Commissioner Of Income Tax Coimbatore v. Coimbatore Lakshmi Inv. & Finance Co. Ltd., Krishna Towers

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR. JUSTICE K. RAVIRAJA PANDIAN THE HONOURABLE MR. JUSTICE M.M. SUNDRESH Commissioner of Income TaxCoimbatore.... Appellant in all theappeals.Vs. Coimbatore Lakshmi Inv. & Finance Co. Ltd.,Krishna Towers, 1087, D.Avinashi RoadCoimbatore – 641 037.... Respondent in all the appeals. Tax Case Appeals filed under Section 260A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal, Madras'D' Bench, dated 24.9.2007 in ITA.Nos.905, 906, 907, 908 and909/Mds/04, dated 24.9.2007 for the Assessment Years 1995-96, 1997-98, 1998-99, 1999-2000 and 2000-01. against the order of theCommissioner of Income-Tax (Appeals)-1, Coimbatore dated 30.1.2004 inITA.No.66/03-04, 22/02-03, 65/03-04, 350/2001-01 and 23/2002-03 forthe Assessment year 1995-96, 1997-98, 1998-99, 1999-2000 and 2000-01against the order of the Assistant Commissioner of Income-Tax CompanyCircle-IV(1),Coimbatoredated28.2.2002inPAN/GIRNo.AAACC8423A/Co.IV(1)/CBE for the Assessment year 2000-01 &1999-2000 order of the Additional Commissioner of Income-Tax, SpecialRange-1, Coimbatore dated 2.2.2001 in PAN/GIR No.C2-1282 for theAssessment year 1998-99 order of the Joint Commissioner of Income-Tax, Special Range-1, Coimbatore dated 24.9.99 in PAN GIR NO.C2-1282/SR-1/CBE for the Assessment year 1997-98 order of the DeputyCommissioner of Income-Tax Special Range-1, Coimbatore dated 4.3.98in Pan/GIR No.C2-1282/SR-1/CBE for the assessment year 1995-96. J U D G M E N T (Judgment of the Court was delivered by K. Raviraja Pandian, J.) These appeals are filed, at the instance of the Revenue againstthe order of the Tribunal, dated 24[th] September, 2007 made inITA.Nos.905 to 909/Mds/2004 relating to the assessment years 1995-96,1997-98, 1998-99, 1999-2000 and 2000-01. 2. The facts :- (i) The assessee is a non-banking financecompany. The Assessing Officer, while completing the assessment/re-assessment proceedings, found that the assessee was followingmercantile system of accounting, but failed to return the interestaccrued on non-performing assets. The Assessing Officer brought totax the said interest, since the assessee had, while arriving at theprofits, set off the expenses relating to performing as well as non-performing assets which led to distorted figure of profit and lossaccount of the assessee's income. The Assessing Officer thusrejecting the contention of the assessee, brought the income to tax. (ii) The Commissioner of Income Tax (Appeals) following thedecision of the Supreme Court in Kerala Industrial DevelopmentCorporation Limited vs. Commissioner of Income Tax, reported in(2003) 259 ITR 51, and the decision of our High Court, allowed theappeal in favour of the assessee and the Revenue not satisfied withthe matter, carried on further appeal by challenging the said order.Confirming the order of Commissioner of Appeal the Tribunal rejectedthe appeal filed by the Revenue. The correctness of the same is nowcanvassed before us by filing these appeals and the formulated thequestion of law is as under :- " Whether, in the facts and circumstances of the case, theTribunal was right in holding that interest for non-performingassets cannot be fixed on accrual basis ? " 2. We have heard the learned counsel appearing for the Revenueand perused the materials on record. 3. The Tribunal in its order had relied on the two decisions ofthe Division Bench of this Court in Commissioner of Income Tax vs.Elgi Finance Limited, reported in (2007) 293 ITR 357, and inCommissioner of Income Tax vs. India Equipment Leasing Ltd., reportedin (2007) 293 ITR 350. In the latter decision, in which one of us isa party, has considered the case of the assessee in respect of hirepurchase transactions and leasing of plant and machinery, has heldthat interest on "sticky" loans not being brought into the profitand loss account, but being taken to the suspense account was an 2. We have heard the learned counsel appearing for the Revenueand perused the materials on record. 3. The Tribunal in its order had relied on the two decisions ofthe Division Bench of this Court in Commissioner of Income Tax vs.Elgi Finance Limited, reported in (2007) 293 ITR 357, and inCommissioner of Income Tax vs. India Equipment Leasing Ltd., reportedin (2007) 293 ITR 350. In the latter decision, in which one of us isa party, has considered the case of the assessee in respect of hirepurchase transactions and leasing of plant and machinery, has heldthat interest on "sticky" loans not being brought into the profitand loss account, but being taken to the suspense account was an https://hcservices.ecourts.gov.in/hcservices/ accepted mode of treatment of notional income in accounting practice.The fact that the assessee, although generally using a mercantilesystem of accounting, kept such interest amount in a suspense accountand did not bring those amounts to the profit and loss account,showed that the assessee was following a mixed system of accountingby which such interest was included in its income only when it wasactually received. The CBDT circular permitted such interest to beexcluded from income, if for three years such interest was notactually received. On that basis granted the relief in favour of theassessee. The said judgement has been subsequently referred to byanother Division Bench. If no income was recognised at all from suchasset, there was no question of applying the principle of accrual.The principle of `accrual of income' comes into play only when theincome was recognised. In the present case, the assessee hasclassified its assets on the basis of the Notification issued by theReserve Bank of India and found that the appellant under the categoryof non-performing assets. From such non-performing assets, theassessee had not recognised any income in concealing theNotification issued by the Reserve Bank of India. Therefore, theassessee was justified in not recognising the income as such. Oncethat was the case, there was no occasion to consider whether theprinciple of `accrual' would arise or not. In that view of thematter, the Tribunal reversed the finding of the lower authority andthe issue has been held against the Revenue. 4. In view of the above said Division Bench judgment, we are ofthe view that the subject matter of these appeals requires nointerference by entertaining the appeals. The issue is answeredagainst the Revenue. Hence, the tax case appeals are dismissed.Consequently, connected miscellaneous petitions are also dismissed. kb Sd/- Asst.Registrar /True Copy/ Sub.Asst.Registrar To 1. The Assistant Registrar, Incocme Tax Appellate Tribunal, IIIrd Floor, Rajaji Bhavan, B Besant Nagar, Chennai-90 Incocme Tax Appellate Tribunal, IIIrd Floor, Rajaji Bhavan, B Besant Nagar, Chennai-90 2. The Commissioner of Income-Tax, (Appeals)-1, Coimbatore. 3. The Assistant Commissioners of Income-Tax, Company Circle-IV(1), Coimbatore. Income-Tax, Company Circle-IV(1), Coimbatore. 4. The Additional Commissioner of Income-Tax, Special Range I, Coimbatore. Income-Tax, Special Range I, Coimbatore. 5. The Joint Commissioner of Income-Tax, Special Range-I, Coimbatore. Special Range-I, Coimbatore. 6. The Deputy Commissioner of Income-Tax, Special Range-I, Coimbatore.7. The Commissioner of Income Tax Coimbatore.+ 1 cc to Mr. J. Naresh Kumar, Advocate SR.65238T.C.(A)Nos.1292 to 1296 of 2009CK(CO)EU 18.12.2009