A Division Bench of the Himachal Pradesh High Court recently held that, the assessee-Kangra Central Co-operative Bank Limited is liable to tax only on receipt of interest of Sticky Loans/Non-Performing Assets (NPAs).
The assessee was asked to explain as to why the interest on loans had not been added to its income. The submission of the assessee was that the amount of interest had not been shown as income because the same had become NPA and the bank was not certain about the recovery of principal amount/interest.
The assessing officer held that the assessee was required to show the interest on NPAs as income and consequently the income of the assessee was recomputed by the assessing officer by including the interest, which was liable to accrue on the loans etc.
Aggrieved by this, assessee, Kangra Central Co-operative Bank Limited filed and succeeded in the appeal before CIT(A). Aggrieved by the same, revenue filed an appeal before the ITAT, which was dismissed in favor of the assessee.
An amendment was passed after the issue at hand had arisen amending the relevant provision, Section 43D, to include non-scheduled banks including that of the assessee, a Co-operative Bank.
The counsel for the revenue argued that Section 43D was not retrospective in nature.
On the other hand, the counsel for the assessee submitted that the amendment was to be interpreted, in terms of the objects, it sought to achieve and as the amendment was curative in nature to provide level playing field to the co-operative banks. The amendment was also contended to be retrospective in nature by the counsel.
The Court observed that, “A perusal of the objects of amending the existing provisions of Section 43D of the Act vide Finance Bill 2017, reveals that the benefit of the existing provision was available to scheduled bank or a public financial institution”
It was also observed from the submission of the assessee-respondent that “With a view to provide level playing field to cooperative banks vis-à-vis scheduled banks and to rationalize the scope of Section 43D, it was proposed to introduce the amendment to Section 43D of the Act so as to include co-operative banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.”
The Division Bench of Justice Sabina and Justice Sushil Kukreja also opined that, the view taken by the Tribunal that the assessee was required to tax the interest on the sticky loans/NPAs on receipt basis was to be upheld and that the tax was to be paid not on accrual basis but receipt basis.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
