[Citation -1984-LL-0915-1]

Citation 1984-LL-0915-1
Court ITAT
Relevant Act Income-tax
Date of Order 15/09/1984
Assessment Year 1979-80
Judgment View Judgment
Keyword Tags profits and gains of business or profession • legitimate business expenditure • mercantile system of accounting • residential accommodation • cash system of accounting • non-charging of interest • employees provident fund • bad and doubtful debts • interest on securities • transport corporation • commercial expediency • guarantee commission • method of accounting • payment of interest • recovery proceeding • revenue authorities • financial condition • arrears of interest • business advantage • specific provision • motor car expenses
Bot Summary: In respect of such debtors, as in the Bank s considered opinion, are incapable of repaying the principal sums, taking into account their assets backing and securities and guarantees offered by them or on their behalf to the Bank the Bank stops charging interest and closes these accounts by transferring their outstanding debit balances to an account called Protested Bills A/c. The system of accounting consistently followed by the Bank is mercantile in respect of its banking business, and simply because the Bank does not credit interest on what it chooses to call sticky advances to P L A/c, and instead crudities the same to interest Suspense Accounts it cannot be said that the method of accounting has been changed. May be, there is some apprehension in the reckoning of the Bank regarding the respective account holders, but their financial condition has certainly not deteriorated to that extent where it may be considered necessary be the Bank to close the said accounts, to transfer them to Protested Bills Account, and to stop charging interest thereon. For the purpose of expansion of the banking business the State Bank directs its Associate Banks to open branches in new places and as an inducement it pays them subsidy to meet the losses incurred in the new branches. 14, 15, 16 and 36 shall be deposited in the Bank in an account styled The Trustees of the State bank of India Employees Provident Fund and interest thereon at the appropriate rate will be paid by the Bank half-yearly. Standing counsel had tried to urge that interest in question is not allowable under s. 36 of the IT Act, 1961 because, the funds in question have not been borrowed by the bank from the Trustees of Provident/Pension Funds, but that they have gradually accumulated with the bank on account of employees and employees annual contributions. The assessee Bank is under an obligation to pay interest more as an employer than as a banker, and the amount is clearly deductible under s. 37 of the IT Act, 1961.

ANAND PRAKASH, A. M.: This appeal raises numerous issues involving very considerable financial implications. appellant is State Bank of India, having calendar year 1978 as its previous year. As banker, it provides loan facilities to innumerable customers through more than 5000 of its branches spread all over country and earns interest income from them. It maintains its accounts on mercantile basis for banking business. Most of its customers honour their loan obligations and pay interest regularly and also repay principal sums borrowed as per repayment plant agreed upon. Some of them, however, are such as do not honour their obligations either due to fraudulent designs or due to financial misfortunes that befall them. In respect of such debtors, as in Bank s considered opinion, are incapable of repaying principal sums, taking into account their assets backing and securities and guarantees offered by them or on their behalf to Bank Bank stops charging interest and closes these accounts by transferring their outstanding debit balances to account called Protested Bills A/c. Steps to realise such loans are initiated including realization of securities, enforcing guarantees, filing suits in appropriate Courts, etc., depending on facts and circumstances of each individual debtor. In between good debtors and bad debtors, referred to above, there is third category of debtors, shade nearer latter than former, from whom recoveries of interest and principal are not regular, and Bank starts having doubts about repaying capacity of these debtors. It styles such debts as "Sticky Advances . Interest is charged on such accounts in normal course by debiting respective debtor s accounts, but corresponding credit is not given to Interest Account, instead Interest Suspense Account is credited. Bank s version with regard to these debts is given in para 3.5 of its Statement of Facts, given to CIT (A) in following words: "In case of certain debts, relative outstanding are not transferred to Protested Bills Account. These debts, however, are considered patently doubtful of recovery and treated on same footing as with other debts transferred to Protested Bills Account. In respect of such of these Accounts interest continues to be debited. But having regard to doubtful prospects of recovery of principal itself, amounts are credited to "Interest Suspense Accounts." Each year, each individual branch of Bank scrutinises to its loans and advances with view to ascertain as to which account have become sticky during year and which have slided down further and deserve to be transferred to Protested Bills A/c are carefully scrutinised each year and chances of their recovery are evaluated. If, in opinion of Branch Managers, debt or part thereof has become bad. During previous year they recommend its write-off to Regional Managers who, in turn scrutinised them at their ends and forward proposals with their recommendations to Local Boards of Bank. Local Boards, after appraising facts of each case, forward their recommendations to Central officer, which again screens each case and then finally approves partly or wholly proposals received and it is only thereafter that debts or such part thereof, recovery of which is considered improbable by Central officer are sanctioned to be written off by debiting P & L A/c and crediting "Provision for Bad & Doubtful Debts A/c." screening committee in Central office, as per information given to us at time of hearing, cosiests inter alia, of representative of Reserve Bank of India and officials of Ministry of Finance. decision of Central Board are again subjected to scrutiny by Statutory Auditor and it is only when he approves of write off that accounts are finalised. In Balance Sheet "Provisions for Bad & Doubtful Debts A/c" is shown as deduction from debtors A/c. interest credited to "Interest Suspense A/c" is also similarly shown in Balance Sheet by way of deduction from Debtors A/c, rather than as credit item on liabilities side. To illustrate working of scrutiny process, Bank has planced on record case histories of numerous cases on record as per pp. 108 to 164, 167 to 192 and 193 to 246 of First Paper Book, and pp. 1 to 82 of Second Paper Book. Bank s claim for bad debts on basis of above date aggregated to Rs. 29,20,91,437. above amount has been worked out after adjusting realization of Rs. 2,79,53,930 in respect of debts, which had been written off as bad in earlier years, but from whom recoveries were nevertheless made during previous year under consideration to above extent. (For details reference may be made to para 7 of assessment order). interest credited by assessee Bank to "interest suspense account" i n respect of "sticky advances" worked out to Rs. 7,02,78,411 during previous year under consideration. IAC, Incme-tax who made assessment in present case, has not accepted assessee s claim in respect of both aforementioned terms, and has accordingly made additions to assessee total income. According to him, debts, claimed to have become bad during pervious year did not in fact become bad during previous year and, as regards interest credited to "Interest Suspense Account", his finding is that it belonged to assessee, and so it was taxable in its hands in view of mercantile system of accounting followed by Bank. above finding of ld. IAC has been confirmed by ld. CIT (A). assessee challenges above findings as being incorrect both on facts and in law. We will deal with assessee s claim for bad debts first. In terms of cl. (vii) of sub-s. (1) of s. 36 of IT Act, 1961, deduction from business income has to be made in respect