Accrual of interest income on sticky loans held taxable when credited to Interest Suspense Account

Interest credited to an Interest Suspense Account for recoverable interest on sticky loans and advances was treated as taxable income because the accrual principle applied. The Bombay High Court held that the case was governed by the Supreme Court precedent relied upon by the Revenue, and that the contrary authority cited by the assessee was distinguishable on materially different facts, including the absence of credited interest and maintenance of accounts on the cash system. The issue was answered in favour of the Revenue, and the assessee was held liable to tax on the amount credited to the suspense account.

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Issues: Whether interest credited to an Interest Suspense Account representing recoverable interest on sticky loans and advances, but not taken to the profit and loss account for the relevant year, was liable to tax.

Analysis: The question was examined with reference to the governing precedent on accrual of income. The Court held that the facts were squarely covered by the Supreme Court decision relied upon by the Revenue, and that the cited contrary decision had no application because it proceeded on materially different facts where no interest had been credited and the accounts were maintained on the cash system.

Conclusion: The question was answered in the negative, in favour of the Revenue, and the assessee was held liable to tax on the amount credited to the Interest Suspense Account.

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