UCO BANK, CALCUTTA vs. COMMISSIONER OF INCOME TAX, WEST BENGAL

CIVIL APPEAL No. 235/1996Supreme Court[1999] 3 S.C.R. 63513 May 1999Bench: 3 JudgesAuthor: SUJATA V. MANOHAR, R.C. LAHOTI, D.P. MOHAPATRA BANK, CALCUTT A14 pages
AI SummaryAllowed

What did the Supreme Court hold?

1. The Tribunal held that interest on loans advanced by the bank, where recovery is doubtful and unrecovered for the last three years, cannot be included in the assessee's income for assessment year 1981-82, as per CBDT Circular No. F 201/21/84 TTA-11 dated 09.10.1984. The reasoning is that such interest is credited to a suspense account and not brought to the profit and loss account because it is unlikely to be realized. The assessee follows a mercantile system but adopts a mixed method for doubtful loans, recognizing income only upon realization. This practice is consistent with the accounting principles and the circular. 2. The Tribunal held that the Central Board of Direct Taxes has the power under Section 119 of the Income Tax Act to issue circulars that tone down the rigour of the law for the benefit of the assessee, and these circulars are binding on income-tax authorities. Such circulars, when beneficial and ensuring fair enforcement, are admissible even if they mitigate the strictness of statutory provisions. The circular of 09.10.1984 is not contrary to Section 145 and is validly issued under Section 119, thus binding on the department. The Tribunal distinguished prior judgments that suggested circulars cannot alter statutory provisions, emphasizing that the question is about mitigating rigour for the assessee's benefit. The appeal was allowed, answering the question in favour of the assessee.

What were the facts?

The assessee, UCO Bank, for assessment year 1981-82, credited Rs. 49,15,435 as interest to a suspense account due to doubtful recovery and no recovery in the preceding three years. The Income-tax department initially excluded this amount based on CBDT Circular No. F 201/21/84 TTA-11 dated 09.10.1984. However, the Commissioner of Income-tax later deemed this exclusion erroneous and prejudicial to revenue, including the amount in the assessee's total income. The Income-tax Appellate Tribunal allowed the assessee's appeal, and the High Court upheld the Tribunal's order. The Revenue has appealed this decision.

What were the issues?

1. Whether interest on loans advanced by the bank, where recovery is doubtful and unrecovered for three consecutive years, can be excluded from the assessee's taxable income for assessment year 1981-82, by virtue of CBDT Circular No. F 201/21/84 TTA-11 dated 09.10.1984, considering the assessee's mercantile system of accounting which treats such interest as not real income until realized? - Assessee's contention: The circular permits exclusion of such interest, and the bank's practice of crediting it to a suspense account and not the profit and loss account reflects a mixed accounting method where income is recognized upon realization. - Revenue's contention: Not explicitly recorded, but impliedly argues for the inclusion of accrued interest as taxable income. 2. Whether CBDT circulars issued under Section 119 of the Income Tax Act, 1961, which may tone down the rigour of the law for the benefit of the assessee, are binding on income-tax authorities and can be applied even if they depart from the strict tenor of a statutory provision? - Assessee's contention: Such circulars are binding and beneficial to the assessee, ensuring fair enforcement and uniform administration of fiscal statutes. - Revenue's contention: Not explicitly recorded, but impliedly argues that circulars cannot override statutory provisions or judicial interpretation.

Which sections of the Income-tax Act were involved?

Section 145,Section 119

AI-generated summary — verify with the full judgment below

UCO BANK, CALCUTT A v. COMMISSIONER OF INCOME TAX, WEST BENGAL MAY 13, 1999 [SUJATA V. MANOHAR, D.P. MOHAPATRA AND R.C. LAHOTI, JJ.] Income Tax Act, 1961-Sections 145and119-Interest-Accrual of- A B On loans advanced by the bank whose recovery is doubtful-Interest not recovered by the bank for the last three years-Bank keeping the interest in C a suspense account and not bringing to its profit and loss accounts-Held, by virtue of circular dated 9.10.1984, the amount kept in the suspense account cannot be included in the taxable income of the bank-Such method of accounting is in accordance with the accounting practice followed by the bank-Central Board of Direct taxes, Circular No.F 20Il21184 TTA-11 dated D 09. l 0. 1984. Issuance of circulars-By Central Board of Direct Taxes-Power of- Held, the Board has power to ensure a fair enforcement of circular-Such circulars cannot be adverse to the assessee-Further these circulars are binding on the income-tax authorities. E Permitting exclusion of interest accruing to the money lender which is kept in a suspense account because of extreme unlikelihood of recovery- Held, applicable to public financial institutions-CBDT C

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 145

All 1,584 judgments and leading authorities on Section 145 →

Recent GST High Court judgments

Search GST case law →