of amount of any debt, or part thereof which is established to have become bad debt in previous year, subject to provisions of sub-s. (2) of s. 36. debt becomes bad when all reasonable hope of recovering it is extinguished. Such extinguishment of ray of hope may be as to whole amount or part amount of debt. hope has naturally to be mental function of creditor, but he is under obligation by statute to establish that such mental function is not purely subjective but is based on object factors which can be discerned and appreciated by ITO. debt should have become bad during previous year, and this, logically, implies that it should have been good at beginning of year and that some event should happen during previous year which extinguishes ray of hope of recovery. Sub-s. (2) of s. 36 provides certain conditions, which have to be fulfilled before claim of bad debt, even though genuine, can be entertained. amount of debt sough to be claimed as bad might consist of (i) principal sum lent and (ii) arrears of interest due thereon. In case of Bank principal sum is allowable as Bad Debt on principle that money is stock-in-trade of Bank and its loss is loss of its stock-in-trade. As regards interest component it will be allowed as deduction only if it can be shown that same has been taken into account in computing income of assessee of that previous year or of earlier previous year. If it had not been subject matter of assessment even deduction in respect thereof will not be allowed. next condition to be fulfilled is that of "write off of sum in accounts of assessee for that previous year". aforesaid principle of write off in previous year is subject to adjustment as per provisions of cls. (iii). and (iv) of sub-s. (2) of s. 36 As per cl. (iii), claim for bad debt may be allowable in previous year even if write off is not in that pervious year, provided it has been done in accounts of some earlier previous year. As per cl. (iv) ITO may disallow claim of debt in previous year, even though write of has been done in previous year, on ground that debt has not become bad during previous year. duty of ITO, however, does not and with disallowance. He has further to find out if debt become bad "in any earlier previous year not falling beyond period of four previous year immediately preceding previous year in which such debt or part is written off", and give finding to that effect, and once he gives such finding he is duty bound to modify completed assessment of relevant previous year in terms of sub-s. (6) of s. 155. above provisions clearly establish that whereas writing off of debt in question in account is must, year of write off is not sacrosanct. It is apparently because statute visualises possibility of difference of opinion between ITO and assessee as to previous year in which debt became bad. So long as write off has been done, claim of assessee would be entertained, whether in previous year of write off itself, or in some later year or earlier year in which debts is adjudged by ITO as having become bad. There is no statutory method of "write off", indicated in Act. concept of write off has, therefore, to be understood in sense of commercial accountancy, and, according to it amount of debt is debited to P & L A/c. corresponding credit can be given to Debtor s Account or to any other account, say, to Reserve for Bad & Doubtful A/c. In present case, corresponding credit regarding "Write Off" as noted earlier, has been given to Reserve for Bad & Doubtful Debts Account which in tern is deducted from Debtor s A/c before taking final figure of Debtors A/c to Balance Sheet of Bank. aforesaid procedure of write off has met with judicial approval as will be clear from facts and ratio of following cases: Vithaldas H. Dhankibhai Bardanwala vs. CIT (1981) 21 CTR (Guj) 190: (1981) 130 ITR 95 (Guj). CIT vs. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom). Sarangpur Cotton Mfg. Co. Ltd. vs. CIT (1982) 31 CTR (Guj) 247: (1983) 143 ITR 166 (Guj). Clause (ii) of sub-s. (2) of s. 36 read with sub-s. (4) of s. 41, provides important clue to understand process of write off and role of subjectivity in it and legislative need to correct such subjectivity with reference to objective facts. As noted earlier, debt may be considered to have become bad in para or as whole. Such estimate, however, bonafide and made with due regard to objective factors prevailing at moment, may yet be proved to be wrong in ultimate event, and recoveries from debtor may in fact be less than previously estimated and deducted from business income. In such case, amount, so short recovered, would be additional bad debt and "shall be deductible in previous year in which ultimate recovery is made", vide cl. (ii) of sub-s. (2) of s. 36. Its converse position is taken care of by sub-s. (4) of s. 41 of IT Act, 1961 according to which if ultimate recovery is "greater than difference between debt or part of debt and amount so allowed (as bad debt) excess shall be deemed to be profits and gains of business or profession, and accordingly, chargeable to income-tax as income of previous year in which it is recovered........" broad review of statutory scheme for allowance of bad debts, thus, emphasises repeatedly that claim of bad debt is founded on judicious and bonafide balancing of subjective and objective factors regarding recoverability of debt or part thereof and at best is estimate at relevant time, subject to final correction of errors of judgment, if any, by objective facts ultimately emerging in course of time. Clauses (iii) and (iv) visualize possibility of difference of opinion as to estimate between assessee and ITO, and in that came estimate of ITO, if found correct on touchstone of appellate procedure, would stand, but even this is subject to correction by objective facts ultimately emerging. onus is, no doubt, on assessee to establish that debt or part thereof has become bad during previous year, and that conditions laid down in sub-s. (2) of s. 36 have been fulfilled. Once such onus is prima facie discharged, it will be for ITO to show as to why he does not accept assessee s claim as correct. onus of showing that his decision on matter is reasonable and correct is on him and is open to judicial review. Let us now examine facts of present case in light of above position in law. assessee, on basis of review of performance of various debtors and their repaying capacity, comes to tentative conclusion that certain debts are difficult of realisation both as regards interest and principal and transfers them to Protested Bills Account and stops charging interest thereon, not because there is agreement between assessee and debtor not to charge interest in future, but because, in opinion of Bank recovery of principal itself has become doubtful, and fruit yielding source has, thus, become sterile, and no income would result therefrom despite existence and continuance of assessee s legal right to receive and realise interest from debtor. above estimation of prospects of recovery of various debts by Bank has been accepted by Revenue, and its non-charging of interest on these debts has been considered as justified. originally income yielding debts have, thus, been accepted by Revenue as having turned sterile and incapable of producing further income. There is no dispute between assessee and Revenue upto this stage. dispute has arisen as regards estimate of Bank that certain parts of losses in question have become irrecoverable during previous year. Bank has arrived at above conclusion not abruptly or in ad hoc manner, but through very elaborate exercise of evaluation asset-backing of debtors, realisable value of securities and guarantees available to Bank and prospects of revival or otherwise of business of debtors. This estimation is based on objective factors and information in possession of Bank and is finally reached after application of five minds at vertically rising levels as noted earlier. objectivity and impersonality of these successive reviews is not doubted by Revenue. In fact, Bank has placed on record entire material on basis of which it came to conclusion that certain debts, or part thereof had become bad during previous year under consideration. It is worthwhile noting here that most of claims relate to part of debts, i. e. such parts as have become