order passed under the Income-tax Act for the assessment year 1985-86 in which the claim of the assessee with regard to the interest on sticky loans was rejected by the Assessing Officer. This fact cannot be ignored that the assessment orders under the Income-tax Act and under the Interest-tax Act for the assessment year 1986-87 were passed by the same Assessing Officer, Mr. Swatantrakumar. In the assessment order under the Income-tax Act, the claim of the assessee was rejected, but in the assessment order under the Interest-tax Act the claim of the assessee was allowed. No reasons are available on record as to why the same Assessing Officer has taken a contrary view at the interval of two months in two assessment orders under different Acts for the same assessment year. This factor cannot be ignored that in the earlier assessment years 1983-84 and 1984-85 the CIT(Appeals) had disallowed the claim of the assessee with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee of crediting the interest on bad and doubtful loans to interest suspense account and not taking it to the profit and loss account. 12. The learned counsel for the assessee, Mr. Dinesh Vyas, senior advocate, has submitted before us that the Assessing Officer as well as the CIT(Appeals) has wrongly interpreted the judgment of the Apex Court in the case of State Bank of Travancore's case. In fact that judgment is applicable to those banks and financial institutions which were adopting mercantile system, but in the instant case the assessee has been adopting the hybrid system of accounting since 1960-61 after the Board resolution passed on 27th August, 1960 whereby it was resolved that in the case of sticky loans where the interest was not realisable, it should be placed in the suspense account. Since assessment year 1960-61 the assessee has changed its accounting method from mercantile system to hybrid system and started crediting interest on sticky loans to the interest suspense account. Whenever this interest was recovered, it was taken to profit and loss account and offered to tax. The method of accounting was accepted by the revenue for a considerable period. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank N.A. [1994] 208 ITR 930/75 Taxman 433 in which their Lordships have thoroughly considered and discussed the judgment of the State Bank of Trarvacore's case and finally concluded that where the bank, following the mercantile system of accounting for most of its transactions, but keeping separate account for problem loans and crediting the interest on problem loans only on actual receipt and the said system of accounting was accepted by the income-tax authorities in earlier years, then the interest on problem loans is not assessable to tax on the basis of accrual in subsequent assessment years. He has also drawn our attention to the judgment of the Hon'ble Apex Court in the case of CIT v. Sun Engg. Works (P.) Lid. [19921 198 ITR 297/64 Taxman 442 submitted that for understanding the ratio decidendi of a judgment, the judgment should be read in toto. He has drawn our attention to the observations of the Apex Court that it is neither disallowable nor permissible to pick out a word or sentence from the judgment of the Supreme Court divorce from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgment must be read as a wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profit and loss account. This procedure is in practice since 1961-62 till date. Mr. Vvas further argues that though certain view has been taken by this Tribunal in the assessee's case for the assessment years 1983-84 and 1984-85, but each and every assessment year should be considered separately and principle of res judicata is not applicable to the income-tax cases. Unfortunately, all these judgments which are placed at the time of arguments of this appeal could not have been placed by the assessee during the hearing of the appeal for the assessment years 1983-84 and 1984-85. Moreover, some of the judgments were rendered after the pronouncement of the judgment of this Tribunal in those cases. Now, when other High Court have already expressed their view on the applicability of the State Bank of Travancore's case, these view should be considered and the observations of the Tribunal in the earlier case may be ignored while adjudicating this issue afresh. 15. In oppugnation, the learned Departmental Representative, Mrs. Swati Patil, has submitted that this issue is squarely covered by the Tribunal's order passed in the assessee's case for the assessment years 1983-84 and 1984-85. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arely covered by the Supreme Court judgment in the case of State Bank of Travancore 's case. It is also observed that all these judgments which are relied on by the assessee were not placed before the Tribunal during hearing of those appeals. Since the judgment of the Apex Court in the case of State Bank of Travancore's has been considered and discussed by various High Court and they have expressed their views on the applicability of the State Bank of Travancore's case, we feel it proper to adjudicate this issue a fresh in the light of the various judicial pronouncements. It is apparent from the documents on record that the Board resolution was passed on 27th August, 1960 in which it was observed that in the case of sticky loans where the interest is not realisable, it should be placed to interest suspense account. It is also evident from record that from the assessment year 1960-61 the assessee has changed its system of accounting from mercantile system of hybrid system and started crediting the interest on bad or doubtful loans (sticky loans) to the interest suspense account. It is also clear from the certificate of the assessee that whenever any recovery/receipt is made in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts we are of the view that the assessee has changed its system of accounting from the assessment year 1961-62. When it becomes a subsidiary of the State Bank of India. Now the question comes whether the assessee's case is covered by the Supreme Court judgment in the case of State Bank of Travancore's case. In the case of Stale Bank of Travancore 's case their Lordships of the Supreme Court have made detailed discussions with respect to the sticky loans and the interest accrued thereon with various systems of accounting. Their Lordships have discussed the circulars issued after the pronouncement of the judgment in the State Bank of Travancore's case by the Kerala High Court in State Bank of Travancore v. CIT [1977] 110 ITR 336. The facts of the State Bank of Travancore's case discussed in this judgment are that the St le Bank of Travancore's case indubitably maintained its accounts on mercantile basis and had regularly adopted it. In this judgment theirLordships did not express any opinion for those assessee who are maintaining books of account on hybrid system though this system was recognised to be proper and legal by their Lordships. Their Lordships have held that where the cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the parties and crediting the same to the profit and loss account, no fault as such can be