2018 (3) TMI 1527 - HC - Income Tax

High Court rules in favor of assessee on income tax assessments, clarifies interest, tax deduction, and depreciation rules.

The Principal Commissioner Of Income Tax Versus Shri Laxmi Sahakari Bank Niyamit,

The Principal Commissioner Of Income Tax Versus Shri Laxmi Sahakari Bank Niyamit, - TMI Issues:1. Addition of accrued interest on loans treated as Non Performing Assets under Section 145 of the Income Tax Act, 1961.2. Applicability of Section 194A(3)(v) of the Income Tax Act, 1961 to cooperative societies engaged in banking.3. Claiming depreciation on investments in government securities held to maturity as held for trading.Issue 1:The first substantial question of law pertains to the addition made on account of accrued interest on loans treated as Non Performing Assets (NPAs) under Section 145 of the Income Tax Act, 1961. The Court, relying on previous judgments, held that the mere nomenclature adopted with reference to bad loans and advances receivable would encompass all non-performing assets of any nature. The Court rejected the Revenue's contention that tax should be paid on the revenue notionally accrued from non-performing assets even if they do not yield any income, as the assessee follows a mercantile system of accounting. The Court referred to previous cases and ruled in favor of the assessee, stating that the Revenue's argument lacked basis. Therefore, the Court answered the first substantial question of law against the Revenue and in favor of the assessee.Issue 2:The second issue concerns the applicability of Section 194A(3)(v) of the Income Tax Act, 1961 to cooperative societies engaged in banking. The Court cited a Co-ordinate Bench judgment in the case of Bagalkot District Central Co-op. Bank, where it was held that cooperative banks are not required to deduct tax while paying interest under Section 194A of the Act. The Court dismissed the appeal filed by the Revenue, stating that the issue was covered by the previous judgment. Consequently, the Court answered the second question against the Revenue.Issue 3:The third issue revolves around claiming depreciation on investments in government securities held to maturity as held for trading. The Court referred to a Co-ordinate Bench judgment in the case of Karnataka Vikas Grameen Bank, where it was held that securities categorized and accounted as held to maturity should be considered stock-in-trade and not investments. The Court agreed with the Co-ordinate Bench's view and answered the question against the Revenue. As a result, the appeals filed by the Revenue were dismissed.This judgment by the Karnataka High Court addressed various substantial questions of law related to income tax assessments for the assessment years 2008-09 and 2009-10. The Court provided detailed analyses and rulings on each issue raised by the Revenue, ultimately deciding in favor of the assessee in all three instances based on previous judgments and interpretations of relevant provisions of the Income Tax Act, 1961.