CIT Vs. ORISSA STATE FINANCIAL CORPORATION

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961, in which at the instance of the Revenue, the Income-tax Appellate Tribunal, Cuttack Bench, has referred the following question for the opinion of this court :

(2.) THE respondent-assessee is the Orissa State Financial Corporation established under Section 3(1) of the State Financial Corporations Act, 1951. THE assessment year is 1983-84 for which the previous year ended on March 31, 1983. During the relevant year, the assessee credited Rs. 1, 14,82,064 to "interest suspense account" instead of crediting the same to "interest account". This amount was not shown as income during the year on the ground that realisation of interest on the loans is doubtful- According to the assessee whenever interest on the suit-filed loans is actually realised, it would be taken to interest account. In other words, the assessee's contention was that the interest on the suit-filed loans are accounted for on cash basis only when they are realised, because in the case of suit-filed loans, interest cannot be held to have "accrued" inasmuch as under Section 34(1) of the Code of Civil Procedure award of interest is within the discretion of the court which can prescribe such rate of interest as it thinks just and proper in the circumstances. This plea did not find favour with the Assessing Officer, who completed the assessment by order dated January 15, 1986, by adding the aforesaid amount of Rs. 1, 14,82,064 to its income. Being aggrieved by the order of assessment, the assessee preferred appeal before the Commissioner of Income-tax (Appeals) who, by order dated March 14, 1986, set aside the assessment with certain directions to the Assessing Officer to examine the matter and make fresh assessment. In obedience to the order of the Commissioner, the Assessing Officer made a fresh assessment under Section 143(3) read with Section 251 of the Income-tax Act on February 8, 1988, reiterating his previous finding. THE assessee again preferred an appeal objecting to the assessment before the Commissioner of Income-tax (Appeals) but without any success. THEreafter, it carried the appeal before the Income-tax Appellate Tribunal which did not agree with the reasoning of the Commissioner of Income-tax (Appeals) and by the impugned order dated April 10, 1991 (out of which this reference arises) held that no interest can be held to have accrued legally till decision of the court is arrived at.