2024 (4) TMI 254 - AT - Income Tax

Accrual of income - Taxability of notional interest income credited by the assessee in his profit and loss account as per the requirement of Indian Accounting Standards - taxation under Real Income principle - contention of the assessee is that the income tax can be levied only on the real income and not on notional income - as submitted that the notional interest credited to the Profit and Loss account as per the requirement of Indian Accounting Standards cannot be considered as real income as there is no contractual obligation for the debtor to pay interest - CIT(A) deleted addition HELD THAT - As decided in M/S. SHRIRAM PROPERTIES LIMITED 2023 (4) TMI 375 - ITAT CHENNAI Tribunal accepted the contentions of the assessee that the above said income did not accrue to it. Thus the notional income credited to the profit and loss account cannot be said to have accrued to the assessee, when there is no contractual obligation to pay the same. In the instant case, it was not shown to us by the revenue that there existed a contractual obligation to collect interest from the debtors. Thus we hold that the notional interest income credited by the assessee to the profit and loss account as per the requirement of Indian Accounting Standard has not actually accrued to the assessee and hence the same is not liable for taxation under Real Income principle. Accordingly, we are of the view that the CIT(A) was justified in directing the Assessing Officer to exclude the same. Appeal filed by the Revenue is dismissed.

Summary

Issues:
The judgment involves the taxability of notional interest income credited by the assessee in the profit and loss account as per Indian Accounting Standards.

Summary:

Issue 1: Taxability of Notional Interest Income
The Revenue appealed against the deletion of an addition of Rs. 2.76 crores made by the CPC, relating to notional interest credited to the profit and loss account as per Indian Accounting Standards. The assessee, a public limited company, provided an interest-free loan to its subsidiary and accounted for notional interest income in its books. The CPC disallowed the exclusion of this amount, leading to an increase in the total income. The learned CIT(A) agreed with the assessee that the notional interest income did not accrue and thus was not liable for taxation, deleting the disallowance. The Tribunal, following precedent, held that notional income without a contractual obligation is not taxable under the Real Income principle, affirming the CIT(A)'s decision.

Conclusion:
The appeal by the Revenue challenging the taxability of notional interest income was dismissed by the Tribunal, upholding the decision of the CIT(A) to exclude the amount from taxation based on the Real Income principle.