JUDGMENT
A. R. TIWARI, J. :
These two Misc. Civil Cases are heard as connected matters and are being disposed of by this common order.
2. Misc. Civil Case No. 142 of 1993 is registered on reference from the Tribunal at the instance of the CIT, Bhopal under s. 256(1) of the IT Act, 1961 (for short the Act) arising out of the order dt. 3rd July, 1990 passed by the Tribunal in ITA No. 327/Ind/1989 relating to asst. yr. 1984-85 and consolidated order dt. 30th Dec., 1991 passed by the Tribunal in ITA No. 311/Ind/1988 and ITA Nos. 57 and 58/Ind/1990 relating to asst. yrs. 1983-84, 1985-86 and 1986-87 respectively. The Tribunal referred the undernoted questions at the instance of the Revenue. The Tribunal also accepted the request of the assessee during consideration of the application registered as RA No. 181/Ind/1990 and 42 to 44/Ind/1992 and referred the undernoted questions at the instance of the assessee :
At the instance of the Revenue
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest accrued on the debts in which legal action for recovery was made and no recovery was at all made, was not includible in the total income of the assessee when the assessee did not debit that interest to the account of the debtor or to any account, in view of the resolution dt. 23rd March, 1978, though the assessee had in general followed mercantile system of accounting ?”
At the instance of the assessee
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-company was not entitled to change its method of accounting from mercantile to cash system in respect of amounts due from debtors which had become doubtful of recovery and against whom suits for recovery had been filed ?”
3. Briefly stated, the facts of the case are that the assessee is a Financial Corporation created under the State Finance Corpn. Act by the Government of Madhya Pradesh. The business of the assessee is to advance finances by way of long-term loans to the industries. The assessee maintained accounts in mercantile system. In the absence of recoveries of certain loans, it was forced to file civil suits. On 23rd March, 1979, it passed the resolution not to charge accrued interest in view of the litigation and thus, stopped showing artificial income. The AO did not make addition of such interest. However, on appeal, the addition was made by the CIT(A) under his power of enhancement (Annexure – A/1 to A/4 and B/1 to B/4). The assessee then filed the appeal before the Tribunal. The Tribunal found that there was no debit of interest at all either to the accounts of the debtors or to any other account. The Tribunal allowed the appeal. On applications under s. 256(1) of the Act, the Tribunal stated the case and referred the aforesaid questions.
4. Misc. Civil Case No. 596/1994 is registered on reference by the Tribunal at the instance of the CIT, Bhopal under s. 256(1) of the Act arising out of the Tribunals consolidated order dt. 31st Aug., 1993 passed in ITA Nos. 476, 223, 41, 224 and 477/Ind/1993 pertaining to asst. yrs. 1989-90 and 1990-91. In identical fact/situation, the Tribunal stated the case and referred the undernoted questions –
Question for asst. yr. 1989-90
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest accrued on the debts in which legal action for recovery was made and no recovery was at all made, was not includible in the total income of the assessee when the assessee did not debit that interest to the account of the debtor or to any account and, thus, deleted the addition of Rs. 78,92,352 ?”
Question for asst. yr. 1990-91
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest accrued on the debts in which legal action for recovery was made and no recovery was at all made, was not includible in the total income of the assessee when the assessee did not debit that interest to the account of the debtor or to any account and, thus, deleting the addition of Rs. 1,29,79,558 ?”
5. We have heard Shri Anand Mohan Mathur, learned Senior counsel with Shri A. K. Shrivastava for the applicant and Shri Om Chaphekar, learned Senior counsel with Shri S. S. Samvatsar for the non-applicant.
6. Learned counsel for the applicant submitted that the Tribunal was not right in holding that interest accrued on the debts in which legal action for recovery was made and no recovery was made, was not includible in the total income of the assessee. He also submitted that the Tribunal was also not right in taking similar view for the asst. yrs. 1989-90 and 1990-91.
7. The learned counsel for the non-applicant on the other hand, submitted that the assessee was within its right in excluding the interest from the total income when such interest was not being received by the assessee. He submitted that the resolution dt. 23rd March, 1979 was not in conflict with law. According to him, there was no justification in showing such interest without receiving the same and without prospects of receiving it in near future. The assessee thus, formulated the policy to stop charging interest and such policy is not illegal or illogical. The counsel further submitted that the Tribunal took the reasonable and rational view in the matter. In support of his submission, he placed reliance on CIT vs. U. P. Financial Corpn. (1992) 194 ITR 282 (All), ITO vs. Jaipur Udyog Ltd. (1996) 217 ITR 191 (All), CIT vs. Orissa State Financial Corpn. (1993) 201 ITR 595 (Ori) and CIT vs. Naskarpara Jute Mill Co. Ltd. (1983) 141 ITR 384 (Cal). The counsel also submitted that if question proposed at the instance of the Revenue in Misc. Civil Case No. 142/1993 is answered in favour of the assessee, then the assessee will not press the question referred to at the instance of the assessee in this case and as such, the question may be left unanswered as being not pressed.
8. Considering s. 34 of the Code of Civil Procedure, the Allahabad High Court held in CIT vs. Uttar Pradesh Financial Corpn. (supra) that the Tribunal was right in holding that during the relevant previous year, interest did not accrued because during the whole of this period suits filed for recovery of the loans were pending and awarding of interest for the period was within the discretion of the Court which was yet to pronounce its judgment. In this case, the assessee was a Financial Corporation. It was held that interest cannot be held to have accrued during the pendency of the suit and as such, was not includible in the total income.
9. The aforesaid decision was followed by Allahabad High Court in ITO vs. Jaipur Udyog Ltd. (supra).
10. The Orissa High Court also took the same view in CIT vs. Orissa State Financial Corpn. (supra) aid held that interest did not accrue during the whole of the period during which suits were filed for recovery of loan and awarding of interest for the period was within the discretion of the Court. It was thus, held that the Tribunal was right that interest was not includible in the profits of the assessee because of this position.
11. In CIT vs. Naskarpara Jute Mills Co. Ltd. (supra), the Calcutta High Court also took similar view and held that interest can accrue only on the date of decree.
12. In view of the aforesaid decisions of Allahabad High Court, Orissa High Court and Calcutta High Court it is clear that the Tribunal was right in taking the view that such interest was not includible in the total income of the assessee, and as such, the Resolution passed by the assessee on 23rd March, 1979 was fault-free.
13. We respectfully agree with the view taken by the aforesaid High Courts. Nothing substantial is urged to take a different view in the matter. The Tribunal, thus, took correct decision also in regard to asst. yrs. 1989-90 and 1990-91.
14. It is not disputed before us that the suits for recovery were instituted and the same were pending.
15. In view of the aforesaid factual and legal position, we answer the question proposed at the instance of the Revenue in Misc. Civil Case No. 143/1993 in the affirmative i.e. in favour of the assessee and against the Department. In view of the submission that on such answer, the question proposed in this case at the instance of the assessee need not be answered as not pressed, we accept the submission and decline to answer the question posed at the instance of the assessee. As this question was referred to at the instance of the assessee, the assessee is within its right to indicate that no answer be recorded on such question. That question is, thus, left unanswered as not pressed. As regards the questions projected and proposed in Misc. Civil Case No. 596/1994 for the asst. yrs. 1989-90 and 1990-91, we answer the same in the affirmative i.e. in favour of the assessee and against the Department on the same logic as pertained to the questions proposed in Misc. Civil Case No. 142/1993.
16. In the result, these two Misc. Civil Cases are decided in terms indicated above, but without any orders as to costs. Counsel fee for each side in each case is, however, fixed at Rs. 750, if certified.