irrecoverable during previous year according to Bank s estimate. claim of Bank has been rejected by IAC wholesale by giving, inter alia, following two reasons: (i) That assessee Bank has not been able to show that amounts in question were "good immediately before previous year", and that it has not given "any indication as to why particular item of debt or part thereof can be said to have become bad debt during year", and (ii) that details of only some loans exceeding Rs. 1 lakhs were given by assessee. On appeal, ld. CIT (A) did not regard second ground advanced by t h e IAC as real hardle in assessee s way He pointed out, and in our opinion very fairly, that, ".................... in present case appellant is public undertaking viz., State Bank of India and it can be assumed that general procedure as outlined in foregoing paragraphs has been adopted in deciding irrecoverablility of various debts by appellant bank. In my opinion, therefore, claim of appellant has to be examined with reference to general procedure adopted by appellant for claiming bed debts and examining this procedure with reference to provisions of IT Act to find out admissibility or otherwise of claim". He, nonetheless, confirmed disallowance made by IAC, inter alia, on following grounds: (i) that suits filed in some of cases were still pending and that in some cases suits were filed even after write-off, and continued, and (ii) that in most of cases securities lying with Bank were not realised at point of time when part of debts had been written off. In view of above, in opinion of ld. CIT (A) "most of claims for bad debts are premature...............In regard to most of debts claimed as bad debts, bank had not lost all hopes of recovery at relevant time and in majority of cases recovery proceeding such as suits in Courts, claims before liquidates or CIT (Payments) etc. were continuing". In even, he confirmed entire disallowance, even though his finding was not that "all" claims for bad debts were premature, but that only "most of claims" were premature. correctness of above approach is in question before us. After careful consideration, we find ourselves unable to uphold above view, Prima facie, even according to him, "most of claims for bad debts" and not all of them were premature and yet he sustained total disallowance of assessee s claim, rather than that part of it, which, in his opinion, was premature. His disallowance is, thus, contrary to his own finding. Apart form it, his approach is even otherwise against requirement of law. To claim bad debt is proved ultimately to have become bad. Even part of debt becomes bad More important, debts become bad when last ray of hope of recovery gets extinguished and not when it is ultimately proved to be irrecoverable. One may lose hope of recovery on careful and pragmatic appraisal of chances of recovery, taking into account, assets-backing of debtor and securities and guarantees held by Bank and claims of rival creditors on debtor, even though legal proceedings initiated against debtor have not yet concluded. pendency of litigation need not necessarily keep hope of full recovery of loan alive. If hope is genuinely lost, stage of write off of bad debt is reached, and claim of bad debt ought to be admitted. What has, therefore, to be examined whether Banks claim that it has hope of recovery in given case is genuine. If all relevant factors have been properly considered and Bank s conclusion regarding prospect of recovery being nil has been bonafide reached after such consideration as prudent businessman would bestow in normal course, there is no justification to reject claim of bad debt on ground that debt has not been proved to be ultimately irrecoverable. There is likely to be difference in estimate of bad debt made by assessee on basis of hope having been lost and ultimate outcome of effort to recover. It is inherent in provisions of cl. (ii) of sub-s. (2) of s. 36 and sub-s. (4) of s. 41, referred to above. claim of bad debt, being based on reasonable estimate of prospects or recovery, has, in ultimate analysis, to be adjusted to hard facts as they emerge in course of time in accordance with procedure indicated in cl. (ii) of sub-s. (2) of s. 36 and sub-s. (4) of s. 41. They very existence of above procedure in statutory provisions pertinent to bad debts goes to establish that basis of claim of bade debt is estimate n d extrapolation made by businessman on reasonable appreciation of existing facts and chances of recovery based thereon. To reject claim, therefore, on ground that hard facts have not yet crystallised, even though estimate of assessee be based on pragmatic appraisal of prospects of recovery expected of ordinarily prudent businessman, would be wrong in law. Such approach would be contrary to specific provision of statute. Inasmuch as approach of ld. CIT (A) is opposed to above view of law, it is erroneous. We have gone through detailed notes placed by assessee on record regarding its claims for bad debts. Most of claims pertain to part of debts being bad. These claims have not been examined in detail by ld. CIT (A). He rejected assessee s claim on short ground that suits in most of cases were pending and that in some of cases suits had been filed even after write off. We have held above that above touchstone is not correct in interest of justice to set aside order of ld. CIT (A) on this account and restore matter back to him. He should examine light of law enunciated as above and should adjudicate on them do nova. Accordingly we set aside order of ld. CIT (A) on this account and restore appeal to him for doing needful in accordance with law. Before we close our discussion on this subject, we may observe that we found no merit in contention of ld. standing counsel that bad debts had not been written off because balance in Protested Bills A/c remained undiminished despite part of debts having been written off as bad in P & L A/c. corresponding credit, as he pointed out, was given to Reserve for Bad & Doubtful Debts A/c and not to Protested Bills A/c. Protested Bills A/c, thus, remained unchanged, according to ld. standing counsel, and s it could not be said that debts had been written off in books of account. above submission apparently misses fact that Reserve for Bad and Doubtful Debts is not shown in Balance Sheet as separate item on liabilities side on Balance Sheet but is deducted from Balances in Debtors A/c on asset side. Debtors account is, thus, correspondingly reduced by amount debited to P & L A/c essential objection of ld. standing counsel is, thus, met. Apart from it, writing off of debt means debiting P & L A/c. by amount in question. corresponding credit may be given to Debtors A/c or to Reserve for bad & Doubtful Debts A/c. It is open to assessee to keep his legal claim for recovery alive by keeping amount due from debtor in books even though he has lost all hope of recovery from him, and written off amount in his books. Theoretical possibility of hiatus between hope and actuality is always there, and, as noted earlier, if hope proves wrong, amount ultimately recovered against hope, will be brought to tax as income of assessee. Striking debt off books is not essential requirement of write off; writing it off in books is what is needed. If any authorities for above proposition are needed we may refer to following case law: CIT vs. