ACIT Vs Kesar Terminals and Infrastructure Ltd. (ITAT Mumbai)
The Mumbai Income Tax Appellate Tribunal (ITAT) recently delivered a significant ruling in the case of ACIT vs Kesar Terminals and Infrastructure Ltd. The case pertained to the taxation of notional interest income credited to the profit and loss account in accordance with Indian Accounting Standards (IND-AS). The ITAT’s decision sheds light on the taxation of such income under the real income principle.
The crux of the matter lay in whether the notional interest, credited by the assessee in compliance with accounting standards, should be subject to taxation. The assessee, a public limited company engaged in storage and handling of liquid cargo, had credited “notional interest” to its profit and loss account concerning an interest-free loan provided to its wholly-owned subsidiary.
The Revenue contended that since the notional interest was not deductible under any provisions of the Income Tax Act, it should be included in the total income of the assessee. However, the assessee argued that as per the real income principle, only income that has accrued or received should be taxable, and not notional income.
The ITAT referenced a similar case involving M/s. Shriram Properties Limited, where the Chennai Bench ruled that notional income, arising from guarantee commission, wasn’t taxable as it didn’t accrue to the assessee due to contractual obligations against charging commission.
