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CaseIQ

Uco Bank v. Commissioner Of Income Tax.

Calcutta High Court

Nov 25, 1991

Judgment

CaseIQ

Smart Summary (Beta)

Factual and Procedural Background

This reference under s. 256(1) of the IT Act, 1961, raises a common question of law for the assessment years 1962-63, 1973-74 and 1974-75 concerning interest on "sticky advances". The assessee is a nationalised bank. The ITO made additions of Rs. 2,38,739, Rs. 12,97,506 and Rs. 18,84,752 respectively for the three years, representing interest on advances debited to debtors' accounts but credited to a suspense account instead of the Profit & Loss Account because recovery of principal was in jeopardy. The assessee's appeals to the CIT(A) failed. The Tribunal, following State Bank of Travancore vs. CIT (1986) 158 ITR 102 (SC), upheld the CIT(A) and dismissed the appeals. At the hearing before this Court, counsel for the assessee sought to argue that for 1962-63 no assessment could be made because the bank after nationalisation was not liable for liabilities of the erstwhile company; the Court refused to entertain this contention as it had not been raised earlier. The Court observed that the question was concluded by its earlier decision in IT Ref. No. 68 of 1989 (CIT vs. United Commercial Bank), judgment dated 29th June, 1991, and answered the referred question in the affirmative and in favour of the Revenue. There was no order as to costs.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, and in view of the Circular dt. 6th October, 1952 of the CBDT r/w the subsequent Circular dt. 9th Oct, 1984 issued by the same authority, the Tribunal was right in confirming the taxing of the interest on the sticky advances as the income of the assessee even though they were credited to a suspense account and not to the Profit & Loss Account?

Arguments of the Parties

ITO / Revenue

The amounts representing interest on sticky advances are taxable under the mercantile system of accounting followed by the assessee even though they were not credited to the Profit & Loss Account.

Assessee

The amounts should not have been subjected to tax as income because they were credited to a suspense account on the ground that realisation of the principal amounts was in jeopardy.
At the hearing before this Court the assessee additionally contended (late) that for assessment year 1962-63 no assessment could have been made because after nationalisation the bank was not liable for liabilities of the erstwhile company; the Court rejected this contention as it had not been raised earlier in proceedings.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
State Bank of Travancore vs. CIT (1986) 158 ITR 102 (SC)	Authority followed by the Tribunal in relation to taxing interest on advances credited to a suspense account.	The Tribunal respectfully followed this decision and upheld the taxation of the interest; the Court noted the Tribunal's reliance on this precedent.
CIT vs. United Commercial Bank (IT Ref. No. 68 of 1989)	The Court's prior decision concluding the question in issue between the parties.	The Court held that the question before it was concluded by this decision (judgment delivered 29th June, 1991) and followed it in answering the reference in the affirmative and in favour of the Revenue.

Court's Reasoning and Analysis

The Court declined to permit a new contention about nationalisation raised at the hearing because it had not been raised before the Tribunal or earlier authorities. The Court noted that the Tribunal had followed the Supreme Court decision in State Bank of Travancore. The Court further observed that the question was already concluded by this Court's earlier judgment in IT Ref. No. 68 of 1989 (CIT vs. United Commercial Bank) dated 29th June, 1991. Relying on that decision, the Court answered the referred question in the affirmative and in favour of the Revenue. The Court made no order as to costs.

Holding and Implications

QUESTION ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE REVENUE

Direct effect: The Court upheld the taxation of the interest on the sticky advances despite those amounts being credited to a suspense account rather than the Profit & Loss Account, following earlier authority. There will be no order as to costs. The opinion follows prior decisions and does not purport to establish a new precedent beyond those authorities.

Show all summary ...

In this reference under s. 256(1) of the IT Act, 1961, for the asst. yrs. 1962-63, 1973-74 and 1974-75 the following common question of law has been referred to this Court :

"Whether, on the facts and in the circumstances of the case, and in view of the Circular dt. 6th October, 1952 of the CBDT r/w the subsequent Circular dt. 9th Oct, 1984 issued by the same authority, the Tribunal was right in confirming the taxing of the interest on the sticky advances as the income of the assessee even though they were credited to a suspensea account and not to the Profit & Loss Account ?"

2. Shortly stated the facts are that the assessee is a nationalised bank deriving income from business in banking activities.

3. The ITO made additions of Rs. 2,38,739, Rs. 12,97,506, and Rs. 18,84,752 to the disclosed income of the assessee respectively during the three years under consideration. These amounts represented interest on sticky advances which were debited to the debtors accounts but not credited to the Profit and Loss Accounts. Instead, these were credited to a suspense account on the ground that the realisation of the principal amounts themselves was in jeopardy. The case of the ITO was that the amounts themselves were taxable under the mercantile system of accounting followed by the assessee even though they were not credited to the Profit & Loss Accounts.

4. The assessee appealed to the CIT(A) but without success.

5. The assessee appealed to the Tribunal and contended that the aforesaid amounts should not have been subjected to tax as the income of the assessee. The Tribunal, however, respectfully following the decision of the Supreme Court in the case of State Bank of Travancore vs. CIT (1986) 158 ITR 102 (SC), upheld the order of the CIT(A) and dismissed the appeals filed by the assessee.

6. At the hearing before us Mr. Dilip Dhar led by Mr. R. N. Bajoria sought to contend that so far as the asst. yr. 1962-63 is concerned no assessment could have been made at all as the bank after nationalisation is not liable for any liabilities of the erstwhile company. We are afraid that we cannot allow Mr. Dhar to urge this contention as this contention was neither raised nor argued before the Tribunal or any of the authorities at any stage of the proceedings. No question of law arises on this issue and therefore this contention must be rejected.

7. It is not in dispute that this question is now concluded by the decision of this Court in the case of this assessee in IT Ref. No. 68 of 1989 (CIT vs. United Commercial Bank) where the judgment was delivered on 29th June, 1991. Following the said decision we answer the question in this reference in the affirmative and in favour of the Revenue.

There will be no order as to costs.

SHYAMAL KUMAR SEN, J. :

I agree.