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom); Vithaldas H. Dhanjibhai Bardanwala vs. CIT (1981) 21 CTR (Guj) 190: (1981) 130 ITR 95 (Guj); Sarangpur Cotton Mfg. Co. Ltd. vs. CIT (1982) 31 CTR (Guj) 247: (1983) 143 ITR 166 (Guj). ld. standing counsel had also pointed out that in at least one of debtor s cases, namely, Braithwet s Ltd., amount written off included not only principal amount but also interest credit to Interest Suspense Account which was never offered for taxation and that latter could never be claimed as bad debt in view of provisions of sub- cl. (a) of cl. (1) of sub-s. (2) of s. 36. This objection of ld. counsel is correct and ld. CIT (A) will bear t in mind while re-consideration assessee s claim for bad debts. ld. counsel for Bank acknowledged. correctness of above submission and observed that, in fact, interest credited to Interest Suspense Account had not been included in write off, though inadvertently it had been mentioned in note as having been included. Be that as it may, interest credited to Interest Suspense A/c cannot be claimed as bad debt because said interest was never included in total income of Bank and ld. CIT (A) will bear this fact in mind while reappraising claims of bad debt. That brings us to related issue of interest credited to Interest Suspense A/c. Is it taxable or not on facts of present case? Considerable arguments on both sides were advanced on this issue backed with catena of case law. Briefly stated, assessee s contentions have been as follows: (1) That since Bank has been following certain method of accounting in which interest receivable on sticky loans is not credited to P & L A/c but to Interest on Suspense A/c and same does not form part of Bank s commercial profits; that this method was accepted by Dept. and that additions made on this account during last few years from 1972-73 onwards have been deleted by Tribunal; that Deptt. was bound to accept above method of accounting and that it had no alternative but to complete assessee s profits from business in accordance with assessee s accounting u/s 145 (1) of IT Act, 1961, and that if this was done, there could be no occasion to make impugned addition of Rs. 7,02,78,411 as interest income; (2) That even if it was held that assessee was following mercantile system of accounting, method of accounting could not determine ambit of income; it could only apply to income if that resulted; and (3) that from sticky advances no real income Cresulted; and so no interest could be brought to tax in Bank s hands, even if Bank had made entries regarding interest, crediting same to Interest Suspense Account and debiting it to individual debtor s account. On behalf of Revenue above submissions are predictably opposed and it is urged, Inter alia (1) that assessee has been following mercantile system of accounting; (2) that assessee did not give up its claim of interest on loans in question either during or after end of previous year; (3) that it debited interest in accounts of all debtors in question; (4) that, therefore, interest income accrued to assessee during previous year; (5) that it was of no consequence as to whether or not said income was received during year; and (6) that assessee did make distinction between doubtful debts and sticky advances, and that whereas no interest was charged on latter, and this distinction in two types of debts by Bank went to show that interest income deed accrue and arise on sticky advances, whereas it did not result in respect of debts transferred to Protested Bills Account. There is, in our opinion, considerable merit in Departmental contentions. system of accounting consistently followed by Bank is mercantile in respect of its banking business, and simply because Bank does not credit interest on what it chooses to call sticky advances to P & L A/c, and instead crudities same to interest Suspense Accounts it cannot be said that method of accounting has been changed. method of accounting continues to be mercantile, and only change is in head of account to which interest is to be credited. Bank chooses to credit it to Interest Suspense Account, rather then to Interest Account, but for that reason nature of credit does not change. If it is of income nature, it will be added to total income wherever it might be shown in accounts. method of accounting it will be remembered. It does not create income it merely account for it after it has materialised. In this sense. It is rightly said that income may not necessarily result merely because entry in account books has been made but converse of it is also true. income may not cease to be one merely because it has been shown in accounts under one head rather than another. Interest on so-called sticky loans does figure in books of account of Bank; and it does so because assessee follows mercantile system as opposed to cash system of accounting, and it is no part of system of account as to where credit entry on account of interest accrued is made whether in Interest A/c or in Interest Suspense A/c. In either case, system of accounting is mercantile, and it is merely matter of presentation as to in which account corresponding credit entry for interest is passed. If interest income has in fact accrued, it will be added to total income wherever it might be credited in accounts. real question, therefore, is whether interest has in fact accrued and arisen on so called sticky advances. If it has accrued and arisen, it is to be taxed, for there is no alternative contention before us that it has been waived either during or after previous year, or that agreement of dealing with sticky borrowers have in any way been modified during previous year. question of deduction under s. 37 (1) for giving in interest of commercial expediency does not therefore arise in present case, nor, in fact, it was canvassed. only question, therefore, that has to be determined in present case is whether interest income accrued to assessee in respect of advances described as sticky by Bank. income accrues and arises as soon as right to receive it emerges in favour of assessee. right to receive interest arises from contract of lending and borrowing entered into between Bank and its customers. In terms of such contract, interest does accrue and arise from day to day or from month to month or from year to year depending on terms of contract. right will accrue until principal sum borrowed is repaid along with interest due thereon. right to receive interest on advances described as sticky did, therefore, accrue and arise during previous year and so it has to be said that interest income as such advances accrued to assessee Bank during previous year. Despite it, however, it is open to Bank to show that said right was merely theoretical and insubstantial for source from which income flamed had itself dried up and had become sterile as result of which income did not flow out of it, even though in theory it should. assessee has been able to show such position in case of debts transferred to Protested Bills Account. In case of such debts, even though assessee s right to receive interest is in law in tact factual position on ground has made said right of mere theoretical interest because financial condition of debtors has deteriorated and they are in no position to return even principal, what to say of interest. In such cases it can very well be said that accrual of right to receive interest has no content and is hollow, and that, in fact, no income results therefrom. It is because of this, namely, erosion of source that income also dries up, and as result Bank does not debit interest to Protested Bills Account, nor possess credit entry therefor in accounts. right to receive interest is, however, not given up, but same is reserved for law Courts, for purpose of filing suits. Reference may be made in this connection to narration of Acts at page 109 of assessee s III Paper Book where following narration appears: "No interest is charged henceforth upon outstandings in Protested Bills Account. separate record is maintained to calculate interest from borrowers for purpose of making claims before Court, if and when necessary." In point of fact in such cases no income results, nor is it called for in accounts. Similar is, however, not position with regard to advances classified by bank as sticky. It itself treats them separately and regards them as capable of yielding interest, and so debit all these accounts with contractual interest and passes corresponding credit entry regarding same in its account books, in Interest Suspense Account. May be, there is some apprehension in reckoning of Bank regarding respective account holders, but their financial condition has certainly not deteriorated to that extent where it may be considered necessary be Bank to close said accounts, to transfer them to Protested Bills Account, and to stop charging interest thereon. In other words, source has thereon. In other words, source has not yet dried up and income therefrom flows, though at back of Bank s mind (if there be such thing in case of Corporation) there may be apprehension about future. right to receive interest in such cases, as per Bank s own conduct, has substance, and that is why individual debtor s account are debited with