TMI Blog2005 (7) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,822 could not have been added to the total income, as interest income - award of interest for the period subsequent to the filing of the suit till the date of decree, lies within the discretion of the court and as such the interest from the date of filing of the suit is not liable to tax each year, on the premise that the interest had continued to accrue from year to year – further, Tribunal was not justified in taxing the amount of Rs. 57,38,782. - - - - - Dated:- 4-7-2005 - Judge(s) : V. C. DAGA., A. S. AGUIAR. JUDGMENT The judgment of the court was delivered by V.C. Daga J.- This reference is at the instance of the assessee-applicant Maharashtra State Financial Corporation Ltd., under section 256(1) of the Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax (Appeals). The said appellate court following the decision of the Tribunal for the earlier year, i.e., the assessment year 1978-79, held that this amount was not taxable on accrual basis but was taxable on realization basis, consequently, it deleted the said addition. The matter was carried to the Tribunal at the instance of the Revenue in appeal. Before the Tribunal reliance was placed by the Department on the decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 wherein the Supreme Court held that in the case of the assessee following the mercantile system of accounting, interest income accrued to the assessee was assessable irrespective of whether the assessee had credited such interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follow the mercantile system of accounting by accounting for the dues from the debtors on accrual basis. On these facts the Tribunal found that the assessee did not change its system of accounting from mercantile to cash. It is further made clear by the assessee that on filing a suit against the debtors, the assessee credited the interest earned thereafter to interest suspense (suit filed) account. Thus, even in respect of accounts where suits were filed, the assessee's system of accounting continued to be mercantile. The Tribunal thus held that the Supreme Court decision State Bank of Travancore v. CIT [1986] 158 ITR 102 squarely applied to the facts of the case of the assessee. According to the said judgment of the apex court, the disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here there has been no recovery for three consecutive accounting years will not be subject to tax in the fourth year and onwards. The circular also states that if there is any recovery, the actual amount recovered only would be subjected to tax in the respective years. This procedure applies to the assessment year 1979-80 and onwards. The Tribunal while deciding the appeal before it relied on the said judgment of the apex court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 decided by the apex court. However, this judgment of State Bank of Travancore v. CIT [1986] 158 ITR 102 was explained by the apex court in its subsequent judgment in the case of UCO Bank v. CIT [1999] 237 ITR 889 wherein the apex court held that in vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is a matter within the discretion of the court passing the decree. At the time of filing of the suit for recovery of the debt, the assessee had merely right to claim for interest, that right to grant further interest is in the discretion of the court. Consequently the right to receive future interest comes into the picture when the court passes the decree, from the date of the suit, as was determined by it, with interest, could not be assessed to tax. We agree with the view taken by the Calcutta and Orissa High Courts in this regard. In view of the above in our view the amount of Rs. 59,57,822 could not have been added to the total income, as interest income. Consequently, the Tribunal was not justified in reversing the order of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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