2020 (4) TMI 627 - HC - Income Tax

Court rules accrued interest on bad debts not taxable under Section 43D I.T. Act.

The Assistant Commissioner of Income Tax, Circle-I, Vijayapura Versus M/s. The Bijapur District Central Co-operative Bank Ltd.

The High Court upheld the decision of the lower authorities and rejected the Revenue's appeal regarding the interpretation of provisions of section 43D of ... Addition u/s 43D - additions on account of accrued interest on loans which are classified as 'Non-performing Assets” - Scope of amendment brought to Section 43D - I.T.A.T. confirming the decision of CIT (A) deleting the additions - HELD THAT:- Legislature in his wisdom has found it fit to hold that accrued interest on bad debts and doubtful debts and Non-performing Assets which are not received by the institution cannot be taxed. In that view of the matter, we are in respectful agreement with the judgment of the earlier Coordinate Bench in the case of CIT V/s Bijapur District Central, Co-Operative Bank Ltd., Vijayapura [2018 (5) TMI 437 - KARNATAKA HIGH COURT]. Issues:1. Interpretation of provisions of section 43D of the I.T. Act, 1961 regarding accrued interest on loans classified as Non-performing Assets.2. Whether income accrued to the assessee can be taken as income in the year under section 43D of the I.T. Act, 1961.Issue 1: Interpretation of provisions of section 43D of the I.T. Act, 1961 regarding accrued interest on loans classified as Non-performing Assets:The Revenue appealed against the Appellate Tribunal's decision to delete additions on account of accrued interest on loans classified as Non-performing Assets. The primary question was whether the ITAT was correct in confirming the decision of the CIT (A) based on the Karnataka High Court decision in Canfin Homes Ltd, while ignoring the provisions of section 43D of the I.T. Act, 1961. The High Court referred to previous judgments by Coordinate Benches in similar cases, including CIT V/s Canfin Homes Limited and CIT V/s Bijapur District Central Cooperative Bank Ltd. Vijayapura. The High Court concurred with the Coordinate Bench's interpretation that interest not received on bad debts and doubtful debts, as per Section 43D, cannot be taxed. The Court also noted the legislative amendment to Section 43D, which supports the view that accrued interest on bad debts, doubtful debts, and Non-performing Assets not received by the institution cannot be taxed. Consequently, the High Court rejected the appeal, aligning with the earlier judgments.Issue 2: Whether income accrued to the assessee can be taken as income in the year under section 43D of the I.T. Act, 1961:The second issue revolved around whether the income accrued to the assessee could be considered as income in the year, disregarding the provisions of section 43D of the I.T. Act, 1961. The High Court, after analyzing the legislative intent behind the amendment to Section 43D and considering the judgments of Coordinate Benches, concluded that accrued interest on bad debts, doubtful debts, and Non-performing Assets, which is not received by the institution, should not be subject to taxation. While acknowledging the Supreme Court's decision to keep the question of law open in a related case, the High Court found no reason to deviate from the established interpretation by the Coordinate Bench. Therefore, the High Court upheld the decision of the lower authorities and rejected the appeal based on the principles laid down in previous judgments and the legislative amendments to Section 43D.This detailed analysis of the judgment highlights the key legal issues, the interpretation of relevant provisions, and the High Court's reasoning in arriving at its decision.