The Hindu : IT sections discriminate against NBFCs, says petition

Online edition of India's National Newspaper
Friday, Apr 19, 2002

Southern States

Southern States - Tamil Nadu

IT sections discriminate against NBFCs, says petition

By Our Staff Reporter

CHENNAI April 18. The Madras High Court has restrained the Central Board of Direct Taxes and the Reserve Bank of India from assessing as income receivables arising out of non-performing assets of Non-Banking Financial Companies.

Justice K. Raviraja Pandian granted the interim injunction on a petition filed by the Chennai-based Federation of Indian Hire Purchase Associations.

The association challenged Sections 43D and 36(L)(vii-a) of the Income Tax Act 1961 as being unconstitutional. They suffered from hostile discrimination as they were applicable only to banks, financial institutions, and not to the similarly placed NBFCs.

``In matters of non-performing assets, the NBFCs are forced to recognise such income for tax purposes based on the principles of `accrual'. The concession in income recognition given by Section 43D to banks and financial institutions has been denied to the NBFCs'', the petitioner said.

Describing it as arbitrary, unreasonable and smacking of hostile discrimination, the association said the objective of the provision was to tax income only on receipt basis for taxing income on `accrual' basis, without any actual generation of income, would reduce the liquidity of the institution.

While even foreign banks were entitled to the deduction under the Section, the NBFCs were not considered for similar benefit even though they were subjected to similar norms.

``The NBFCs and banks come within the same category and are treated on a par in the matter of taxation. They are required to follow similar systems of accounting''. While so, it is grossly discriminatory for Section 43D and Section 36(l)(vii-a) to provide preferential treatment to banks and financial institutions after singling out the NBFCs for denial of such benefits, the association said.

The petitioner-association prayed for restraining the CBDT and the RBI, along with all their agents and assessing officers, from assessing the receivables as income where such amounts had not been recognised as income in the books of accounts of the NBFCs.

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