1983 (9) TMI 6 - HC - Income Tax

Court rules interest credited to suspense account not taxable under Income-tax Act

The High Court ruled in favor of the assessee, determining that section 147(a) of the Income-tax Act, 1961 was not applicable in the case. The Court held ... Banking Company, Income, Interest On Loans And Advances, Reassessment Issues:1. Interpretation of section 147(a) of the Income-tax Act, 1961.2. Taxability of interest credited to the suspense account by a banking company.Analysis:Interpretation of section 147(a) of the Income-tax Act, 1961:The case involved a banking company whose assessment for the year ending December 31, 1968, was reopened under section 147(a) of the Income-tax Act, 1961, to bring to tax a sum of Rs. 54,485 in respect of an 'interest suspense account.' The Income-tax Officer had initially accepted the return excluding this amount from taxation. However, upon reassessment, the sum was subjected to tax on the grounds that the interest accrued on loans was income for the relevant year and was not disclosed earlier. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal reversed it. The Tribunal found that the assessee had disclosed the full details of the account in the original returns, indicating no failure to disclose material facts necessary for assessment. Consequently, the provisions of section 147(a) were deemed not applicable to the case, a decision that was justified based on the balance-sheet evidence.Taxability of interest credited to the suspense account by a banking company:Regarding the taxability of the interest of Rs. 54,485 credited to the suspense account, the Central Board of Direct Taxes issued a Circular in 1952 stating that interest accruing on loans entered in a suspense account due to the unlikelihood of recovery need not be included in taxable income if recovery is deemed practically impossible. The Tribunal, considering this Circular, held that the interest in question was not assessable to tax during the relevant year. The Tribunal's decision was supported by the fact that the interest represented amounts on loans with doubtful recovery prospects, making it non-taxable income. The Tribunal's finding that the recovery of the loan was practically impossible was deemed a valid factual determination, and the High Court concurred with this view, ruling in favor of the assessee on both issues.In conclusion, the High Court answered both questions in the affirmative and in favor of the assessee, emphasizing the non-applicability of section 147(a) and the non-taxability of the interest credited to the suspense account based on the Circular issued by the Central Board of Direct Taxes.