Thursday, 1 November 2018

HC: NPA interest non-taxable for Co-op. bank even prior to 2018 Sec 43D amendment

Punjab and Haryana HC deletes addition towards interest due on Non performing Assets (NPA) of co-operative bank (assessee) for AY 2009-10; Rejects Revenue’s stand that in view of specific provisions of Sec 43D which excluded from its purview, entities like assessee at relevant time, assessee cannot indirectly claim benefit to Sec 43D and thus,  interest on NPA was taxable on accrual basis u/s 145; Relying on SC decision in Southern Technologies case, notes that RBI Directions 1998 are essentially income recognition norms and they “..have nothing to do with the accounting treatment or taxability of income under the Act and the two, viz. the Act and the RBI Directions, 1998 operate in different fields”; However also observes that “Assessing Officer has to follow the RBI Directions 1998 in view of Section 45Q of the 1934 Act. Hence, as far as Income Recognition is concerned, Section 145 of the Act has no role to play in the present dispute”; Also takes note of various judicial precedents such as in case of Southern Technologies, UCO Bank, Vasisth Chay Vyapar Ltd wherein ‘real income theory’ was upheld as per which “notwithstanding that the assessee may be following the mercantile system of accounting, it can be taxed on real income and not accrued interest which is hypothetical income.:HC 

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