TaxTMI 
TaxTMI 
2014 (11) TMI 240
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....considered the interest receivable on the sticky advances/nonperforming assets (NPA) as an income and the same has not been taken to the profit & loss account but has directly taken to the balances. As per the decision of Hon'ble Supreme court in the case of UCO Bank Vs. CIT 237 ITR 889, the interest on the sticky loan/advances cannot be taxed. In view of the A.O., the exemption available u/s 43D of the Act cannot be extended to any non-schedule co-operative bank. The assessee also relied o the CBDT circular no.F.201/81/81 ITA-II dated 9.10.1984 but the A.O. distinguished the said circular by observing that the circular was issued regarding clarification about taxability of interest accrued on doubtful/slash advances of the banking companies where interest remains uncovered for consecutively 3 years. The A.O. therefore brought to tax the interest on the sticky advances of Rs. 26,43,703/- and to that extent, enhanced the total income. The Ld. CIT(A) deleted the addition made by the A.O. Being aggrieved, the revenue is in appeal before us. 3. We have heard the parties and perused the record. The Ld. Counsel submits that the issue of the taxability of the interest on sticky adv....
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....as actually received or not, but if an income is expected to be received, then it should be brought to books of account as an income accrued to the assessee. Contrary to this recognized principle, this section has prescribed that an income by way of interest shall be chargeable to tax in the previous year in which it is credited. The words "credited" and "actually received" has been highlighted hereinabove while reproducing the section in question. The other deviation from the said accepted principle of accountancy is that an income by way of interest shall be chargeable to tax in the previous year in which it is actually received. The Act says that the incidence of 'credit' or "actually received", whichever is earlier is to be taken into account for the purpose of chargeability of income by way of interest. Simultaneously, it is noteworthy that this section is an overriding section because the opening word is "notwithstanding anything to the contrary contained in any other provisions of this Act". Therefore, in spite of anything contained in the Act, the provisions of this section shall override those provisions. Once the Statute has categorically made a law in respect of public f....
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....orities. Second, that in respect of interest on "sticky advances" interest income is to be taxed only when actually received as prescribed by CBDT Circular. However, in the past an interesting turn had taken place by an order of the Hon'ble Kerala High Court in the case of State Bank of Travancore reported in 110 ITR 336 (Ker.), wherein it was held that the assessee, a banking company, did not credit in its account the interest that had accrued on "sticky advances" because the assessee felt that the interest could not to be realised. It credited the interest to a separate account known as "interest suspense account". On reference, the Hon'ble Court has held that there was an accrual of income liable to income-tax and the assessee was not justified in not crediting the interest income on such "stick advances" it its accounts. However, later on at the Hon'ble Apex Court while pronouncing the judgment of the said State Bank of Travancore vs. CIT reported in (1986)158 ITR 102(SC), there were Hon'ble three Judges presiding the Court, out of which Hon'ble two Judges were in the opinion that the interest on "sticky advances" was rightly treated as income which had accrued t....
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....ot be adopted. In this respect, taxing statutes are not different from other statutes." We can therefore safely draw a conclusion that by the insertion of a special provision to tax interest income in the case of public financial institution, etc. section 43-D has to be applied in its letter and spirit. It is pertinent to mention that later on, in the case of CIT vs. Bank of America S.A. 262 ITR 504 (Bom) the question of interest on "sticky loans" was decided in favour of the assessee and held that the question is to be answered in favour of the assessee following the decision of UCO Bank reported at 237 ITR 889(SC) :: 240 ITR 355 (SC). Likewise, in an another case of CIT vs. State Bank of India 262 ITR 662 (Bom.) again it was held that the amount credited to the interest suspense account was not taxable following the decision pronounced in the case of UCO Bank (supra). (V) Judgement in favour of Revenue : From the side of the Revenue an order of the Tribunal has been vehemently relied upon and this is the basic reason of the elaborate discussion made hereinabove so as to unfold the controversy. In the said decision of the Tribunal, viz. Jt.CIT v/s. India Equipment leas....
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....words, the doctrine of 'Casus Omissus' will deem to have been applied which is contrary to law of land."Unquote. The basic reason for directing to assess the accrued interest on NPA was the RBI guidelines issued only for scheduled banks, public financial institutions and not for NBFC. The observation of the Respected Tribunal was that if the contention of the assessee was to be accepted, then it would amount to insertion of "NBFC" in section 43-D of the I.T.Act. As against that, as far as the assessee is concerned, it is an accepted fact that the assessee is a cooperative bank and not a non-banking financial company and this noteworthy distinction has already been appreciated by us in one of the paragraphs above. There is one more decision of the Hon'ble Apex Court which is yet to be mentioned while discussing the arguments raised from the side of the Revenue. A decision in the case of Southern Technologies Ltd. vs. Jt. CIT 320 ITR 577 (SC) has been cited but the fundamental difference is that the issue before the Hon'ble Court was in respect of provision for NPA and debited to P&L Account by a NBFC. The said provision was undisputedly made by the said NBFC as per the prude....