interest. contrast in mode of treatment of two sets of debtors, namely, those in category of Protested Bills and those marked as sticky is too marked and eloquent to be missed, and it would, in our opinion, be wholly unrealistic and inappropriate to ignore this distinction between two maintained by assessee itself with full approval of its statutory auditors, Reserve Bank of India and Govt. of India. right to receive interest from such debtors had not yet lost its substance and so it cannot be said that interest receivable from them is not real income of Bank. facts of CIT vs. Raigarh Jute Mills Ltd. (1982) 26 CTR (Cal) 25: (1981) 132 ITR 702 (Cal) , have no affinity with those of present case. In that case loan given by assessee company was being disputed by debtor, and he had stopped paying interest to assessee company, and since 1st April, 1966, even assessee company had stopped charging interest from debtor, and had filed suit for recovery of loan in High Court of Calcutta. ITO nevertheless, held that interest had accrued on said sum in previous year corresponding to asst. yr. 1969-70. above view was negatived by Tribunal which held on facts that principal amount had become bad debt, that there was no chance of recovery of interest, that, therefore, assessee was not charging interest, and that there was, in circumstances, no accrual of interest. above finding was upheld by Hon ble High Court. It is pertinent that these facts have no similarity with those of present case. Here Bank does not regard sticky advance as bad debt, rather it regards them as capable of yielding interest and so charges interest thereon. There is no question, therefore, of holding o basis of ratio of Raigarh Jutes that interest income in question does not accrue and arise in present case. Similar is position with regard to facts of CIT vs. Motor Credit Co. (P) Ltd. (1981) 127 ITR 572 (Mad). There too it had been proved to satisfaction of Tribunal that financial condition of two debtors, who had taken loans from assessee company against two trucks on hire purchase basis, had deteriorated very sharply, routes of said debtors had been taken over by State Transport Corporation, they had defaulted in making payment of hire purchase instalments, and consequently assessee had seized buses, and assessee company was devised that there was no prospect of recovering event principal amount. Faced with this situation, assessee company did not credit interest on outstanding from two debtors, even though it was adopting mercantile system of accounting. assessee company s action was found justified and it was held on above facts, that no income from interest resulted. parallel between facts of above case and those of debtors of assessee Bank whose balances have been transferred to Protested Bills A/c is too glaring to be ignored. No interest has been charged by Bank on such debts and no attempt has been made by ITO to presume accrual of interest therefrom. facts pertaining t o advances styled as sticky by Bank have, however, nothing in common with facts of above case, and so its ratio cannot be applied to interest debited to such accounts. Its ratio applies fully to accounts clubbed under Protested Bills Account and, as noted earlier, Department has honoured it by not presuming accrual of interest on such debts. Facts of CIT vs. Ferozpur Finance Ltd. (1980) 18 CTR (P & H) 227: (1980) 124 ITR 619 (P & H) have also no similarity with facts of present case. What was reiterated in said decision was that in mercantile system of accounting assessee could forego whole or part of debt which was irrecoverable and same could not be added. We have no quarrel with this irrecoverable and same could not be added. We have no quarrel with this principle, but, then, we are not dealing in present case with question of foregoing any part of interest by Bank. Reference was made by assessee s ld. counsel to decision of Hon ble Supreme Court in case of CIT vs. Koloo Ram Govind Ram (1965) 57 ITR 636 (SC) in support of his submissions. We have gone through facts of said case and find that they have no relevance whatsoever to facts of present case. assessee was member of AOP, and its share in profits and losses of said firm was considerably more than interest of Rs. 25,000 on its investment with said Association, which was credited to capital account of assessee. ITO ignored losses but included above interest in assessee s income. On these facts, it was for determination whether assessee did earn income as alleged by ITO. Their Lordships pointed out that "entries relating to interest payable to two members of Association were posted merely for apportionment of losses suffered by it and did not represent real income of two members." principle that real income alone is assessable and that accounting entries may not necessarily be guide as to accrual of income, and that there may, in fact, be no income even when entries in accounts might have been made to show accrual of income, is unexceptional. There can hardly be debate on this point now. But, how said principle will affect certain case would invariably depend on facts of case. On facts of our case, as we have shown earlier, it is not possible to say that right to receive interest income has become unreal. No evidence whatsoever has been placed on record to show that financial condition of debtors in question is such that it would be unrealistic to expect of recovery of principle from them, much less interest accruing therein. In fact, Hon ble Madras High Court has observed in case of Express News Papers Ltd. (1984) 38 CTR (Mad) 304: (1984) 148 ITR 484 (Mad), on basis of its decision in same case reported in (1980) 15 CTR (Mad) 383: (1980) 124 ITR 117 (Mad) that, where assessee followed mercantile system of accounting, it will not be correct to say that interest did not accrue because recovery of principal and interest was doubtful, and "assessee could not get over liability to tax by merely keeping it in suspense account." To similar effect are observations of Hon ble Rajasthan High Court in case of CIT vs. Vijay Laxmi Trading Co. Ltd. (1983) 36 CTR (Raj) 329: (1984) 147 ITR 372 (Raj). For making accrual of interest income "illusory" what has to be proved is that there was no prospect (and not merely that recovery was doubtful) of recovering even principal amount, as was held by their Lordships of Hon ble Madras High Court in case of CIT vs. Motor Credit Co. (P) Ltd. (1981) 127 ITR 572 (Mad), referred to above, or by Hon ble Calcutta High Court in case of Raigarh Jute Mill Ltd. (1982) 26 CTR (Cal) 25: (1981) 132 ITR 702 (Cal). It has not been borne in present case. facts of present case, have in our opinion remarkable similarity with facts of case of James Finlay & Co. vs. CIT (1981) 22 CTR (Cal) 289: (1982) 137 ITR 968 (Cal). There too, assessee had started crediting interest in respect of two debtors to Interest Suspense A/c w. e. f. 1st Jan., 1968. Earlier said interest was being credited to Interest A/c. In calendar year 1969, corresponding to asst. yr. 1970-71 ITO included interest charged to Interest Suspense A/c in business income of assessee. This action of ITO was contested as incorrect in appeal, but without result. matter was then carried to Hon ble Calcutta High Court who held that interest income was assessable in assessee company s hands. They pointed out that though there was difficulty in realising interest in year of account, there was no material to show that there was any agreement with debtors to waive interest or to keep it in Suspense A/c, and that, therefore, it could not be said that claim for interest had been given up. amount was, in circumstances, held to be includible in total income. Hon ble High Court further pointed out that alteration in book-keeping and transfer of amount to Suspense A/c could not be termed as change in method of accounting. above observations have apt relevance to facts of present case and so, in our opinion, apply to facts of present case. facts of Catholic Bank of India (In liquidation) vs. CIT, Kerala (In I. T. R. No. 28 of 1983) (copy placed on record) also have remarkable similarity with facts of present case. It was held by Hon ble Kerala High Court in that case that interest accruing on sticky advances was includible in total income, and merely because Bank stopped