Case Law Details
Pr. CIT Vs Bajaj Finance Limited (Bombay High Court)
Conclusion: Even if there was a special provision in s. 43D for taxing interest income on NPAs on receipt basis but the same did not apply to NBFCs, therefore, NBFCs had not to offer interest on bad or doubtful debts to tax on accrual basis as as the same was not taxable on basis of real income theory.
Held: Assessee was a Non Banking Finance Company (“NBFC”) filed return of income in which it had claimed deduction of interest on advances which had become non performing assets (“NPA”). AO disallowed the claim relying on such disallowance for the earlier assessment years which were on the ground that assessee which was following the mercantile system of banking had to pay tax on interest on accrual basis. In case of CIT Vs. Vasisth Chay Vyapar Ltd wherein it was held that interest on NPAs could not be taxed on accrual basis. It was noted that NBFC would be governed by the directions issued by Reserve Bank of India and RBI directives provided that under certain circumstances, a loan or advance would be treated as NPA. The Court on the real income theory held that such interest would not be taxable. It was noticed that the decision of the Delhi High Court in case of Vasisth Chay Vyapar Ltd was carried in appeal by Revenue before Supreme Court. Supreme Court in the judgment reported in [2018] 253 Taxman 401 (SC) approved the decision of the High Court and dismissed the appeal. Thus, even if there was a special provision in s. 43D for taxing interest income on NPAs on receipt basis but the same did not apply to NBFCs. NBFCs had not to offer interest on bad or doubtful debts to tax on accrual basis. Such interest was not taxable on the real income theory.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
1. These appeals involve similar issues. We may record facts from Income Tax Appeal No. 237 of 2017.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
