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of <h1>Supreme Court Ruling: Interest on Doubtful Debts Taxable Under Income Tax Act, 1961; 1984 Exemption Withdrawn.</h1> The circular addresses the taxation of interest on doubtful debts. It notes a previous instruction from 1984 that exempted such interest from tax after three years without recovery, except for actual recoveries. However, a Supreme Court judgment in 1986 clarified that interest on sticky advances credited to a suspense account is taxable under the Income Tax Act, 1961. The judgment emphasized that accrued income cannot be dismissed as non-income merely due to diminished recovery expectations. Consequently, the 1984 instruction is withdrawn. Additionally, a 1985 amendment allows deductions for provisions for bad and doubtful debts by certain banks. Officers are instructed to note this change.
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