crediting said interest P & L A/c., interest did not cease to accrue, nor by not crediting it in P & L A/c., & L A/c., interest did not cease to accrue, nor by not crediting it in P & L A/c., it could be claimed by assessee that it had changed its method of accounting. method of accounting continued to be mercantile, and in accordance with it, interest accrued on sticky advances. ld. Counsel for assessee had placed reliance on decision of Hon ble Madras High Court in case of CIT vs. Devi Films (P) Ltd. (1982) 3 1 CTR (Mad) 341: (1983) 143 ITR 386 (Mad) and it was pointed out that said case had considered both aforementioned cases, namely, (I) James Finaly Co. (1982) 137 ITR 698 (Cal) and (2) Catholic Bank Ltd. (supra) and had f t e r considering them had that income form commission could not be considered to have accepted from advances or loans, recovery of which was in geopardy, with this proposition there can hardly be any dispute. But note has to be taken of fact that in Devi Films case even (i. e. Rs. 4,37,836) principal sum had not been recovered, total recovery of Rs. 3,47,360 only) over period of 3 years and so it was held that question of accrual of commission in previous year sin question could not arise. assessee was free to appropriate recoveries towards, principals, and if nothing remained thereafter, income, though contracted for, could not be said to have resulted. Facts, in our case, are not as above, Bank itself does not regard loans in question as irrecoverable (all such loans as it regards irrecoverable are transferred by it to protested bills A/c), and it itself charges interest to such accounts. ration of CIT vs. Devi Films (P) Ltd. (supra) and its facts have, therefore, little application or relevance to facts of present case. WE have also perused other cases referred to by either sides before us. None appears to us to militate against conclusion arrived at by us above. order of Tribunal in assessee s own case for asst. yrs. 1972-73 and 1975-76 in ITA Nos. 811 & 812 (Cal) of 1979 dt. 20th July, 1983 was cited before us by ld. counsel for assessee in support of his submission, and it was impressed upon us that requirement of judicial propriety was that we should follow it and that if we did not agree with it we should refer matter to larger Bench. It was, however, conceded by ld. counsel that subsequent Bench was to take different stand if there were additional facts and contentions be considered. There can be little quarrel with principle stated as above. But , on facts we find that decision of Tribunal relied upon by has proceeded on factual presumption that loans themselves were not reliable, and therefore, no part of interest could be realised..... (see page 19 of Tribunal s order placed at page 28 of assessee s First Paper Book). If these facts had been found by us, our conclusion would also be similar. But we have found on facts that it was not correct to "sticky loans", as "not realisable" Loans which are not realisable are transferred by assessee to Protested Bills A/c, and no interest is thereafter charged on such loans. Loans, which are not of above nature though they may be having tendency of being difficult, are kept separate and are styled as sticky . Interest it charge by Bank on such loans and this itself demarcates these loans from loans transferred to Protested Bills A/c. above factual position and distinction between two types of loans was never brought to attention of our ld. Brother. They regarded sticky loans on same footing as loans transferred to Protested Bills Account. If two types of loans be qualitatively similar with regard to their realisability, our finding would have been same as that of our ld. Brothers But inasmuch as, two are not qualitatively same, and Bank itself maintains distinction between them, it would be factually wrong to equate two nonetheless, and to reach same conclusion in respect of both by applying universally acceptable principle of law. principle of law being same, conclusion may nevertheless very from case to case depending on facts of each case. facts this year being what we have found, and same being different from what our ld. Brothers had found, conclusion this year is bound to be different. When this be position, no judicial impropriety is involved as will be clear from decision of Hon. Supreme Court in case of CIT vs. Brij Lal Lohia Mahavir Prasad Khemka (1972) 84 ITR 273 (SC). assessee Bank has been earning guarantee commission on various guarantees which it provides to its customers. Several guarantees cover period of more than one year. guarantee commission is received by Bank at time of executing deferred payment guarantee for entire duration of guarantee period. commission is normally charged @ 1per cent per annum on amounts guaranteed, and in cases where period of guarantee s for more than one year, guarantee is chargeable for each year at reduced outstanding. guarantee thus received by Bank, is spread by it over entire period of guarantee on pro rate basis, even though received at time of execution of guarantee. guarantee commission which is thus spread over is termed as Deferred Guarantee Commission. It amounted to Rs. 77,19,719 during previous year under consideration, Department has included whole of it in total income of previous year under consideration on footing that it accrued and arose during previous year and that occasion of its accrual to be execution of guarantee contracts, and that mode of computation is of no consequence in this regard. Bank disputes correctness of above finding. Before resolving this controversy let us examine terms of guarantee contracts in terms of which said commission is earned by assessee Bank. There are two parties with which agreement in question is reached by t h e Bank and both agreements confined together constitute one indivisible whole. On one side is foreign exporter of machines and on other is Indian Importer of same. foreign exporter wants deferred payment for machines to be guaranteed before supply of machinery to Indian importer. Bank provides this guarantee of repayment by Indian importer of deferred value in agreed instalments. For effecting this, Bank enters into agreement with foreign supplier of machines, proforma of which has been placed on record at ss. 66 to 70 of First Paper Book. According to cl. 6 of this format, Bank provides "irrevocable" and "unconditional" guarantee to foreign exporter that "Usance Promissory Notes made by our customers shall be duly paid by our customers on their respective due dates to intent and purpose that in case our customers fail to pay any such Usance Promissory Notes on their respective due dates for any reason or cause whatsoever ......we shall pay to you...... On demand and without demur in writing being made by you on us amount of all such Usance Promissory Notes as shall have remained unpaid on their due dates..." agreement with Indian importer is simultaneously entered into in terms of which Indian importer agrees to pay commission @ 1per cent per annum on outstanding liability to be realised for entire period of validity at time of execution of contract." We were told that commission referred to above could also be received in instalments at option of Bank. combined reading of above agreements clearly shows - (i) that guarantee agreement is indivisible on lasting over entire period of repayment; (ii) that it is irrevocable and unconditional; and (iii) that right to receive guarantee commission accrues and arises as soon as agreement is entered into and this right does not get deferred merely because Bank has option to realise commission in instalments. It is true that calculation of commission is done annually, with reference to outstanding amounts, but for that reason, guarantee agreements does not become annual one; it is entered irrevocable for given period of deferment, and no annual renewals of said agreement are required .This being so point of time at which right to receive commission accrues and arises is clearly moment of execution of contract and agreement makes it clear by stipulating that commission is to be realised for entire period of validity at time of execution of guarantee. customer who procures guarantee, it may be noted, has no option to make payments in instalments. Bank alone has option of realising