Law: Income Tax Act, 1922

Section: 14(3)(a)

Income-tax Act, 1922 -Section 14(3)(a) -- Accounts -Cash system for exempted income and mercantile system for taxable income maintained by asssessee -Calculation of proportionate expenses allowable in respect of taxable income maintained on mercantile system -Income shown in suspense account maintained on cash system -Whether should be taken into account -Held no -- Co-operative Bank -Exempted income in respect of dealings with members -Calculation of such income on cash receipt basis -Apportionment of expenses on proportion of exempted and taxable profits -Practice of taking actual receipts from members approved - ORDER {The order was passed by NUR ILAHI, President}.---These four appeals relate to the assessments framed on one and the same assessee. They pertain to four different charge years but involve one common point; the first two are at the instance of the department and the other two by the assessee. Parties and the point being the same we propose to dispose of all these appeals by this one single order. 2. The assessee, a co-operative bank, derives income both from members. Under the law as contained in Section 14(3)(a) of the Income-tax Act its income from members is exempt from tax. Income earned from non-members is taxable. There is also no dispute about the fact that the system of accountancy followed by the assessee in respect of its exempted income is cash and for its taxable income it is mercantile. The assessee puts in the actually received income from members in the profit and loss account and that which accrues from them but is not received during the course of an accounting period is shown in the suspense account. On these admitted facts the assessee's claim is that since it follows cash system for its income from members only that income from this source should be taken into consideration for the purpose of calculating proportionate expenses vis-a-vis income from non-members which has actually been received and shown in the profit and loss Account and that part of the income from his source which has accrued but no received should he left out for the said purpose. The assessee concedes that only those expenses are allowable which are…

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