Commissioner of Income Tax vs Kerala State Industrial Development Corporation

Om Prakash, C.J.—By this application made under s. 256(2) of the Income Tax Act, 1961, the Revenue requires us to direct, the Tribunal to refer the following questions for the opinion of this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that the interest earned by the assessee and the interest payable by the assessee can fall under one source namely income from interest and is not the findings wrong and against law and against the provisions contained in s. 209 of the Companies Act read with the notification dt. 16-5-1989 which varied the system only with reference to interest earned by the assessee ?

Whether, on the facts and in the circumstances of the case and since the cash system of accounting adopted by the assessee does not give the details of actual interest income;

(i) the Tribunal is right in law and fact in holding that the assessee was justified in recording its interest receipts on cash basis ?

(ii) cannot the Revenue as it did in this case adopt the method suitable for arriving at the correct income of the assessee and the Tribunal, also in the light of the decision in CIT v. British Paints India Ltd. : [1991] 188 ITR 44 (SC) . and proviso to s. 145, is justified under law in interfering with the inclusion of interests on accrual basis T''

Similar questions were raised by the Revenue in OP No. 21100/97. By judgment dt. 24-3-1998 [reported as COMMMIONER OF INCOME TAX Vs. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., , we directed the Tribunal to refer the following question for the opinion of this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee rightly followed the different systems of accounting in regard to the interest earned by it and the interests payable by it for the assessment year 1991-92 ?

Following the judgment dt. 24-3-1998 (supra), we direct the Tribunal in the instant OP also to draw up a statement of the case and refer the same abovementioned modified question for the opinion of this Court.

The application is partly allowed.