High Court rules interest on sticky advances taxable for 1968-69. Accrual principle key.

The High Court of Kerala ruled in favor of the department, affirming the addition of interest on sticky advances as taxable income for the assessment year 1968-69 in the case involving the State Bank of Travancore. The court emphasized the accrual of income principle and held that the absence of specific directions from the Reserve Bank did not negate the accrual of income. The decision upheld the Income-tax authorities' position against the assessee, establishing that accrued income should be recognized based on regular accounting practices.

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Issues involved: Determination of whether the addition of interest on sticky advances as income for the assessment year 1968-69 is valid in law.

Summary:
The High Court of Kerala addressed a reference from the Income-tax Appellate Tribunal regarding the validity of adding Rs. 35,331 as income for the assessment year 1968-69, representing interest on sticky advances. The assessee, State Bank of Travancore, did not credit the accrued interest on sticky advances in its accounts, considering it of doubtful recovery and crediting it to an "interest suspense account." The Income-tax authorities held against the assessee, leading to the reference. The court noted a previous decision involving the same assessee where it was held that accrued income should be entered in the accounts based on the regular accounting method. The court emphasized that the absence of a specific direction from the Reserve Bank regarding crediting interest does not negate the accrual of income. The court concluded that there was an accrual of income, affirming the addition as taxable income.

In conclusion, the court ruled in favor of the department and against the assessee, affirming the accrual of income from sticky advances as taxable.

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