Friday, 21 August 2015

Three Imp Verdicts On Taxability Of Int On NPAs, S. 40(b)(v) Partners Salary And S. 40(a)(ia) TDS Disallowance


CIT vs. Deogiri Nagari Sahakari Bank Ltd (Bombay High Court)


Interest on NPAs and Stick Loans, even if accrued as per the mercantile system of accounting, is not taxable as per prudential norms

The assessee herein being a Cooperative Bank also governed by the Reserve Bank of India and thus the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the Cooperative banks. The provisions of Section 45Q of Reserve Bank of India Act has an overriding effect vis-à-vis income recognition principle under the Companies Act. Hence, Section 45Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks. Hence, the Assessing Officer has to follow the Reserve Bank of India directions 1998. In UCO Bank the Supreme Court considered the nature of CBDT circular and held that the Board has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circular in exercise of its statutory powers under section 119 of act which are binding on the authorities in the administration of the Act, it is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied

 

CIT vs. Vaish Associates (Delhi High Court)


S. 40(b)(v): Provision in partnership deed for payment of salary at percentage share of profits multiplied by “allocable profits” is valid and entitles claim for deduction. S. 37(1): Contribution by law firm to IFA to create awareness of its activities is business expenditure

A plain reading of Clause 6(a) leads us to a conclusion that the term ‘allocable profits’ was used to mean ‘book profits’ as used in Section 40(b)(v) of the Act or otherwise the reference to the section in the Clause has no meaning. When the partners have understood and meant that the word “allocable profits” to mean surplus/book profits, prior to calculation of partners’ remuneration, and when such an understanding is manifest in its actions, we do not see any reason why the Revenue authorities should not understand this term in the same sense

 

Thomas George Muthoot vs. CIT (Kerala High Court)


S. 40(a)(ia): (a) The second provisio inserted by FA 2012 cannot be treated as retrospective in operation (b) The fact that the payees have already paid tax on the amounts paid does not mean that a disalliowance for failure to deduct TDS cannot be made, (c) S. 40(a)(ia) cannot be interpreted to mean that it applies only to amounts "paid" and not to those "payable"

The fact the second proviso was introduced with effect from 01.04.2013 is expressly made clear by the provisions of the Finance Act 2012 itself. A statutory provision, unless otherwise expressly stated to be retrospective or by intendment shown to be retrospective, is always prospective in operation. Finance Act 2012 shows that the second proviso to Section 40 (a)(ia) has been introduced with effect from 01.04.2013. Reading of the second proviso does not show that it was meant or intended to be curative or remedial in nature, and even the appellants did not have such a case. Instead, by this proviso, an additional benefit was conferred on the assessees. Such a provision can only be prospective

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