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TMI Blog2013 (9) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... al filed by the Revenue for disposal. The issue in controversy is whether the interest on the accounts classified as NPA is taxable under the provisions of the Income Tax Act. 4. Briefly stated facts are as under. The assessee is a cooperative society engaged in the banking business. The assessee filed the return of income for A.Y. 2009-10 declaring total income at ₹ 86,42,560/-. The assessee s case was selected for scrutiny and assessment has been completed u/s.143(3) of the Act. The A.O. has noted that the assessee has not included sum of ₹ 40,40,930/-, being interest on the non-performing assets (NPA) and as the assessee is following mercantile system of accounting. Hence, no such exemption available to the assessee under Income Tax Act. The A.O., therefore, made addition of ₹ 40,40,930/- relying on the decision in the case of Southern Technologies Ltd. Vs. JCIT 320 ITR 577 (SC). The Ld.CIT(A) deleted the addition. Now the Revenue is in appeal before us. 5. We have heard the parties. We find that the issue stands covered in favour of the assessee by the decision of this Bench in the case of ACIT, Circle-3, Nanded Vs. Osmanabad Janata Sahakari Bank Ltd. vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 is to be taken into account for the purpose of chargeability of income by way of interest. Simultaneously, it is noteworthy that this section is an overriding section because the opening word is notwithstanding anything to the contrary contained in any other provisions of this Act . Therefore, in spite of anything contained in the Act, the provisions of this section shall override those provisions. Once the Statute has categori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has held that there was an accrual of income liable to income-tax and the assessee was not justified in not crediting the interest income on such stick advances it its accounts. However, later on at the Hon'ble Apex Court while pronouncing the judgment of the said State Bank of Travancore vs. CIT reported in (1986)158 ITR 102(SC), there were Hon'ble three Judges presiding the Court, out of which Hon ble two Judges were in the opinion that the interest on sticky advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, 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 reported at 237 ITR 889(SC) :: 240 ITR 355 (SC). Likewise, in an another case of CIT vs. State Bank of India 262 ITR 662 (Bom.) again it was held that the amount credited to the interest suspense account was not taxable following the decision pronounced in the case of UCO Bank (supra). (V) Judgement in favour of Revenue : From the side of the Revenue an order of the Tribunal has been vehemently relied upon and this is the basic reason of the elaborate discussion made hereinabove so as to unfold the controversy. In the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent 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 7 banking financial company and this noteworthy distinction has already been appreciated by us in one of the paragraphs above. There is one more decision of the Hon ble Apex Court which is yet to be mentioned while discussing the arguments raised from the side of the Revenue. A decision in the case of Southern Technologies Ltd. vs. Jt. CIT 320 ITR 577 (SC) has been cited but the fundamental difference is that the issue before the Hon ble Court was in respect of provision for NPA and debited to P L Account by a NBFC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 an another decision of the same High Court pronounced in the case of Jt.CIT vs. India Equipment Leasing Ltd. 293 ITR 350. 7. In the case before us, admittedly, assessee has directly taken the interest to the Balance Sheet and it is not routed through the Profit Loss Account. Moreover, the issue of the taxability of the interest on the sticky losses/advances, is covered in favour of the assessee by the decision of the coordinate Benches in the case of The Durga Cooperative Urban Bank Ltd., Vijayawada (supra) and Karnavati Cooperative Bank Ltd. (supra). We find no reason t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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