STATE BANK OF TRAVANCORE Vs. CIT

JUDGEMENT

(1.) THE Income Tax Appellate Tribunal, Cochin Bench, has referred the following question for our decision "whether, on the facts and circumstances of the case, the addition of Rs. 35 331/- representing interest on sticky advances, as income of the assessment year 1968-69 is valid in law?"

(2.) THE assessee is the State Bank of Travancore, Trivandrum . THE assessment year, to which this reference relates, is 1968-69, the accounting year relevant being the calendar year 1967 ending with 31-12-1967. THE question relates to interest accrued on what are called 'sticky advances'. THE assessee follows the mercantile system of accounting. THE assessee did not credit in his accounts the interest that had accrued on sticky advances because the assessee felt that the interest may not be paid. THE assessee is a subsidiary of the State Bank of India . Although the assessee charged interest on advances in question, the assessee considered it of doubtful recovery and therefore credited the interest so charged on those sticky advances to a separate account known as "interest suspense account". THE assessee however disclosed such interest amount separately and claimed that the said amount was not taxable at his hands, as income. THE income Tax Officer, the Appellate Assistant Commissioner as well as the tribunal held against the assessee, which occasioned this reference.

(3.) THE only question that has to be considered here is, whether there was accrual of income or not. This cannot be denied and therefore the assessee was not justified in not crediting the interest accrued on sticky advances. We therefore hold that there has been an accrual of income which is liable to income tax.