1995 (10) TMI 36 - HC - Income Tax

High Court rules interest, charges, commissions taxable as income for 1976-77 assessment year.

Commissioner Of Income-Tax Versus Tamil Nadu Industrial Investment Corporation Limited (No. 2)

The High Court ruled in favor of the Department, holding that interest, commitment charges, and guarantee commission should be included in the total ... Accrual Of Income, Interest On Sticky Loans, Mercantile System, Total Income Issues:1. Inclusion of interest, commitment charges, and guarantee commission on accrual basis in the assessment year 1976-77.2. Deletion of inclusion of interest accrued on amounts due with a court decree for recovery.3. Acceptance of the method of accounting followed by the assessee in crediting interest in the suspense account with reference to sticky loans.Analysis:Issue 1:The assessee, a public limited company, did not include interest on a suspense account, guarantee commission, and commitment charges in the total income for the assessment year 1976-77 due to doubts on realization from chronic defaulters. The Income-tax Officer added back these amounts, considering them as accrued income under the mercantile method. The Commissioner of Income-tax (Appeals) deleted the additions, citing previous Tribunal decisions and circulars from the Central Board of Direct Taxes. The High Court, based on earlier judgments, held that interest accrued on sticky loans under the mercantile system is taxable income, thus ruling in favor of the Department.Issue 2:The assessee excluded accrued interest on accounts with a court decree for recovery, similar to issues from earlier assessment years. As the treatment of such interest was pending with the Income-tax Officer for previous years, the same question was referred for the current assessment year. The High Court's decision in previous cases and the Supreme Court's ruling on interest accrued on sticky loans under the mercantile system supported the inclusion of such interest in the total income, aligning with the Department's position.Issue 3:The Appellate Tribunal's acceptance of the assessee's method of accounting, crediting interest in the suspense account for sticky loans, was questioned. Previous judgments by the High Court and the Supreme Court established that interest, commitment charges, and guarantee commission are to be included in the total income of the assessee. The High Court reiterated that these items are taxable income, rejecting the Tribunal's view on the accounting method followed by the assessee.In conclusion, the High Court ruled in favor of the Department, holding that interest, commitment charges, and guarantee commission should be included in the total income of the assessee for the assessment year 1976-77, based on established legal precedents and interpretations of the Income-tax Act, 1961.