INDIA BUSINESS WORLD - NOVEMBER 16th - NOVEMBER 30th
- 2007
NBFC BAD DEBT RECOVERIES NOT TAXABLE: INCOME TAX APPELLATE TRIBUNAL
In an order that can give relief to hundreds of non-banking financial companies operating in the country, a Special Bench of Income-tax Appellate Tribunal (ITAT), Delhi held that bad debts recovered by non-banking finance companies (NBFCs) could not be construed income and hence not taxable.
The Delhi Special Bench of ITAT was set up for resolving the confusion arising from conflicting orders of various ITAT benches on the issue.
The ITAT which also decided in negative the question whether NPAs could be allowed deduction under the Income-Tax Act, held that if deduction is not allowed for NPA itself, any recovery from such stocky assets do not have the character of income because it is only the realisation of lent capital itself. Such amounts are treated as income under RBI Act but not considered income under the Income-tax Act.
The Special Bench was set up on an appeal by the Delhi-based New India Industries. While deciding on the first question whether NPA was allowable for deduction, it observed that if the legislature had intended to provide benefit of allowing provision for bad and doubtful debts to a NBFC, appropriate provision would have been incorporated under the Income tax Act.
New India Industries is an NBFC registered with RBI. The company had debited Rs 6, 38,758 in its profit and loss account, as NPA.
The company claimed that being a NBFC registered with RBI, it has to follow the prudential norms as prescribed by RBI and the deduction claimed on account of provision for NPA was in tune with the guidelines of RBI. As per RBI's prudential norms, lease rental and hire purchase instalments, overdue for 12 months or more, are NPAs and the company is obliged to create a provision for such NPA and debit it to the profit and loss account.
|
