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Interest on NPA is taxable in year of receipt

November 6, 2018[2018] 99 taxmann.com 81 (Punjab & Haryana)
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IT : An addition on account of interest due on Non-Performing Assets (NPA) was made in hands of assessee, a co-operative bank. Commissioner (Appeals) deleted the addition made by the Assessing Officer holding that interest on NPA's is taxable in year of receipt. The revenue, submitted that section 43D itself recognises taxability of such interest and that when a specific provision in the nature of section 43D has been made, and entities like the assessee are excluded from the purview thereof, the assessee cannot indirectly claim benefit which would amount to a benefit similar to that under section 43D

• The High Court noted that the benefit claimed by the assessee is not under any provision of the Act. The assessee being bound by the RBI Guidelines which are issued under the provisions of the 1934 Act has not shown the interest on NPA as income. By virtue of the provisions of section 45Q of the 1934 Act, the provisions of Chapter IIIB thereof have an overriding effect over other laws. Therefore, notwithstanding the provisions of section 43D, since the provisions of section 45Q of the 1934 Act have an overriding effect vis-à-vis income recognition principles in the Companies Act, the Assessing Officer is bound to follow the RBI Directions so far as income recognition is concerned. The interest on principal loan amount which has been classified as NPA cannot be held to have "accrued" so as to tax them under the Act. The contention that the assessee cannot indirectly claim the benefit which would amount to a benefit similar to that under section 43D, therefore, does not merit acceptance.

• Further, Parliament has amended Section 43D by Finance Act, 2017 effective from 1.4.2018 whereby specifically including "a cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank" in the said provision.

• Thus, no illegality or perversity could be demonstrated by the revenue in the findings recorded by the Tribunal in DCIT v. Ludhiana Central Co-op. Bank Ltd. [2017] 77 taxmann.com 371 (Trib. - Chd.), that interest on NPA's is taxable in year of receipt.

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