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TMI Blog2014 (11) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... t for a financial institution. Interpretation of the language of the statute – Concept of real income approved in the case of banking business – Held that:- If the statute has used the terminology for the chargeability of interest on the basis when "credited" or "actually received", then no ambiguity has been left by the Statute - If the statute is so clear that an interpretation can easily be made, then that exact meaning should be given to the language of the Section - section 43-D has to be applied in its letter and spirit - assessee has directly taken the interest to the Balance Sheet and it is not routed through the Profit & Loss Account – thus, there is no reason to interfere in the order of the CIT(A) – Decided against revenue. - ITA No. 2138/PN/2013 - - - Dated:- 30-10-2014 - Shri G. S. Pannu And Ms. Sushma Chowla,JJ. For the Appellant : Shri P. S. Naik For the Respondent : Shri Ashish S. Bihani ORDER Per Sushma Chowla, JM: This appeal filed by the Revenue against the order of CIT(A), Aurangabad dated 30.09.2013 relating to assessment year 2009-10 is against order passed under section 143(3) of the Income-tax Act. 2. The Revenue has raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, a reference was made to the provisions of section 43D of the Act which were introduced w.e.f. 01.04.1991 and were substituted w.e.f. 01.04.2000 which clarified that in respect of Public Financial Institution or a Scheduled Bank or a State Financial Corporation or a State Industrial Investment Corporation or Public Company, income by way of interest on assets classified as bad and doubtful, shall be chargeable to tax in the year of interest credited to the Profit Loss Account or in the year when it has actually received by the assessee, whichever was earlier. The said section however, does not allow the said option to Non-scheduled Co-operative Banks. In view thereof, the contention of the assessee that it was consistently following the principle of accounting for interest on bad and doubtful debts as revenue in the year of recovery in terms of RBI norms, was rejected by Assessing Officer and addition of ₹ 1,05,61,620/- was made in the hands of the assessee. 7. The CIT(A) relying on the various decisions, deleted the said addition, against which the Revenue is in appeal. 8. We find that a similar issue of taxability of interest on NPAs on accrual basis arose befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y advances/NPA advances cannot be brought to tax by following the decision in the case of UCO Bank (supra), which is as under: 15.1. On careful analysis of this section our first observation is that Section 43D is in contrast with the fundamental principle of accountancy. The cardinal principle of mercantile system of accountancy is that an income is to be shown in the books of account on accrual basis. The principle is that it is immaterial whether it was actually received or not, but if an income is expected to be received, then it should be brought to books of account as an income accrued to the assessee. Contrary to this recognized principle, this section has prescribed that an income by way of interest shall be chargeable to tax in the previous year in which it is credited. The words credited and actually received has been highlighted hereinabove while reproducing the section in question. The other deviation from the said accepted principle of accountancy is that an income by way of interest shall be chargeable to tax in the previous year in which it is actually received. The Act says that the incidence of 'credit' or actually received , whichever is earlier i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owers to relax the severity or the strictness of law and the authorities are required to follow those instructions as held in the case of C.B. Gautam vs. Union of India 108 CTR 304 (SC) 110 CTR 179 (SC); Navnitlal C.Zaveri 56 ITR 198(SC) and K.P.Varghese 131 ITR 597 (SC). In the land-mark decision, the Hon'ble Supreme Court in the case of UCO Bank vs. CIT (1999) 237 ITR 889 (SC) has therefore held, first, that a beneficial circular is not to be treated as inconsistent with the provisions of statute and binding on the authorities. Second, that in respect of interest on sticky advances interest income is to be taxed only when actually received as prescribed by CBDT Circular. However, in the past an interesting turn had taken place by an order of the Hon'ble Kerala High Court in the case of State Bank of Travancore reported in 110 ITR 336 (Ker.), wherein it was held that the assessee, a banking company, did not credit in its account the interest that had accrued on sticky advances because the assessee felt that the interest could not to be realised. It credited the interest to a separate account known as interest suspense account . On reference, the Hon'ble Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms, ambivalent and do not manifest the intention of the Legislature. When words acquire a particular meaning or sense because of their authoritative construction by superior courts, they are presumed to have been used in the same sense when used in subsequent legislation in the same or similar context. To say that the court could not resort to the so-called equitable construction of a taxing statute is not to say that, where a strict literal construction leads to a result not intended to subserve the object of the legislation, another construction, permissible in the context, should not be adopted. In this respect, taxing statutes are not different from other statutes. We can therefore safely draw a conclusion that by the insertion of a special provision to tax interest income in the case of public financial institution, etc. section 43-D has to be applied in its letter and spirit. It is pertinent to mention that later on, in the case of CIT vs. Bank of America S.A. 262 ITR 504 (Bom) the question of interest on sticky loans was decided in favour of the assessee and held that the question is to be answered in favour of the assessee following the decision of UCO Bank repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such assessees was determined as per circular dated 9- 10-1984. Because of this reason, section 43Dwas inserted in the statute. RBI Guidelines in case of NBFC are for the purpose of control and supervision with respect to public interest and viability of the NBFC. The Guidelines never intended for taking the interest income accrued as per section 5 out of the scope of the Act. If the contention of assessee was accepted, it would amount to insertion of 'NBFC' in section 43D, that too by a Guideline issued for different purposes by an authority other than the Parliament In other words, the doctrine of 'Casus Omissus' will deem to have been applied which is contrary to law of land. Unquote. The basic reason for directing to assess the accrued interest on NPA was the RBI guidelines issued only for scheduled banks, public financial institutions and not for NBFC. The observation of the Respected Tribunal was that if the contention of the assessee was to be accepted, then it would amount to insertion of NBFC in section 43-D of the I.T.Act. As against that, as far as the assessee is concerned, it is an accepted fact that the assessee is a cooperative bank and not a non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that if an income has not materialized, then merely an entry made about a hypothetical income by following book keeping methods, the liability to tax cannot be attracted. Now at present the situation is that the Hon'ble Madras High Court in the case of CIT vs. Elgi Finance Ltd. 293 ITR 357 (Mad.) has taken a view that the assessee is a company engaged in the business of lease, finance and hire purchase and that the principle of accrual comes into play without income was recognized and that the assessee had classified its assets on the basis of notification issued by R.B.I. and found that certain assets came under the category of NPA and that from such NPA the assessee had not recognized any income in consonance with the notification issued by RBI and AS-9 issued by ICAI and that the assessee was justified in not recognizing such income. The Court had further expressed that there was no occasion to consider whether the principle of accrual would arise or not, nevertheless, the interest from such NPA would be taxed in the appropriate assessment year on the basis of actual receipt. It is worth to mention that for this decision, the Hon'ble Madras High Court has relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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