Mumbai ITAT rules that non-recognition of interest income on NPAs as per RBI guidelines would by itself not determine non-taxability thereof

 

The Mumbai Income-tax Appellate Tribunal (ITAT) has in the case of KEC Holdings Ltd (Taxpayer) pronounced a ruling on the issue of accrual/ recognition of interest income in the hands of a Non-Banking Financial Company (NBFC) on its advances/ deposits which are classified as Non-Performing Assets (NPA) as per the Reserve Bank of India (RBI) guidelines.

The ITAT, based on the facts of the case, held that accrual/ recognition of interest income, for the purpose of offering it to tax, is not determined merely on characterisation of the deposit as NPA/ doubtful asset. Other relevant factors like certainty of realization of income and other relevant facts of each case also need consideration. In the said ruling, the ITAT relied on the principle laid down by the Supreme Court of India in the case of Southern Technologies Ltd v. Jt CIT [2010] 320 ITR 577, wherein it was held that RBI guidelines do not override the Income-tax Act, 1961 and both operate in different fields

This alert summarizes the key issues discussed in the case of the Taxpayer by the Mumbai ITAT.