1991 (7) TMI 38 - HC - Income Tax

Appeal dismissed: provision for bad debts under section 36(1)(vii)(a) and broken period interest under section 18 non-taxable

HC dismissed Revenue's appeal, upholding the Tribunal's findings. It held that the assessee had, in fact, made a valid provision for bad and doubtful ... Bad and doubtful debts - ceiling limit prescribed under section 36(1)(vii)(a) - addition of interest accrued - HELD THAT:- Revenue, tried to contend that, actually, no such provision was made by the assessee towards bad and doubtful debts and only a claim is now made, we cannot accept this contention in view of the clear and specific finding given by the Tribunal that the assessee had made such a provision. Consequently, the question does not arise at all for consideration. Addition of interest accrued - It was pointed out that the interest for the broken period had not accrued or crystallised into a debt and thus has not become due and payable, if it is characterised as income chargeable to tax in the hands of the transferor and hence could be said to be deductible in the hands of the assessee-transferee. We are of the view that this decision entirely covers the question raised by the Revenue. Section 5 is subject to the other provisions of the Act and here, section 18 is the specific provision which governs the subject of interest on securities. Mr. Sarangan also pointed out that this court's decision has been affirmed by the Supreme Court in Vijaya Bank Ltd. v. CIT [1990 (9) TMI 5 - SUPREME COURT]. The last sentence conveys the idea that, actually, the income fructifies to the assessee only when the securities yield interest and, only in such a situation, section 18 is attracted and that the securities did not yield any income during the broken period of any year. Issues Involved:The judgment addresses two main issues: 1. Whether the Income-tax Appellate Tribunal was correct in allowing the assessee's claim of bad and doubtful debts related to advances made by rural branches.2. Whether the Tribunal was right in confirming the deletion of the addition of interest accrued but becoming payable after a certain date.Issue 1:The Tribunal held against the Revenue regarding the claim of bad and doubtful debts, stating that the assessee had made a provision for the entire sum within the prescribed limit of section 36(1)(vii)(a) of the Income-tax Act, 1961. The Tribunal's specific finding that the provision was made by the assessee led to the dismissal of the Revenue's argument against it.Issue 2:Regarding the interest accrued but becoming payable after a specific date, the Revenue contended that the interest should be included for taxation purposes based on the Supreme Court's decision in State Bank of Travancore v. CIT. However, the Court emphasized that the concept of real income should not defeat the provisions of the Act. Referring to a previous decision, it was established that interest on securities only materializes when the securities yield income, and until then, it cannot be considered as accrued income. The Court rejected the need for the Tribunal to refer any question to it based on these considerations.The judgment provides a detailed analysis of the legal principles surrounding the issues raised by the Revenue, emphasizing the importance of adhering to the provisions of the Income-tax Act and the concept of real income in determining taxable amounts.