2018 (5) TMI 437

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....194A (1) of the Income Tax Act, 1961 from the interest paid to its member over Rs. 10,000/- during the said years and therefore a disallowance of such interest paid to the members without TDS, was liable to be made as per the provisions of Section 40 (a) (ia) of the Act. 4. Both the learned counsel at Bar fairly submitted that the said issue is no longer res-integra in view of the CBTD Circular No.19/2015 holding that such Co-operative Banks are not required to deduct tax at source an interest paid on one time deposits by its members, paid or credited on or before 01.06.2015. 5. On the basis of the said Circular No.19/2015, this Court has already disposed of some appeals filed by the Income Tax Department and one such order in ITA No.100060/2016, CIT vs. Karnataka Vikas Grameena Bank decided on 07.06.2017, is cited at Bar by the learned counsels. 6. This Court in the aforesaid case of CIT vs. Karnataka Vikas Grameena Bank held as under : "1. The learned counsel for the department - Revenue Mr. Y.V.Raviraj, submits that the controversy is no longer res integra and is covered by the decision of the Co-ordinate Bench i.e. The Commissioner of Income Tax and another Vs. The ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....f CIT vs. Canfin Homes Limited (2012) 347 ITR 382 (Karnataka). In the aforesaid case, a Co-ordinate Bench of this Court held as under : "Therefore, it is clear, if an assessee adopts the mercantile system of accounting and in his accounts he shows a particular income as accruing, whether that amount is really accrued or not is liable to bring the said income to tax. His accounts should reflect true and correct statement of affairs. Merely because the said amount accrued was not realized immediately cannot be a ground to avoid payment of tax. But, if in his account it is clearly stated though a particular income is due to him but it is not possible to recover the same, then it cannot said to have been accrued and the said amount cannot be brought to tax. In the Instant case, we are concerned with a non-performing asset. As the definition of non-performing asset shows an asset becomes non-performing when it ceases to yield income. Non- performing asset is an asset in respect of which interest has remained unpaid and has become past due. Once a particular asset is shown to be a non-performing asset, then the assumption is it is not yielding any revenue. When it is not yielding any ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ions Act, 1951 (63 of 1951); (d) "State industrial investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and approved by the Central Government under clause (viii) of sub-section (1) of section 36. The said provision as substituted by Finance Act, 1999, with effect from 01.04.2000, reads as under:- "43D. Special provision in case of income of public financial institutions, public companies, etc.-Notwithstanding anything to the contrary contained in any other provision of this Act, - (a) in the case of a public financial institution or a scheduled bank or [a co-operative bank other than a primary agricultural credit society or] a State financial corporation or a State industrial investment corporation, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts; (b) in the case of a public company, the income by way of interest in relation to such categories of bad....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....0. The said provisions of Section 43D of the Act were further amended by Finance Act, 2017, with effect from 01.04.2018 and the Co-operative Banks were also brought at par with the Public Financial Institutions or Schedule Banks. 11. Under Section 43D of the Act itself clearly provided that interest on such bad debts/doubtful debts cannot be taxed, unless the concerned Financial Institutions or Schedule Banks or Co-operative Banks credits such interest in its Profit and Loss Account for that year or actually receives such interest from the borrowers. 12. The purpose of such protection given to these Financial Instructions or Banks was not to allow taxability of the interest on bad debts/doubtful debts or Non-Performing Assets (NPA's) unless they actually received such interest income or such interest income was credited in their Profit and Loss Account by the concerned Financial Institution or the Schedule Bank or the Co-operative Banks after 01.04.2018. 13. Thus the provisions of Section 43D of the Act itself excludes the taxability of the such interest income. 14. Even without recourse to the concept of non- taxability of interest in such cases under Section 43D of th....