2014 (11) TMI 1183 - HC - Income Tax

Assessment of Non-Performing Assets - accrual of income - Held that - It appears, for the assessment years 2007-08 and 2008-09, the Tribunal held in favour of the assessee. In the impugned judgment, the decision of the Hon ble Supreme Court in the case of SOUTHERN TECHNOLOGIES LIMITED v. JOINT COMMISSIONER OF INCOME TAX, COIMBATORE 2010 (1) TMI 5 - SUPREME COURT OF INDI was not considered by the Tribunal. According to us, consideration of that decision is also required. However, learned counsel for the appellant submits that in the case of Southern Technologies Limited (supra), the Hon ble Supreme Court held in favour of the appellant. We think this can be considered by the assessing authority in terms of the direction of the Tribunal.

Summary

Issues:
1. Tax assessment of Non-Performing Assets (NPAs) for the assessment year 2009-10.

Analysis:

Issue I:
The primary question raised in this case is whether NPAs are liable for assessment under the Income Tax Act, specifically regarding the treatment of interest charged but not realized on NPAs. The Tribunal's decision on this matter was challenged in the appeal. The appellant argued that the interest on NPAs is segregated into a separate account called INCA, ensuring that no income from NPAs is considered as revenue. The High Court noted the appellant's reliance on a previous decision by the Supreme Court in the case of SOUTHERN TECHNOLOGIES LIMITED v. JOINT COMMISSIONER OF INCOME TAX, COIMBATORE [(2010) 2 Supreme Court Cases 548], which favored the appellant. However, the High Court found no reason to interfere with the Tribunal's decision, ultimately dismissing the appeal.

Issue II:
The second issue addressed in this case pertains to the treatment of NPA accounts as income, particularly in relation to the interest charged but not recovered on NPAs. The Tribunal had held that the interest on NPAs is not treated as income until it is recovered, at which point it is credited to the interest account and considered as income for tax purposes. The High Court considered the appellant's argument regarding the Supreme Court's decision in the case of Southern Technologies Limited and acknowledged the need for assessing authorities to consider this precedent. Despite this, the High Court upheld the Tribunal's decision and dismissed the appeal.

Issue III:
The final issue revolves around the chargeability of interest on NPAs to tax, even when such interest may not yield any actual income. The appellant questioned the justification of taxing interest on NPAs that do not generate income. The High Court's analysis focused on the relevance of the Circular on NPAs with respect to income accrual and tax liability under the Income Tax Act. While acknowledging the appellant's arguments and the Supreme Court's decision in Southern Technologies Limited, the High Court ultimately upheld the Tribunal's decision based on the principles established in the cited case law.

In conclusion, the High Court dismissed the appeal against the Tribunal's judgment, emphasizing the relevance of the Supreme Court's decision in Southern Technologies Limited in determining the tax assessment of NPAs. The High Court found no grounds to interfere with the Tribunal's decision and upheld the treatment of NPAs for tax purposes as per established legal principles.