Dy. CIT v. Royal Bank of Scotland N.V.

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The Tax Publishers2016 TaxPub(DT) 5017 (Kol-Trib) Dy. CIT v. Royal Bank of Scotland N.V. INCOME TAX ACT, 1961 --Income of public financial institutions, etc.--Accrual of interestInterest income on NPAs----Where assessee bank had not recognised interest on NPAs. Overdue for three months, AO was not justified in holding that recognition was necessary where overdue was less than six months as interest on NPAs has to be accounted for on receipt basis, rather than mercantile basis. --AO noticed that assessee bank had not recognized the interest income in respect of advances overdue for more than three months. Assessee submitted that certain accounts had been classified as NPAs and interest income on such advances had to be recognized only on receipt basis. AO held that unless the advances were overdue for more than six months as required under rule 6EA, same could not be classified as sticky advance or doubtful debts as stipulated under section 43D. *Held:* The fact of loan account becoming overdue and sticky was not disputed by AO. Interest income on NPA accounts should not be recognized on accrual basis which is in line with RBI prudential norms for income recognition and real income theory. Therefore, AO was not justified in taxing interest income on NPA accounts on mercantile basis. Income Tax Act, 1961, Section 43D Income Tax Rules, 1962, Rule 6EA *Relied:*Southern Technologies Ltd. v. CIT (2010) 320 ITR 577 (SC) and CIT v. Vasisth Chay Vyapar Ltd. (2011) 330 ITR 440 (Del). *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2010-11 INCOME TAX ACT, 1961 --MAT--Applicability of section 115JBForeign bank----Since assessee, a foreign bank, was not registered under Indian Companies Act, section 115JB was not applicable to it for the relevant year 2010-11.--Assessee was Indian branch of a limited liability bank incorporated in Netherlands and was a scheduled bank in terms of RBI Act. AO took the view that section 115JB was applicable to assessee's case. *Held:* Section 115JB is not applicable to an assessee unless it is registered under Companies Act, 1956 and prepares its financial statements in accordance with section 211 and Part II and Part III of Schedule VI to that Act. Amendment brought in by Finance Act, 2012 in section 115JB is applicable only from assessment year 2013-14 onwards, therefore, same was not applicable to the relevant year. Therefore, section 115JB was not applicable to assessee's case. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2016 TaxPub(DT) 5017 (Kol-Trib)

Dy. CIT v. Royal Bank of Scotland N.V.

INCOME TAX ACT, 1961

--Income of public financial institutions, etc.--Accrual of interestInterest income on NPAs----Where assessee bank had not recognised interest on NPAs. Overdue for three months, AO was not justified in holding that recognition was necessary where overdue was less than six months as interest on NPAs has to be accounted for on receipt basis, rather than mercantile basis. --AO noticed that assessee bank had not recognized the interest income in respect of advances overdue for more than three months. Assessee submitted that certain accounts had been classified as NPAs and interest income on such advances had to be recognized only on receipt basis. AO held that unless the advances were overdue for more than six months as required under rule 6EA, same could not be classified as sticky advance or doubtful debts as stipulated under section 43D. Held: The fact of loan account becoming overdue and sticky was not disputed by AO. Interest income on NPA accounts should not be recognized on accrual basis which is in line with RBI prudential norms for income recognition and real income theory. Therefore, AO was not justified in taxing interest income on NPA accounts on mercantile basis.

Income Tax Act, 1961, Section 43D

Income Tax Rules, 1962, Rule 6EA

Relied:Southern Technologies Ltd. v. CIT (2010) 320 ITR 577 (SC) and CIT v. Vasisth Chay Vyapar Ltd. (2011) 330 ITR 440 (Del).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010-11

INCOME TAX ACT, 1961

--MAT--Applicability of section 115JBForeign bank----Since assessee, a foreign bank, was not registered under Indian Companies Act, section 115JB was not applicable to it for the relevant year 2010-11.--Assessee was Indian branch of a limited liability bank incorporated in Netherlands and was a scheduled bank in terms of RBI Act. AO took the view that section 115JB was applicable to assessee's case. Held: Section 115JB is not applicable to an assessee unless it is registered under Companies Act, 1956 and prepares its financial statements in accordance with section 211 and Part II and Part III of Schedule VI to that Act. Amendment brought in by Finance Act, 2012 in section 115JB is applicable only from assessment year 2013-14 onwards, therefore, same was not applicable to the relevant year. Therefore, section 115JB was not applicable to assessee's case.