PRINCIPAL COMMISSIONER OF INCOME TAX-5 vs. SARASPUR NAGRIK CO-OP. BANK LTD.

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TAXAP/321/2018HC GujaratGJHC24011175201811 April 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA2 pages

AI SummaryDismissed

What did the High Court hold?

The High Court held that the issue is squarely covered by its previous judgment in the case of Commissioner of Income Tax vs. Shri Mahila Sevea Sahakari Bank Ltd. reported in 395 ITR 324. In that precedent, the Division Bench had ruled that the assessee bank was bound by the RBI guidelines. Consequently, since the assessee had not shown interest on non-performing assets as income in its books of account in compliance with these guidelines, the same could not be taxed in the hands of the assessee. The reasoning is that the RBI guidelines dictate the accounting treatment of such interest, and the taxability should follow this treatment when it prevents the income from being recognized. The ratio decidendi is that income not recognized as per binding regulatory guidelines cannot be subjected to tax on an accrual basis. The operative direction was to dismiss the appeal.

What were the facts?

The Revenue, represented by the Principal Commissioner of Income Tax-5, has filed an appeal against an order of the Income Tax Appellate Tribunal (ITAT) dated April 28, 2017. The appeal concerns the assessment year(s) not explicitly stated in the judgment. The core of the dispute revolves around the taxability of interest on non-performing assets (NPAs) of the assessee, Saraspur Nagrik Co-op. Bank Ltd. The ITAT had confirmed the order of the Commissioner of Income Tax (Appeals), which held that such interest is not taxable on an accrual basis, taking into account Reserve Bank of India (RBI) guidelines. The amount in dispute is not specified. The procedural history involves the assessee not showing interest on NPAs as income due to RBI guidelines, which was upheld by the CIT(A) and subsequently by the ITAT.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in confirming the CIT(A)'s order which held that interest on non-performing assets is not taxable on accrual basis looking to the guidelines of the RBI? (Question of law and fact, concerning the interpretation and application of RBI guidelines to income computation under the Income Tax Act). Assessee's Contention: The judgment does not record any specific contentions made by the assessee before the High Court. However, it implies that the assessee followed RBI guidelines by not showing interest on NPAs as income. Revenue's Contention: The Revenue's contention is implicit in the question of law raised, arguing that the ITAT and CIT(A) erred in not taxing the interest on NPAs on an accrual basis, despite the RBI guidelines. The Revenue likely argued that the RBI guidelines, while binding for accounting purposes, should not preclude the taxation of income that has accrued in principle.

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

C/TAXAP/321/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 321 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX-5 Versus SARASPUR NAGRIK CO-OP. BANK LTD. ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 MR SN DIVATIA(1378) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 11/04/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 28.04.2017 raising following question for our consideration: “Whether the Appellate Tribunal is right in law and on facts in confirming the CIT (A)'s order which held that interest on non- performing assets is not taxable on accrual basis looking to the guidelines of the RBI?”

It is undisputed that the issue is squarely covered by the interest concerning the non-performing assets of the respondent bank. In this context, the Division Bench of High C/TAXAP/321/2018 ORDER Court in case of Shri Mahila Sewa Sahakari Bank Ltd. (supra) had held that the assessee was bound by the RBI guidelines and had therefore not shown interest on non-performing assets as income and that therefore, the same could not be taxed in the hands of the assessee.

In the result, Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) JYOTI V. JANI

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