commission, it if so inclined, in instalments. This arrangement does not make accounting of commission annual event. It accrues only once and that too at point of time of execution of guarantee. In view of this revenue was , in our opinion, correct in taxing guarantee commission in manner it did. That statutory auditors had advised assessee bank to spread over commission of guarantee over years for which guarantee lasted will n o t alter legal accrual of commission. Its accrual depends on agreements referred to above and not on advise of statutory auditors. order of ld. CIT (A) on this point is, therefore, hereby confirmed. Bank had paid subsidy of Rs. 17,19,712 to its Associate Banks during previous year. It has been disallowed by Revenue on ground that same had been paid out of Integration & Development Fund, referred to in s. 36 same had been paid out of Integration & Development Fund, referred to in s. 36 of State Bank of India Act. This facts is denied by Bank and it is urged by it that it paid subsidy to Associate banks in normal course of business in terms of s. 48 of State Bank of India (Subsidiary Banks) Act. It is also brought to our attention that under s. 32 (1) of State Bank of India Act, State Bank is to act as agent of Reserve Bank of India, and under sub-s. (4), "The State Bank may transact any business or perform any functions entrusted to it under sub-s. (1), by itself or through subsidiary bank.........." In view of this relationship between State bank of its Associate Banks payment of subsidies by State Bank to Associate Banks is to further business of Bank, and so expenditure in question was legitimate business outgoing. On behalf of Revenue it is pointed out that payment of subsidies to Associate Banks amounts to application of income of assessee Bank, and that , in any case facts are not clear as to form what fund subsidies in question have been paid, and so it was requested that matter may be restored to ascertain facts. above plea is resisted by ld. counsel for he assessee and it is brought to our attention that Tribunal had allowed assessee s claim in this regard in its order for asst. yr. 1976-77 vide ITA No. 607 (Cal) of 81 dt. 30th April, 1984 (vide paragraphs 9 to 14), and so it is urged that we should also allow assessee s claim following above finding of Tribunal in respect of asst. yr. 1976-77. After careful consideration of facts of case of case and rival submissions, we are inclined to accept assessee s capital of Associate Banks (see sub-s. (2) of s. 7 of State Bank of India (Associate Banks) Act). Associate Banks have to act as agents of State Bank, vide s. 36 of aforementioned Act. For purpose of expansion of banking business State Bank directs its Associate Banks to open branches in new places and as inducement it pays them subsidy to meet losses incurred in new branches. This payment is thus, clearly in business interest of assessee. more expansion of business, more it is to business advantage of assessee and its Associate Banks whose issued share capital it owns and who are, even otherwise its agents. expenditure is therefore, legitimate business expenditure laid out wholly and exclusively for purpose of assessee s business. It is, therefore, hereby allowed as business deduction. That there should be direct relationship between expenditure incurred and income earned is not necessary. So long as expenditure is incurred for purpose of assessee s business, whether directly or indirectly, expenditure is allowable under s. 37 of IT Act, 1961. There is nothing on record to show that subsidies in question have been paid under s. 36 of State Bank of India Act. CIT (A) proceeded on footing that "presumably subsidy has been paid by appellant as per provisions of s. 36 (2) of State Bank of India Act, 1955." He gives on factual basis for aforesaid presumption in his order, nor was it basis of disallowance by ITO. He disallowed it "since such payment is not expenditure laid out for assessee s business and it does not in any way result in any benefit by way of earning of any income...." This reasoning, however, does not appeal to us for reasons given above. Accordingly, addition made is hereby deleted. assessee Bank Has maintained four provident/Pension Funds. rules governing them have been placed on records. They are recognised by Central Govt. funds in question are governed by Trustees and stand deposited with State Bank who are obliged to pay interest on such funds at stipulated rates. Rule 13 of State bank of India Employees Provident Fund reads as follows: "13. All monies of fund except sum withdrawn under rr. 14, 15, 16 and 36 shall be deposited in Bank in account styled "The Trustees of State bank of India Employees Provident Fund" and interest thereon at appropriate rate (as hereinafter mentioned) will be paid by Bank half-yearly. account of each member will be credited with interest at that rate half-yearly on sums standing to his credit. Every member will be allowed interest at rate fixed annually by Executive Committee for he year ending on each 31st day of March Provided that rate so fixed shall not be less than either (a) one half per cent above average standard rate (adjusted up or down to nearest o n e quarter per cent)quoted by Bank for new deposits fixed for twelve months in preceding year (ending on preceding 31st day of March) or (b) three per cent per annum." (Other Provident/Pension Fund Rules contain similar provisions and so it is not considered necessary to reproduce them). Interest credited to various funds in terms of above rules during previous year aggregated to Rs. 12,43,66,644. This has been disallowed by Revenue authorities on ground that provident Funds are held with State Bank in currant account and that no interest can be paid on current accounts in accordance with directive of Reserve Bank of India. Bank naturally feels aggrieved of above action, and in our opinion, rightly so. provident/Pension Funds are recognised once and Bank as employer is duty bound to allow interest on funds invested with it by Trustees. rate at which interest is to be paid is stipulated by rules. It is not subject to any general directive of Reserve Bank of India. payment of interest being in accordance with rules approved by Central Govt. is clearly expenditure laid out wholly and exclusively for purpose of business. It is perverse to see any illegality or invalidity in such payment. ld. standing counsel had tried to urge that interest in question is not allowable under s. 36 (1) (iii) of IT Act, 1961 because, funds in question have not been borrowed by bank from Trustees of Provident/Pension Funds, but that they have gradually accumulated with bank on account of employees and employees annual contributions. But, then this has been nobody s case that funds in question represent borrowed capital of Bank. They are deposits with Bank, deposited in terms of specific rules, and these very rules provide for payment of interest. assessee Bank is under obligation to pay interest more as employer than as banker, and amount is clearly deductible under s. 37 of IT Act, 1961. addition made is, there fore, hereby deleted. assessee earned dividend income. CIT (A) has directed that net income under that head be computed after deducting collection charges @ 10 paise per rupees hundred. assessee challenges correctness of above order. It is pointed out to us that assessee is banker and as such it collects dividend income in course of its normal business and that whatever be expenditure on this account is allowed as deduction from business income, and so nothing remains for deduction from dividend income, and so CIT (A) was wrong in directing that 10 paise per 100 rupees be estimated as cost of collection. It is pointed out to us that such reasoning has been accepted by Tribunal in respect of Bank s assessment for asst. yrs. 1972-73 and 1975-76 vide ITA Nos. 811 & 812 (Cal) of 1979, dt. 27th July, 1983, and that same should be accepted this year also, as it was accepted in respect of asst. yr. 1967-77 vide ITA Nos. 607 & 602 (Cal) of 1981 dt. 30th April, 1984. we have our reservations in this respect. assessee as banker earns dividend income just as it earns interest income from its constituents or interest form securities on its investments. All these items constitute business income of