found with the system followed by the assessee. The only power the Income-tax Officer has in such cases is the power under the proviso to section 145(1) of the Income-tax Act, 1961 which permits him, on being satisfied that the method employed by the assessee is such that his income cannot be properly deducted therefrom, to compute his income upon such basis and in such a manner as he may determine. The assessee-bank followed a policy of classifying loans into ordinary loans and problem loans. Problem loans were those which were problematic from the point of view of recoverability. In order to ensure effective credit control, the assessee used to scrutinise the loan portfolio at regular intervals and classify the loans into different categories. All loan accounts in respect of which interest payments were not forthcoming for a period of 180 days or more and in respect of which the principal amounts were in jeopardy were placed on a non-accrual basis in the books of account of the assessee and the interest thereon was not debited in the books to such accounts or credited to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay affect the real income of the assessee because as soon as the amount of interest was recovered on any such loan, a record of which was kept in the form of a memorandum record, it was treated as the income of the assessee of that year and subjected to taxation. The Tribunal was right in law in holding that the interest shown in the memorandum record by the assessee in the relevant previous years was not liable to inclusion in the assessee's total income having regard to the provisions of sections 28 and 145." We do agree with the contention of the assessee that the burden of proving that there has been a change in the regular method of accounting employed by the assessee is on the department. After a careful perusal of the judicial pronouncements of various High Court, this has become abundantly clear that the State Bank of Travancore's case is applicable to those assessees who are regularly following the mercantile system of accounting and not to those assessees who are following hybrid system of accounting. Since it has been established that the assessee likes been following hybrid system of accounting since 1961-62, the State Bank of Travancore 's case is not applicable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered within the four corners of its provisions no tax can be imposed by inference of by analogy or by trying to prove into the intentions of the legislature and by considering what was the substance of the matter, applies only to a taxing provision and has no application to a provision which does not create a charge for the tax but lays down the machinery for its calculation for the procedure for its collection. 20. The learned counsel for the assessee has further argued that the export subsidy received by the assessee is a reward for the services rendered by the assessee to the exporters. He also relied on the judgment of the M.P. High Court in the assessee's case for the assessment years 1975-76 to 1980-81 reported at 172 ITR 24, in which question, under reference was whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the amounts charged by the assessee for delayed payment of bills are in the nature of interest on the advances and liable to be taxed under the Interest-tax Act and the Hon'ble High Court has answered that the right to charge the amount for delay in the payment of bills accrued to the assessee by virtue of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s announced in the year 1968. In the light of this scheme, the export subsidy granted to the assessee by the Reserve Bank of India cannot be considered as a part of interest. Nothing has been specifically mentioned in the relevant section. If there is a gap in the statute, Court is not empowered to fill up the gap. 21. In oppugnation Mrs. Swati Patil, the learned Departmental Representative, has strongly relied on the findings of the CIT(Appeals). She has argued that since there is no direct, judgment of our own jurisdictional High Court on the issue involved in this appeal, the judgments of other High Courts in which this issue has been discussed in detail should be followed. The judgment of our own High Court in the case of CIT v. State Bank of Indore [1988] 172 ITR 24/[1987] 35 Taxman 491 (MP) has no relevance to the controversy of the case as in that judgment their Lordships have observed that on account of the delayed payment of the bills purchased by the assessee, the assessee became entitled to liquidate the damages by way of compensation, as stipulated in the agreement, the right of assessee to charge the amount did not, therefore, arise on account of any delay in retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if little construction of a partiular clause leads to manifestly or anamolous results which could not have been intended by the legislature. With respect to the interpretation of the statute the Hon'ble Supreme Court has held in the case of Banarsidas that a taxing statute must be caused in express and unambiguous language and if a case is not covered within the four corners of its provisions, no tax can be imposed by inference or by analogy or by trying to probe into the intention of the legislature and by considering what was the substance of the matter, applies only to taxing provisions and has no application to the provision which does not create a change for the tax but lays down the machinery for its calculation or the procedure for its collection. It is well established principle of construction of statute that, where a word or phrase of doubtful meaning has received a clear judicial interpretation, the subsequent statute which incorporates the same word or the same phrase in a similar context must be construed so that the word or phars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidy was paid by the Reserve Bank to offset a part of the loss incurred by the assessee as a result of charging interest at a rate lower than the normal rate of interest. The subsidy was dependent upon the loan or advance being given and a lower rate of interest being charged. If the borrower had been allowed to pay at the normal rate of interest to the bank and if he had been subsidised by the Reserve Bank of India towards payment of interest, the assessee could not have raised the sort of contention it had raised. Such a contention could not be raised by the assessee merely because the Reserve Bank of India directly paid the subsidy. The subsidy was paid towards interest and, therefore, the payment made by the Reserve Bank of India to the assessee was nothing but interest under section 2(7) of the Interest-tax Act, 1974. Moreover, consideration could flow from a person other than the borrower (in this case, the Reserve Bank of India) and the payment, therefore, did not lose the character of interest. Therefore, the subsidy could be included in the chargeable interest under section 5 of the Interest-tax Act, 1974." 23. We have also carefully perused the judgment of the juris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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