9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (11) TMI 1187 - HC - Income TaxMethod of accounting - recognition of additional finance charges on cash basis - interest in relation to bad or doubtful debts - Held that - Overdue charges can be charged to tax only on cash receipt basis and not on accrual basis - Decision in the case of Commissioner of Income Tax v. Annamalai Finance Limited, 2009 (11) TMI 11 - MADRAS HIGH COURT and CIT v. Annamalai Finance Limited, 2004 (10) TMI 51 - MADRAS High Court - Decided in favor of assessee. Additional finance charges to tax under Section 43D - interest in relation to bad or doubtful debts - Held that - Section 43D of the said Act, if a close look is given, is attracted to cases of Public Financial Institutions, Scheduled Banks, State Financial Corporations, State Industrial Investment Corporations or Public Companies, which charge interest in relation to bad or doubtful debts. It is not in dispute that the assessee before us is not a Schedule Bank or the State Financial Corporation or State Industrial Investment Corporation nor viz., a Public Financial Institution, as defined clearly in Section 4A of the Indian Companies Act, 1956. The assessee does not fall in any one of those categories specified. Consequently, the assessee s case does not fall within the sweep of clause (a) of Section 43D of the Income Tax Act, 1961.
Issues:
1. Accounting treatment of additional finance charges under mercantile system and cash basis. 2. Permissibility of following a hybrid accounting system for Company Law and Income Tax purposes. 3. Tax treatment of additional finance charges under Section 43D of the Income Tax Act, 1961. 4. Inclusion of provision for bad debts while computing book profits under Section 115JB. Issue 1: Accounting Treatment of Additional Finance Charges The appeal raised questions regarding the accounting treatment of additional finance charges under the mercantile system and on a cash basis. The Income Tax Appellate Tribunal allowed the assessee to account for only the additional finance charges on a cash basis, deviating from the mercantile system. The Court referred to previous judgments and held that overdue charges should be taxed only on a cash receipt basis, not on accrual basis. Consequently, the questions related to this issue were decided in favor of the assessee. Issue 2: Permissibility of Hybrid Accounting System The Tribunal's decision allowing the assessee to follow a hybrid system of accounting for Company Law and Income Tax purposes was challenged. However, based on previous judgments, the Court upheld the Tribunal's decision, stating that the assessee could indeed follow a mercantile system for Company Law and a hybrid system for Income Tax purposes. This issue was resolved in favor of the assessee. Issue 3: Tax Treatment under Section 43D of the Income Tax Act The main contention under this issue was the tax treatment of additional finance charges under Section 43D of the Income Tax Act, 1961. The Court clarified that Section 43D applies to specific entities like Public Financial Institutions, Scheduled Banks, etc., which the assessee did not fall under. As the assessee did not meet the criteria specified in Section 43D, the provisions of this section were not applicable to the case. Consequently, the Court dismissed the appeal on this issue. Issue 4: Inclusion of Provision for Bad Debts The question of whether the provision for bad debts could be added back while computing book profits under Section 115JB was raised. The Court noted that a Division Bench had previously ruled against the assessee on this matter. Therefore, the issue was settled against the assessee based on the earlier judgment. In conclusion, the Court upheld the Tribunal's decisions on the accounting treatment of additional finance charges and the permissibility of a hybrid accounting system. The appeal was dismissed concerning the tax treatment under Section 43D, as the assessee did not fall within its scope. Additionally, the provision for bad debts could not be added back while computing book profits, as per the previous Division Bench ruling.
|
