RBI guidelines on non-performing assets control income recognition, so interest is taxable only on actual receipt, not accrual.

Where RBI norms govern recognition of income from non-performing assets, interest on such assets is taxable only on actual receipt and not on accrual. The Gujarat HC followed its binding view in similar facts, held that the assessee was bound by RBI guidelines issued under the RBI Act, and accepted the deletion of the addition made for interest accrued on bad and doubtful assets.

---

---

Issues: Whether interest accrued on non-performing assets was taxable when, in view of RBI guidelines, such income was not recognized on accrual basis.

Analysis: The appeal turned on a question already covered by a binding decision of the Court in similar facts. It was held there that, because the assessee is bound by RBI guidelines issued under the RBI Act, income from non-performing assets may be recognized only on actual receipt and not on accrual basis. The Court noted that the lower authorities had followed that binding view and had deleted the addition made on account of interest accrued on bad and doubtful assets.

Conclusion: The interest accrued on non-performing assets was not taxable on accrual basis, and the deletion of the addition was .

Ratio Decidendi: Where RBI norms govern recognition of income from non-performing assets, interest thereon is taxable only on actual receipt and not on mere accrual.

---