R.K. Patra, J.

1. This is a reference under Section 256(1) of the Income Tax Act, 1961, in which at the instance of the Revenue, the Income Tax Appellate Tribunal, Cuttack Bench, has referred the following question for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, and on a correct reading of Section 34 of the Civil Procedure Code read with Section 31 of the Orissa State Financial Corporations Act, 1951, the Tribunal was legally correct in coming to the conclusion that no interest accrued to the assessee-corporation till the decision of the civil court and that no such interest amount would be chargeable to tax in the hands of the assessee for the assessment year 1983-84 "

2. The respondent-assessee is the Orissa State Financial Corporation established under Section 3(1) of the State Financial Corporations Act, 1951. The assessment year is 1983-84 for which the previous year ended on March 31, 1983. During the relevant year, the assessee credited Rs. 1, 14,82,064 to "interest suspense account" instead of crediting the same to "interest account". This amount was not shown as income during the year on the ground that realisation of interest on the loans is doubtful- According to the assessee whenever interest on the suit-filed loans is actually realised, it would be taken to interest account. In other words, the assessees contention was that the interest on the suit-filed loans are accounted for on cash basis only when they are realised, because in the case of suit-filed loans, interest cannot be held to have "accrued" inasmuch as under Section 34(1) of the Code of Civil Procedure award of interest is within the discretion of the court which can prescribe such rate of interest as it thinks just and proper in the circumstances. This plea did not find favour with the Assessing Officer, who completed the assessment by order dated January 15, 1986, by adding the aforesaid amount of Rs. 1, 14,82,064 to its income. Being aggrieved by the order of assessment, the assessee preferred appeal before the Commissioner of Income Tax (Appeals) who, by order dated March 14, 1986, set aside the assessment with certain directions to the Assessing Officer to examine the matter and make fresh assessment. In obedience to the order of the Commissioner, the Assessing Officer made a fresh assessment under Section 143(3) read with Section 251 of the Income Tax Act on February 8, 1988, reiterating his previous finding. The assessee again preferred an appeal objecting to the assessment before the Commissioner of Income Tax (Appeals) but without any success. Thereafter, it carried the appeal before the Income Tax Appellate Tribunal which did not agree with the reasoning of the Commissioner of Income Tax (Appeals) and by the impugned order dated April 10, 1991 (out of which this reference arises) held that no interest can be held to have accrued legally till decision of the court is arrived at.

3. We have heard learned standing counsel for the Revenue.

4. Under Section 5 of the Income Tax Act, 1961 (hereinafter referred to as " the"), taxability is attracted not merely when income is actually received but also when it has "accrued". As explained by the Supreme Court in CIT v. K. R. M. T. T. Thiagaraja Chetty and Co. : [1953]24ITR525(SC) and Morvi Industries ltd. v. CIT : [1971]82ITR835(SC) , income accrues when it falls due that is to say when it becomes legally recoverable irrespective of whether it is actually received or not and accrued income is that income which the assessee has a legal right to receive.

5. As held by the Supreme Court in CIT v. Shoorji Vallabhadas and Co. : [1962]46ITR144(SC) , Income Tax is a levy on income. The Act takes into account two points of time at which the liability to tax is attracted, namely, the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about a hypothetical income, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account,

6. We may at this stage profitably refer to the judgment of the Allahabad High Court in CIT v. Uttar Pradesh Financial Corporation : [1992]194ITR282(All) . In that case, the assessee was the Uttar Pradesh Financial Corporation and the point involved in that case is similar to the one which arises for our consideration. By referring to Section 34(1) of the Code of Civil Procedure, the court held that award of interest from the date of suit till the date of decree is within the discretion of the court and it can prescribe such rate of interest as it thinks just and proper in the circumstances. It may be that according to Section 34, the plaintiff is entitled to interest even for the period pendente lite but he cannot say at what rate until the court determines the same. In such a situation, it would not be possible for the plaintiff-assessee to say that interest is accruing to him from year to year pending the suit at a particular rate. It accrues to him on the date of the decree. To arrive at such a conclusion, the court relied upon a decision of the Calcutta High Court in CIT v. Naskarpara Jute Mills Co. Ltd. : [1983]141ITR384(Cal) .

7. It cannot be disputed that the award of interest under Section 34 of the Code of Civil Procedure after the date of suit is entirely within the discretion of the court. The said discretion is not excluded even if there is an agreement to pay a certain rate of interest till realisation. The court has full discretion over the matter. This being the position, it cannot be said that interest has accrued on suit-filed loans.

8. For the reasons aforesaid, we have no hesitation to hold that the Appellate Tribunal rightly held that no interest accrued legally to the assessee till the decision of the court is arrived at and no such interest amount would be chargeable to tax in the hands of the assessee. In the premises, we answer the question in the affirmative and against the Revenue.

9. The reference is answered accordingly. There would be no order as to costs.

P.K. Misra, J.

10. I agree.