Case Law Details

Case Name : Art Leasing Ltd. Vs CIT (Kerala High Court)
Appeal Number : ITA No. 1578 of 2009
Date of Judgement/Order : 15/09/2009
Related Assessment Year :



In The case of:

Appeal No.:

Decided on:


Section 45Q of the RB.I. Act reads as follows:-

“45Q Chapter IIIB to override other laws – The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law”.

Section 36(1)(vii) of the I. T. Act reads as follows:-

“36. Other deductions

(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-

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(vii) subject to the provisions of sub section (2), the amount of any bad debt or part thereof which is written off as irrecoverable n the accounts of the assessee for the previous year:

Provided that » the case of an assessee to which douse (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance h the provision for bad and doubtful debts account made under that clause.

Explanation- for the purposes of this douse, any bad debt or part thereof written off as irrecoverable m the accounts of the assessee shall not include any provision for bad and doubtful debts made w the accounts of the assesses,”

In the first place, we are of the view that any other law referred to in Section 45Q does not cover Income Tax Act which applies to all assessees in the computation of taxable income. May be the provisions of Chapter IIIB of the R. B.I. Act has an overriding effect over the provisions of the Money Lenders Acts or similar Acts made by various states, which may otherwise apply to NBFCs. The accounting standards prescribed by the R.B.I., so long as they are consistent with the Income Tax Act, are certainty applicable to the Income Tax Authorities in the computation of taxable income. The question is whether an express provision contained in the explanation to Section 36(l)(vii) of the Income Tax Act which prohibits granting deduction of any provision for bad and doubtful debts can be got over by the assessee by relying on Section 45Q of the RB.I Act. In fact Section 36(1) (viia) is a complete answer to this query raised by the appellant wherein special provisions are made in the Income Tax Act for allowing provision for bad and doubtful debts of scheduled banks, non-scheduled banks, co-operative banks etc to the extent permissible there under. In fact, under Section 36(l)(viia), the eligible Banks are authorised to create provision subject to certain limits in respect of rural advances and other loans referred to therein and claim deduction of the same. This provision clearly indicates that Parliament is well aware of the risk undertaken by the Banks in making advance to the rural sector in terms of the guidelines issued by the Government and the R.B.I. and only such cases are treated as exception to the general provision contained in Explanation to Section 36(1)(viia), which prohibits granting of deduction of any provision for bad and doubtful debts. Unfortunately, for the appellant NBFCs. are not covered by Section 36(l)(viia) of the I.T Act and so much so, explanation to section 36(l)(vii) squarely applies or in other words, the appellant-N. B.F.Cs. are not entitled to deduction of any Provision created for bad and doubtful debts, no matter such provision is created based on the guidelines issued by the R. B. I. Consequently, we uphold the order of the Tribunal and dismiss the Income Tax Appeals.


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