|CORAM:||G. S. Pannu (AM), Sushma Chowla (JM)|
|CATCH WORDS:||Interest, NPA, Taxability|
|DATE:||October 31, 2014 (Date of pronouncement)|
|DATE:||November 3, 2014 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Interest on NPAs is not taxable. As there is a conflict on the point between Vasisth Chay Vyapar Ltd 330 ITR 440 (Del) and Sakthi Finance Ltd., (2013) 31 taxmann.com 305 (Mad), the view in favour of the assessee has to be followed|
Based on the prudential norms, the assessee herein did not admit the interest relatable to NPA advances in its total income. The Delhi High Court in Vasisth Chay Vyapar Ltd 330 ITR 440 (Del) has held that the interest on NPA assets cannot be said to have accrued to the assessee on the basis that “What to talk of interest, even the principle amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not “accrued”“. However, the Madras High Court in the case of CIT vs. Sakthi Finance Ltd., (2013) 31 taxmann.com 305 (Madras) has differed with the judgement of the Hon’ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) on a similar issue, i.e. relating to interest income on NPAs. The Madras High Court followed the decision of the Supreme Court in the case of Southern Technologies Ltd. (supra) in holding that interest on NPAs was assessable to tax on accrual basis. We have carefully considered the submissions put-forth by the learned Departmental Representative based on the judgement of the Madras High Court in the case of Sakthi Finance Ltd. (supra). The controversy before the Hon’ble Madras High Court related to non-recognition of interest income on NPAs by the assessee following the RBI guidelines. The Madras High Court took the view that the judgement of the Hon’ble Supreme Court in the case of Southern Technologies Ltd. also applied to the Income Recognition Norms provided by RBI and therefore it held the interest income on NPAs is liable to be taxed on accrual basis and not in terms of RBI’s guidelines. But the Delhi High Court in M/s Vasisth Chay Vyapar Ltd. has taken a view that Southern Technologies Ltd. (supra) case did not apply to the Income Recognition Norms prescribed by RBI. Ostensibly, there is divergence of opinion between the Hon’ble Delhi High Court and the Madras High Court as noted by the Madras High Court in its order. As there is no judgment of the Jurisdictional High Court. We are faced with two contrary judgments of the non-jurisdictional High Court. In such a situation, we are inclined to prefer a view which is favourable of the assessee following the judgement of the Supreme Court in the case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). (ACIT vs. The Omerga Janta Sahakari Bank Ltd. order in ITA No.350/PN/2013 dated 31.10.2013 followed)
Good and highly logical judgement.
What do we mean by NPA? Non performing assets. if asset performs zero it is non performing. when no returns where from you get profit,Profitability less all expenses become bet income. Expenses on asset continues as asset gets depreciated and liability to lender increase .
infact the asset is forcing expenses on you as assets get deteriorated towards junking, where is an income while liability becomes higher and higher.
you end up with more and more liability, as taxation is based on net profits that becomes an income, where as only liability goes on increasing day by day, so RBI income recognition is based not obviously based on ongoing income yoy, so income tax perception do not gel with RBI perception.it is like nation debt cannot bring any income unless liability is helped to increase some gross income after all payments to service loans how then the debt is positive to generate income as the asset is depreciating like a highly sick man hastening his death when sickness only increases how health of the man improves him healthwise, when not no profit at all but liability effect goes on increasing that is banker charges interest on the money lent though the borrower’s income is negative in progression where from NPA gives income to become net profitability and tax can arise only on net profitability generated, where is net profitabilty and so taxman cannot get taxable income on the NPA !
you cannot just take for granted unjudiciuosly per taxation jurisprudence under due process principle, government cannot go on belaboring a dead horse!
Logic should based sense and sensibilities of logic, as every activity is based upon some sensible common sense based logic only!
hon court is right when weighing two conflictive views, the one favorable to the assesse must be considered,
logic need to a healthy logic that is what judgement portrays!
so this view would be respected by hon SC and it may soon decide to superceed its own earlier opinion, i appreciate the healthy logic of the hon court here! kudos to court.