Judgment:
R.R. Misra, J.
1. We have heard Sri V. B. Upadhya, senior advocate.
2. This application under Section 256(2) of the Income-tax Act, 1961, is in regard to the assessment year 1980-81. At the outset, it may be stated that learned counsel for the assessee has not pressed question No. 7 regarding the claim for deduction of bonus. As regards the other questions Nos. 1 to 6, he raised a common contention as to whether the Tribunal was right in law in holding that the assessee was liable to pay tax on interest on sticky loans. The assessee is a bank. Prior to the assessment year 1977-78, the petitioner was following the mercantile system of accounting inasmuch as it was charging interest on sticky loans but was crediting the same to the interest suspense account instead of interest account. From the assessment year 1977-78 onwards, this practice has been given up and now no interest whatsoever has been charged in respect of sticky advances. A submission is made on the basis of the decision of the Supreme Court in State Bank of Travancore v. CIT : [1986]158ITR102(SC) . It has been stated that, if the conduct of the assessee is taken into consideration in such a case, the assessee will not be liable to pay tax on interest on such sticky loans. In the aforesaid case of the State Bank of Travancore : [1986]158ITR102(SC) , the Supreme Court stated as follows (headnote) :
' The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. '
3. We, however, find that, in the present case, the conduct of the assessee has not been consistent in the sense that in this year also, the assessee had filed suits in regard to some sticky loans only. For these sticky loans in regard to which suits were filed, the Tribunal itself has granted relief to the assessee by holding that interest will cease to accrue, but with regard to the other cases of sticky loans, no suit had been filed by the assessee meaning thereby that the assessee considered these loans/advances to be recoverable. The present case is one of these later types of cases. Further, admittedly, there was no change in the contract of the assessee with its debtors and the contract with the debtors in which interest accrued on advances remained the same. That apart, it has also been held in the aforesaid case of State Bank of Travancore : [1986]158ITR102(SC) (headnote) :
' Mere improbability of recovery where the conduct of the assessee is unequivocal, cannot be treated as evidence of the fact that income has not resulted or accrued to the assessee.'
4. In view of the same and in view of the findings arrived at by the Income-tax Appellate Tribunal in its appellate order that whether the assessee charged in its books interest or not was immaterial and on the basis of the mercantile system of accounting followed by the assessee, the assessee was liable to pay tax on the accrued interest on such loans, we find that in doing so the Income-tax Appellate Tribunal has not committed any error of law. Besides this, we may also point out that for the assessment year 1981-82 in I.T.A. No. 109 of 1991 (see : [1992]198ITR267(All) ) in the case of this very applicant, we have by our order dated 26th July, 1991, rejected the application of the assessee in regard to similar claim.
5. Thus, this application has got no force and is accordingly rejected. Costs payable to the Department is assessed at Rs. 200.