TMI Blog2011 (11) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of MICR bank charges – Decided in favor of assessee. "Services Charges", claimed by assessee stated to be in the nature of building maintenance and furniture and fixture charges – Held that:- Since the payment being connected to the part of the fixtures of the rented property, therefore, the assessee was required to deduct the tax on payment of service charges as it was held by the Revenue Authorities as "rent" – Decided against the assessee. Accrued interest on NPA – Revenue contending that since the assessee being not covered by Section 43D therefore accrued interest should have been offered to tax - Held that:- By the insertion of a special provision to tax interest income in the case of public financial institution, etc. section 43-D has to be applied in its letter and spirit. In the case of UCO Bank (1999 - TMI - 5746 - SUPREME Court), it was held in respect of interest income on "sticky advances" to be taxed only when actually received as prescribed by CBDT Circular – Decided in favor of assessee. - IT APPEAL NO. 2939 (AHD.) OF 2010 - - - Dated:- 30-11-2011 - Mukul Kumar Shrawat And A. Mohan Alankamony, JJ. S. N. Divatia for the Appellant B. L. Yadav fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agyodaya Co-op. Bank Ltd. 3. It was explained to the Assessing Officer that the assessee bank happened to be a sub-member of clearing house. However, the clearing agent is Bhagyodaya Co-op. Bank Ltd. The MICR clearing charges of the assessee were, therefore, recovered from the said clearing agent by the clearing house. The assessee had operated as sub-member through the said agent. It was also stated to the Assessing Officer that while making the payment of clearing house charges, the said agent had already deducted TDS in support a letter received from the said agent, i.e. the Bhagyodaya Co-op. Bank Ltd. duly placed before the Assessing Officer through which was certified that the said amount of clearing house charges were recovered from the assessee as re-imbursement charges. The Assessing Officer was not convinced with the said information and held that the payment was made without deduction of TDS, therefore, by invoking the provisions of section 40(a) of the I.T. Act disallowed the said claim of expenditure. The matter was carried before the first appellate authority. 4. The Learned CIT(Appeals) has examined the facts in respect of clearing charges and thereafter held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he orders of the authorities below. 6. On hearing, the rival submissions, we have noticed that the admitted factual position was that the assessee was only a sub-member of the clearing house. The assessee has availed the services of MICR clearing from a member of the clearing house; namely, the Bhagyodaya Co-op. Bank Ltd. As far as the legal position of deduction of TDS is concerned, there is no dispute that TDS is required to be deducted from MICR charges. Due to this reason, since the Bhagyodaya Co-op. Bank Ltd. was directly dealing with the Bank of Baroda, a clearing agent, therefore on payment of MICR charges to Bank of Baroda; TDS was deducted by the Bhagyodaya Bank Co-op. Ltd. Consequent thereupon, the assessee was required to reimburse the bank MICR charges to Bhagyodaya Bank. The said reimbursement charges were inclusive of TDS as well. In confirmation thereto, a letter has been placed on record issued by the Bhayodaya Co-op. Bank Ltd therein it was affirmed that the said reimbursement charges were inclusive of TDS, salient features as follows:- The Bhagyodaya Co-op. Bank Ltd. Date : 13/08/2010 To The General Manager The Karnavati Co-op. Bank Ltd. Ahme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of TDS on the same payment of MICR bank charges. In the result, we hereby reverse the findings of the authorities below and direct not to disallow the claim of reimbursement of charges merely for non-deduction of TDS. This part of the ground is, therefore, allowed. 7. Ground No.2.1 (b) Services charges of F F - ₹ 1,46,079/- 7.1 In respect of the impugned addition under the head Services Charges , the assessee has claimed an expenditure of ₹ 1,46,079/-which was stated to be in the nature of building maintenance and furniture and fixture charges. By the very description of the expenditure, the Assessing Officer was of the view that the assessee was required to deduct the tax. The Assessing Officer has disallowed the claim and the matter was carried before the first appellate authority. 8. Before the ld.CIT(A), it was contended that the appellant had paid service charges and maintenance charges of one of the its branch and the payment was below ₹ 1,20,000/- to each person, therefore, the provisions of section 194-I was not attracted and consequentially the disallowance u/s.40(a)(ia) was also incorrect. However, ld.CIT(A) was not convinced and held that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer has also referred Section 43D of the I.T. Act for the proposition that in spite of anything contained in any other provisions of the Act, in the case of a bank, the income by way of interest in relation to bad or doubtful debts having regard to the guidelines issued by the Reserve Bank of India in relation to such debts, shall be chargeable to tax in the previous year in which it is credited by the Bank to its Profit Loss account. As per Assessing Officer, the assessee was required to credit the accrued interest to its Profit Loss account, however failed to do so, therefore, the assessee has infringed the said section. The Assessing Officer has also discussed a decision of Special Bench Delhi in the case of New India Industries Ltd. v. Asstt. CIT [2007] 18 SOT 51 (Delhi)(SB) for the proposition that whether a bad debt claimed as business expenditure by making a provision for non-performing assets of NBFC which were in accordance with the prudential norms issued by Reserve Bank of India is allowable. In that case, it was held that the provision made in the accounts of the assessee in respect of NPA should not be treated as sufficient compliance with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguage only that interest income is chargeable to tax which is either credited to the Profit Loss account of a bank or actually received, which ever is earlier. The ld.AR has, therefore, pleaded that neither the interest was received nor it was credited to Profit Loss account, therefore in terms of the provisions of 43D not subject to tax in the hands of the assessee. Ld.AR has stated that the issue in this appeal relates to accrual of interest on NPA accounts and not in respect of the deductibility of provisions of NPA amount as debt u/s.36 I.T. Act. Reliance was placed on the following decisions:- 1. CIT v. Vasisth Chay Vyapar [2011] 330 ITR 440/196 Taxman 169/[2010] 8 taxmann.com 145 (Delhi) 2. CIT v. Eicher Ltd. [2010] 320 ITR 410/[2009] 185 Taxman 243 (Delhi) 3. Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577/187 Taxman 346 (SC) 13. From the side of the Revenue, ld. DR Mr. B.L. Yadav appeared and stated that in the case of New India Industries Ltd. (supra), even the NPA was not considered as a sufficient compliance of the provisions of section 36(1)(vii) of the I.T. Act to allow as a bad or doubtful debt therefore in consequence thereof, the loans and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s juncture it is worth to mention that a pertinent argument was raised by Ld. DR Mr. Yadav that if a provision of doubtful- debt, on account of prudential norms of RBI, though made and that provision is not allowable, as held by the courts, then meaning thereby, that the debts are treated as recoverable so in consequence interest ought be shown on accrual basis. Even the first appellate authority has held that those loans could not be called as sticky or bad because certain installments of interest were received, hence for the year under consideration accrued interest should have been credited in the books of account. The Learned CIT(Appeals) was also of the view that the assessee is being not a schedule bank therefore the provisions of section 43D of the I.T. Act were not applicable. 15. With this factual and legal background, as also on due consideration of the arguments raised by both the sides certain questions are required to be addressed by us and point-wise the same are adjudicated upon hereinbelow:- (i) Applicability of the provisions of section 43-D of the I.T. Act. This section reads as follows:- 43D. Notwithstanding anything to the contrary contained in any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Act . Therefore, in spite of anything contained in the Act, the provisions of this section shall override those provisions. Once the Statute has categorically made a law in respect of public financial institutions that interest is chargeable to tax either in the year in which credited or actually received, whichever is earlier, then it is compulsory to abide by the said Rule. According to us, no scope is left with the Revenue Authorities to ignore these provisions due to unambiguous use of language in the Section. (ii) Status of assessee for the purpose of application Section 43-D. As far as the status of the assessee is concerned, the Assessing Officer has stated that the assessee-bank is a co-operative bank. Undisputedly, the assessee is also governed by the RBI guidelines. Vide an Explanation (d) r.w.s. 36(1)(viia) annexed to section 43-D the definition of the entities incorporated by the section have been defined and in the absence of any contrary material, we hereby hold that the assessee is covered by one of the entities, hence the provisions of section 43-D are to be applied. (iii) Applicability of CBDT Circular. Next issue is that whether a Circular hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncore (supra), there were Hon'ble three Judges presiding the Court, out of which Hon'ble two Judges were in the opinion that the interest on sticky advances was rightly treated as income which had accrued to the appellant. There was a descending note by one of the Hon'ble Judge and commented that whether an income on receipt basis or on accrual basis, it is the real income and not any hypothetical income which may have theoretically accrued, i.e. subject to tax under the Act. Nevertheless, that decision was not followed while deciding the appeal of UCO Bank (supra) by the Hon'ble three Judges of the Supreme Court, already discussed by us supra. We, therefore summarize that as of now the law as laid down in UCO Bank is that in terms of CBDT Circular the interest is to be added as income only when actually received or credited in respect of the sticky advances while making assessment for a financial institution. (iv) Interpretation of the language of the statute : We have reproduced verbatim the provisions of section 43-D of the I.T. Act and expressed an opinion that if the statute has used the terminology for the chargeability of interest on the basis when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra). (v) Judgement in favour of Revenue : From the side of the Revenue an order of the Tribunal has been vehemently relied upon and this is the basic reason of the elaborate discussion made hereinabove so as to unfold the controversy. In the said decision of the Tribunal, viz. Jt.CIT v. India Equipment Leasing Ltd. [2008] 111 ITD 37 (Chennai), the Respected Co-ordinate Bench has expressed that quote Prior to insertion of section 43D with effect from 1-4-1991, recognition of income was on the basis of circular of 9-10-1984. It said that for first three years the income may be taken on accrual basis and from 4th year onwards, the income in respect of doubtful debts was to be recognized on receipt basis. Since the income was to be assessed for first three years on accrual basis, provisions of section 43D were inserted in the Act. Circular No.621, dated 19-12-1991 gives the legislative intention stating that section 43D was inserted with a view to improving the viability of banks, public financial institutions etc., so as to provide that interest on sticky loans shall be charged to tax only in the year in which the interest is actually received or credited to the profit and loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue. A decision in the case of Southern Technologies Ltd. (supra) has been cited but the fundamental difference is that the issue before the Hon'ble Court was in respect of provision for NPA and debited to P L Account by a NBFC. The said provision was undisputedly made by the said NBFC as per the prudential norms made by the Reserve Bank. Therefore we want to make it clear that the question for consideration before the Hon'ble Court was that if a provision for doubtful debt is made then what will be the legal position of the applicability of Explanation to section 36(1)(vii) of the I.T. Act. For the sake of ready reference, relevant paragraph from the held portion is reproduced below:- The income-tax is a tax on real income , i.e., the profits arrived at on commercial principles subject to the provisions of the Act. Therefore, if by the Explanation to section 36(1)(vii) a provision for doubtful debt is kept out of the ambit of bad debt which is written off, then one has to take into account the Explanation in computing the total income under the Income-tax Act failing which one cannot ascertain the real profits. The provision for non-performing assets debited in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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