Madras High Court
Cit vs India Equipment Leasing Ltd. on 24 September, 2004
Equivalent citations: [2007]293ITR350(MAD)
Author: K. Raviraja Pandian
Bench: P.D. Dinakaran, K. Raviraja Pandian
JUDGMENT K. Raviraja Pandian, J.
1. These appeals are filed by the revenue against the orders of the Income Tax Appellate Tribunal dated 10-2-2004, and 19-9-2003, made in I. T. A. Nos. 1332/Mds/1997 and 2522/Mds/96, respectively.
2. For the purpose of disposing of the case, we refer to the facts relating to the Tax Case (Appeal) No. 744 of 2004 only.
3. The assessee doing the business of hire purchase transactions and leasing of plant and machinery filed their return of income on 29-11-1994. After hearing the explanation offered by the assessee pursuant to the notice issued under Section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the assessing officer found that the income on the non-performing assets had not been brought by the assessee to the profit and loss account for the year 1994-95. It was the case of the assessee before the assessing officer that the assessee has written it off or offered it as income in the accounts of the subsequent years. The income had to be accounted for the year in which it accrued and could not be postponed was the reason of the assessing officer to reject the claim of the assessee.
4. On appeal to the Commissioner (Appeals), the Commissioner of Appeals following the earlier order in respect of the assessee, confirmed the order of the assessing officer. That order was taken on appeal to the Tribunal, which set aside the order of the Commissioner (Appeals) and then directed the assessing officer in the light of the decision rendered by the Tribunal in I. T. A. Nos. 280 and 1522/99 dated 5-2-2001, to frame the assessment afresh. Hence the appeal.
5. The issue involved in these appeals is covered by the judgment of the Supreme Court reported in the case of UCO Bank v. CIT and Tamil Nadu Industrial Investment Corporation Ltd. v. CIT in which the Supreme Court recorded the finding as follows (page 900):
In the present case, the circulars which have been in force are meant to ensure that while assessing the income accrued by way of interest on a 'sticky' loan, the notional interest which is transferred to a suspense account pertaining to doubtful loans would not be included in the income of the assessee, if for three years such interest is not actually received. The very fact that the assessee, although generally using a mercantile system of accounting, keeps such interest amounts in a suspense account and does not bring these amounts to the profit and loss account, goes to show that the assessee is following a mixed system of accounting by which such interest is included in its income only when it is actually received. Looking to the method of accounting so adopted by the assessee in such cases, the circulars which have been issued are consistent with the provisions of Section 145 and are meant to ensure that assessees of the kind specified who have to account for all such amounts of interest on doubtful loans are uniformly given the benefit under the circular and such interest amounts are not included in the income of the assessee until actually received if the conditions of the circular are satisfied. The circular of 9-10-1984, also serves another practical purpose of laying down a uniform test for the assessing authority to decide whether the interest income which is transferred to the suspense account is, in fact, arising in respect of a doubtful or 'sticky' loan. This is done by providing that non-receipt of interest for the first three years will not be treated as interest on a doubtful loan. But if after three years the payment of interest is not received, from the fourth year onwards it will be treated as interest on a doubtful loan and will be added to the income only when it is actually received" whereby it virtually reversed the stand taken by the Supreme Court in the decision reported in State Bank of Travancore v. CIT .
6. Hence these appeals deserve to be dismissed in view of the judgment reported in UCO Bank v. CIT and accordingly, these appeals are dismissed. No costs.