AIR 2006 SUPREME COURT 3667 ::2006 AIR SCW 2435 ::2006 (4) AIR Kant HCR 96 ::2006 TAX. L. R. 435 ::(2006) 202 CurTaxRep 457 ::2006 (5) SCC 221 ::2006 (5) Scale 244 ::2006 (4) Bom CR 568 ::MANU/SC/2665/2006 ::2006 (5) KantLJ 932 ::2006 (6) SCJ 253 ::(2006) 153 Taxman 97 ::2006 (3) Bom LR 1989 ::2006 Bom LR 3 1989 ::2006 (193) Taxation 563 ::(2006) 5 Supreme 932 ::2006 (283) ITR 84

Supreme Court Of India

Hon'ble Judge(s): Ruma Pal, Dalveer Bhandari , JJ

( A ) Income Tax Act (43 of 1961) S. 28 ,119 — Assessee Bank —Interest on sticky loans credited to interest suspense account instead of profit and loss account — Such interest cannot be brought tax as business income in view of C. B. D. T. Circular dated 6-10-1952. 1999 Tax LR 604 (Bom), Partly Reversed. 1999 AIR SCW 1806, Foll. (Paras910)

( B ) Income Tax Act (43 of 1961) S. 40 A(5) (as it existed before its omission by Direct Tax Laws (Amendment) Act (1987))— Two separate limits does not apply for computing disallowance under S. 40A (5).The intention of the Legislature was to fix limits of deduction under the various clauses of sub-sec. (5) of S. 40A of Income-tax Act (1961). When an employee ceases to be in employment during the previous year, the employer is either entitled to deduction at the rate of Rs. 5,000/- p.m. as long as the employee was in employment or up to the limit of Rs. 60,000/- when the employee retires. Cl. (c) (ii) of sub-sec. (5) of S. 40A speaks of ‘an amount’. This would indicate that the employer is only entitled to reduction of one amount. Cl. (c) (i) also speaks of an employee as being not only one who has ceased to be in employment, but one who ceases to be in employment. In respect of the latter it is assumed that the employee served for a period but ceases to be so employed during the previous year in question. In such a case, the section expressly provides for a limit on the deduction of Rs. 60,000/-. Thus, only one limit is prescribed for deduction on account of salary whether paid to an employee in service or a retired employee in any one previous year. (Paras12 16 17 2122)It cannot be said that, if an employee serves for 12 months, and retires on the last day of the previous year, the employer would be entitled to claim a deduc....