TaxTMI 
TaxTMI 
1991 (3) TMI 8
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to the interest suspense account is taxable has been finally concluded by the said majority judgment ? R. A. No. 894 (Cal) of 1966 : 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in terms of section 36(1)(iv) of the Income-tax Act, 1961, and rules 87 and 88 of the Income-tax Rules, 1962, and the Board's Notification No. 100 (F. 44A)/8/64/ITJ, dated October 21, 1965, in setting aside the order of the Income-tax Officer in allowing 100 per cent. of the claim for initial contribution to the assessee's Staff Pension Scheme in respect of past services of its members?" It is not disputed that the third question is covered by the judgment of this court in I. T. Ref. No. 113 of 1985 ( CIT v. Union Carbide (India)Ltd. ), where the judgment was delivered on February 5, 1990. In that view of the matter, we do not intend setting out the facts relating to the third question. Following the said decision, we answer the third question in the negative and in favour of the assessee. We now turn to the facts relating to the first and second questions : The assessee claimed that the sum of Rs. 2,40,77,729 being interest on sticky advances and/or debts....
X X X X Extracts X X X X
X X X X Extracts X X X X
....epresentative pointed out that this decision of the Kerala High Court has been upheld by the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 and, as such, the finding of the Commissioner of Income-tax (Appeals ) should be upheld. In reply, the authorised representative for the assessee contended that the effect of the circulars was not considered by the Supreme Court and, as such, the relief can be and should be given to the assessee-bank in view of the circulars of the Board which are favourable to the assessee. The authorised representative for the assessee sought to place before the Tribunal all that transpired between him and the Bench in the Supreme Court during the hearing of the said case. But the Tribunal declined to be addressed on such matters as this was not part of the judgment of the Supreme Court relied upon by the Departmental Representative. The Tribunal, after considering the decision of the Supreme Court in State Bank of Travancore [1986] 158 ITR 102, held that it is not open to the assessee to contend on the basis of the said circulars which were before the Supreme Court that the interest on sticky loans credited to the interest s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the light of the aforesaid observations that the learned judge further observed that " the earlier circulars being executive in character cannot alter the provisions of the Act ". According to the learned judge, " these were in the nature of concessions and could always be prospectively withdrawn". Having observed as aforesaid, the learned judge further pointed out that "however, on what lines the rights of the parties should be adjusted in consonance with justice in view of these circulars is not a subject-matter to be adjudicated by us and, as rightly contended by counsel for the Revenue, the circulars cannot detract from the Act. (emphasis supplied) Dr. Pal has contended that a combined reading of the aforesaid observations makes it clear that what was argued before the Supreme Court was that, for half a century, the claims have been allowed to be exempted and there should not be any deviation from the said practice. The learned judge pointed out that how far and to what extent the concept of real income should intermingle with the accrual of income will have to be judged in the light of the provisions of the Act, the principles of accountancy recognised and followed and the f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficial circulars. Sabyasachi Mukharji J. ( as His Lordship then was) in the case of CIT v. Swedish East Asia Co. Ltd. [1981] 127 ITR 148 (Cal), at page 166, held that " whenever there was any instruction, which is in favour of the assessee, the I. T. authorities or those who were in charge of the execution of the I. T. Act would not be permitted to go back on those instructions or circulars because there was some kind of representation made to the assessee and so the I. T. authorities could not be allowed to approbate and reprobate and they were stopped from disputing the policy enunciated in the instructions or the circulars. But that does not mean that such a provision entitled the I. T. authorities including the CBDT to issue instructions or circulars curtailing the provisions of the Act or curtailing the relief to which the assessee is otherwise entitled under the law". Dr. Pal contends that the above view of the Division Bench of the Calcutta High Court has been accepted in several decisions of other High Courts. He has also pointed out that in Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1, the Supreme Court examined the question particularly in relation to the observation o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the decisions of the Supreme Court in Union of India v. K. S. Subramanian, AIR 1976 SC 2433 and in State of Uttar Pradesh v. Ram Chandra Trivedi, AIR 1976 SC 2547, where the Supreme Court held that if there be any conflict between the views expressed by larger and smaller Benches of the Supreme Court, the proper course for a High Court in such a case is to try to find out and follow the opinion expressed by the larger Benches of the Supreme Court in preference to those expressed by smaller Benches of the Supreme Court which practice, hardened as it has into a rule of law, is followed by the Supreme Court itself. On the other hand, the contention of Mr. Moitra, learned counsel for the Revenue, is that after the decision of the Supreme Court in State Bank of Travancore [1986] 158 ITR 102, it is not open to the assessee to contend, as is sought to be done, that the Supreme Court has not considered the effect of the said circular. In fact, the said circular was referred to and was duly considered by the Supreme Court in arriving at its decision. We have considered the rival contentions. In Navnitlal C Javeri [1965] 56 ITR 198, the Supreme Court was considering the validity of secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld not be taken into account under section 12(1B). Section 12(1B) would, therefore, normally apply to loans granted by the companies to their respective shareholders with full notice of the provisions prescribed by it. " The circular referred to by the Supreme Court was in effect a clarification of the impugned provisions. The taxability of deemed dividend was not at issue, the hardship in the implementation of the impugned provisions was sought to be removed in pursuance of the assurance given by the Minister in Parliament. No argument was advanced before the Supreme Court as to whether the circular, if it detracts from the provisions of the Act, would be binding on the courts in construing such provisions. It is not correct to say that the Supreme Court in State Bank of Travancore [1986] 158 ITR 102, did not consider the effect of the circulars. The observation of the Supreme Court that the Supreme Court was " not concerned with the actual effect of these circulars and these need not be set out and examined " was not made regarding the legal effect of the circulars on the interpretation of the statutory provision ; the observation was confined to what were the contents of these....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then become a value judgment only. What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view of real income taking the probability or improbability of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing an income which has accrued cannot be made 'no income'. (emphasis supplied). "The extension of such a value judgment to such a field is pregnant with the possibility of misuse and should be treated with caution; otherwise one would be on sticky grounds. One should proceed cautiously and not fall a prey to the shifting sands of time". ( at page 154 of 158 ITR) " We were invited to abandon legal fundamentalism. With a problem like the present one, it is better to adhere to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... much keeping alive the claim for interest. It is also not a case of change in the method of accounting. The main contention was that the amount of the debts which were considered to be irrecoverable in the year were, for the time being, kept in the suspense account. Such an alteration in book-keeping could not be termed as a " change in the method of accounting ". In our view, the circulars cannot affect the true position in law. The circulars are not in the nature of contemporanea expositio furnishing legitimate aid in construction. The circulars may be binding on the Revenue in administering or executing the provisions of the Act. But these are not binding either on the Tribunal or on the court. (See CWT v. Balbhadradas Bangur [1984] 148 ITR 149 (Cal)). There is another aspect of the matter. The first circular of the Board is dated October 6, 1952. Notwithstanding the said circular, the Kerala High Court decided the first case of State Bank of Travancore (being Incometax References Nos. 27 to 29 of 1971 ) on March 22, 1973, which was affirmed by the Supreme Court in [1986] 158 ITR 102. The subsequent decision in State Bank of Travancore v. CIT [1977] 110 ITR 336 was rendered b....