MERCANTILE BANK LTD., BOMBAY vs THE COMMR.OF INCOME-TAX BOMBAY CITY-III

The Supreme Court addressed two key issues under the Income Tax Act, 1961: (1) whether interest on doubtful advances credited to an interest suspense account is taxable, and (2) the applicability of separate limits for computing disallowance under Section 40A(5) for employees who retire during the previous year. The Court upheld the High Court's decision, affirming that interest on sticky loans can be taxed if not written off, in line with the majority view in State Bank of Travancore vs. Commissioner of Income Tax and UCO Bank vs. Commissioner of Income Tax. The Court concluded that the method of accounting followed by the assessee was not in accordance with the provisions of the Act, thus ruling against the appellant.