assessee in commercial sense. For purpose of computation of total income, however, all income is classified, vide s. 14 of IT Act, 1961 under six heads, which are mutually exclusive in each other and for each head, procedure of computation is given separately. Income from interest on securities, though essentially business income of Bank, is competed, not in terms of ss. 33 to 44 of IT Act, 1961, but in accordance with ss. 18 to 21 of said Act. Similarly, dividend income has to be computed under s. 56 of Act, vide s. 56 (2) (i). This classification of income is, no doubt, arbitrary, but nonetheless statutory. bank has not maintained its accounts separately for each head of income. They are combined accounts showing all income and expenditure under one P & L A/c. It, therefore, logically follows that if incomes have to be artificially segregated, expenses will also have to be split up correspondingly. All expenses are no doubt business expenses in same manner as all income are business income. But when incomes are artificially separated, expenses cannot be kept joint to be allowed under head business only. This position would be clear if we look at s. 20 of IT Act, for example. There statute specifically provides as to what deductions shall be made from interest on securities in case of banking company. statutory intendment to split up expenses, though essentially all business expenses, is thus manifest, and is, in fact, logical corollary of classification of income. Clause (i) of s. 57 specifically stipulates that "in case of dividends, any reasonable sum paid by way of commission or remuneration to banker or any other person for purpose of realising such dividend on behalf of assessee" shall be deducted while computing income from dividends. This being mandate of statute expenses incurred for collecting dividends will have to be estimated, in absence for specific figures. It is not assessee s case that no expenditure was incurred by it in collecting dividends for itself. Its case is: whatever be expenditure, it was business expenditure and has, therefore, to be allowed under head business income. Such approach appears to us to be opposed to mandatory provisions of statute and its scheme. We, therefore, reject assessee s contention in this regard. we derive support for our stand from following authorities: (1) United Commercial Bank Ltd. vs. CIT (1957) 32 ITR 688 (SC) (2) CIT vs. New India Investment Corporation Ltd. (1978) 111 ITR 948 (Cal). It is true that view that we have taken above is opposed to that expressed by our Brothers in IT (A) referred to above. But question involved is purely one of law and, as per decision of Hon ble Calcutta High Court in case of Namdang Tea Co. Ltd. vs. CIT (1982) 138 ITR 326 (Cal), no Bench of Tribunal binds another Bench of Tribunal in matters of law. Apart from that , we are bound by ratio of Calcutta High Court decision cited above [i. e. (1978) 111 ITR 948 (Cal)], which was not brought to attention of our ld. Brothers. assessee Bank provided certain benefits and amenities to its employees, and based thereon following additions have been made to its total income during previous year under consideration: (i) Motor Car expenses Rs. 92,400 (ii) Depreciation on buildings provided for residential accommodation of its employees Rs. 56,000 (iii) Maintenance expenditure of above-mentioned buildings Rs. 50,000 (iv) Depreciation on furniture provided in residential accommodation Rs. 1,03,000 (v) Club fees paid for employees Rs. 60,000 assessee challenges correctness of above additions. Sub-s. (5) s. 40A, so far as it is relevant for our purpose, reads as follows: "Where assessee (i) .......... ........ ...... (ii) incurs any expenditure, which results directly or indirectly in provision of any employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of assessee used by employee either wholly or partly for his own purposes of benefit, then, so such of such expenditure or allowance as is in excess of limit specified in respect thereof in cl. (c) shall not be allowed as deduction." From plain reading of above sub-clause, it is clear that certain expenditure, even though bona fide incurred by assessee, will nonetheless b e not allowed as s deduction if same exceeded specified limit. expenditure, which will be subject4ed to above treatment may be of two types: (i) It may be one resulting in provision of perquisite to employee, or (ii) it may be one incurred in relation to asset of assessee used by its employee either wholly or partly for his own purpose or benefit. If some allowance has been granted to assessee in respect of asset used by employee, amount of such allowance will also be taken into account for purpose of ascertaining disallowance. Items (ii), (iii) and (iv) above are allowances/expenses incurred by assessee in respects of assets used by employees for their own purposes and benefit. Their inclusion for purpose of working out disallowance under s. 40A (5) is, therefore, entirely correct. estimate of quantum has not been assailed as excessive. There is, therefor, no case for interference with order of CIT in respect of these items. Their disallowance is in accordance with ratio of Full Bench decision of Hon. Kerala High Court in CIT vs. Forbes, Ewart and Figgis (P) Ltd. (1981) 24 CTR (Ker) 87 (FB): (1982) 138 ITR 1 (Ker) (FB), and accordingly we confirm same. As regards Motor Car expenses, how ever, we find that addition is not justified. Bank employees have been granted free use of motor cars for purpose of official work only. If they use motor cars for their personal work Rs. 150 per month is deducted from them if it is car if car of 16 H. P. and above. and @ Rs. 100 per month if car is of horse power lower than 16. use of cars for personal purposes, for charges recoverable as above is restricted to 500 Kms. in month. If somebody s journey exceeds above limit he is to be charged extra at rat of Rs. 20 for 100Kms. addition made by Revenue on this account is based not on facts but on estimate. Before estimate can be made, one has to show that expenditure of nature mentioned in cl. (ii) of sub-s. (5) of s. 40A has been, in fact, incurred. If incurring of such expenditure is established, estimate of such expenditure may be permissible. In present case, however, no details have been brought on record which may show that recoveries made for employees for personal use of motor cars were inadequate and so benefit was provided to them. In absence of any such evidence, it is not, in our opinion, correct to make any disallowance on pure leap-in-the dark basis. addition made is accordingly deleted. payment of reimbursement of club subscriptions for employees does not, in our opinion, constitute perquisiein hands of employees in terms of sub-cl. (ii) of cl. (a) of sub-s. 5 of s. 40A because employees are directed by Bank to become members in interest of Bank s business. That incidentally benefit may be accruing or arising to them would not make said expenditure perquisite in their hands. addition made by authorities below on this account cannot, in our opinion, be sustained. That brings us to last controversy in this appeal namely failure of Revenue authorities to consider applicability of r. 40 to assessee s case. CIT (A) refused to adjudicate on this ground by observing that "This ground is not appealable". This finding of CIT (A) is, in our opinion, erroneous. question of interest can be agitated when there are other grounds of appeal. In present case, there were numerous grounds of appeal. question of interest could, therefore, be raised by assessee. If any authority for this proposition is needed we may refer to old decision of Bombay High Court in case of Jagdish Pd. Ram Nath 27 ITR 192 and that of Gujarat High Court in Sharma Construction Co. s case 100 ITR 630. Our own High Court also ordains that assessing authority must exercise its discretion under r. 40 whether or not assessee asked for it. (See 177 ITR 603, 618). In view of this, we set aside order ld. CIT (A) and direct him to determine this ground in accordance with law. Grounds No. 7 and 9 were not pressed before us. Accordingly they are rejected. In result, we partly allow this appeal. *** STATE BANK OF INDIA v. INSPECTING ASSISTANT COMMISSIONER OF INCOME TAX
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