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Issues: (i) Whether interest on bad and doubtful debts was taxable notwithstanding the Supreme Court decision in State Bank of Travancore, in view of the CBDT circular dated 9/10/1984. (ii) Whether additions on account of interest paid for the broken period of Government securities were liable to be deleted.
Issue (i): Whether interest on bad and doubtful debts was taxable notwithstanding the Supreme Court decision in State Bank of Travancore, in view of the CBDT circular dated 9/10/1984.
Analysis: The issue had already been concluded by the earlier decision in UCO Bank, where the binding effect of the CBDT circular was recognised and the same question was answered against the Revenue. Following that settled position, the Court adopted the same view for the assessment years in question.
Conclusion: The issue was decided in favour of the assessee and against the Revenue.
Issue (ii): Whether additions on account of interest paid for the broken period of Government securities were liable to be deleted.
Analysis: The Court followed its contemporaneous order in the connected matter and accepted the assessee's position on the treatment of broken period interest for Government securities.
Conclusion: The issue was decided in favour of the assessee and against the Revenue.
Final Conclusion: The Revenue's appeal failed, and the High Court's answers in favour of the assessee were sustained.
Ratio Decidendi: A binding CBDT circular can govern the tax treatment of income notwithstanding an earlier contrary judicial pronouncement, and the same principle applies to the treatment of broken period interest on Government securities where the issue has been settled in the assessee's favour.
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