News Update

CBIC revises tariff value of edible oils, gold & silverFormer IPS officer Sanjiv Bhatt jailed for 20 yrs for planting drugs to frame lawyerCentre receives Rs 18.5 lakh crore tax revenue upto Feb monthUN says Households waste across world is now at least one billion meals a dayExpert Committee on developing GIFT IFSC as 'Global Finance and Accounting Hub' submits report to IFSCAIndia, China hold fresh dialogue for complete disengagement on Western borders: MEADefence Production issues notification for re-organisation of DGQAThakur says India is prepared for 2036 OlympicsCBDT substitutes Form in ITR-5EV Revolution: Lessons for India to learn from US and China!London court green-signals auction of luxury apartment of fugitive Nirav ModiGovt consults RBI; finalises borrowing plan for first half of FY 2024-25Gadkari says Farmers’ protest is politically-motivatedVP calls upon women entrepreneurs to be 'Vocal for Local'America offers USD 10 mn bounty for information on ‘Blackcat’ hackers after UnitedHealth gets hitI-T- The order of the ITSC can only be reopened in cases of fraud or misrepresentation: HC8 persons including Hezbollah militants killed in Israeli strike on LebanonMacron pillories EU-South Africa trade deal; calls it ‘really bad’ in BrazilThailand’s Lower House okays Bill to legitimise same-sex marriageYellen warns China against clean energy dumpingMilky Way’s central black hole - Twisted magnetic field observedCus - Assessee has not proved beyond reasonable doubt that goods in question imported under air way bills/bills of entry were in fact filed by him and hence the only natural corollary available to Revenue is confiscation of same: CESTATSmall investors help Trump Media’s valuation skyrocket to USD 13 billionJustice Ritu Raj Awasthi joins as Judicial member of Lokpal
 
I-T - Whether if assessee is loan recovery agent, such income can be taxed only if it accures & accrual takes place only in year in which sum recovered is in excess of sum payable to buyers of loan portfolio - YES: HC

By TIOL News Service

AHMEDABAD, SEPT 01, 2016: THE issue is - Whether if an assessee is obliged to act as receiving and paying agent for effecting recoveries from the individual borrowers, income can be brought to tax only when it accrues and the accrual takes place only in the year in which the amounts recovered from the borrowers are in excess of the amount payable to the buyers of loan portfolio. YES is the verdict.

Facts of the case

The assessee is engaged in advancing various loans to its customers on which various amounts of EMIs comprising of principal amount and interest amount were recovered from the clients and the interest amount was shown as income. AO noticed that the assessee had sold its portfolio of individual home loans but the assessee was obliged to act as receiving and paying agent for effecting recoveries from the individual borrowers until the point of time when all these loans were fully recovered. Under this agreement, the assessee was entitled to retain interest in excess of the agreed rate of interest recovered from the borrowers. Thus, assessee computed the surplus of Rs.935.42 lakhs being the difference between EMI recoverable from the borrowers during the remaining loan tenure and the amount payable by the assessee to the buyers of the assessee's home loan portfolio. This represented what was termed as EMI residual. Out of the above amount, the assessee set aside a sum of Rs.428.13 lakhs on account of contingency of pre-payments and the balance amount of Rs.507.29 lakhs was transferred to the profit and loss account. In the computation of income, the assessee reduced this amount from the net profit. This computation was on the basis of income actually earned so far as interest differential was concerned. AO held that the entire difference between the recovery value of housing loans and the amount payable to the buyer of loan portfolio should be brought to tax in the year itself. He also held that even the amount of contingency set aside by the assessee of Rs.428.13 lakhs could not be allowed as it was only a contingent and not a real liability. He, therefore, proceeded to bring to tax the balance amount of Rs.803.40 lakhs (i.e. EMI residual of Rs.935.42 lakhs minus the amount already offered to tax amounting to Rs.132.02 lakhs) in the AY. On appeal, CIT(A) deleted the addition on the ground that the income was to be brought to tax only when it accrues and the accrual takes place only in the year in which the amounts recovered from the borrowers are in excess of the amount payable to the buyers of loan portfolio. It was also noticed that the EMI residual income had been subsequently brought to tax in the year in which related recoveries had taken place. On further appeal, Tribunal also confirmed the order of CIT(A).

Held that,

++ the Tribunal has found that whatever be the certainty of the assessee realizing the profits in future as a result of the said arrangement, these profits can only be brought to tax when they actually accrue or arise and that stage comes only when the recoveries are made from the individual borrowers. The Tribunal noted that it was not in dispute in the light of the categorical finding recorded by the CIT (A) that the related incomes were brought to tax in the subsequent period when such income accrued and arose. The Tribunal, accordingly, did not find any reason to interfere with the order passed by the CIT(A). The assessee had sold during the year a portfolio of individual home loans aggregating Rs.8109.09 lakhs by way of stock-in-trade on the date of transfer, which represented the principal value only of the loan portfolios of various persons for which the assessee was entitled to earn income by way of services with reference to the differential rate of interest as per the specific agreements with the beneficiaries. The above amount of Rs.8109.09 lakhs did not have any profit element during the corresponding financial year 2000-01. However, in the light of the agreement with the beneficiaries, the assessee was entitled to retain the differential amount of interest recovered from the borrowers in excess of the agreed rate of interest. Evidently, therefore, the differential amount (residual EMI) would accrue to the assessee only as and when such interest amount in excess of the agreed amount was recovered by it. Such amount would, therefore, be taxable in the year in which the same had accrued to the assessee. It is an admitted position that the EMI residual income had subsequently been brought to tax in the year in which the related recoveries were made. In these circumstances, the view taken by the Tribunal does not suffer from any legal infirmity, warranting interference. The appeals, therefore, fail and are accordingly summarily dismissed.

(See 2016-TIOL-1932-HC-AHM-IT )


POST YOUR COMMENTS
   

AR not Afar by SK Rahman

TIOL Tube Latest

Shri Shailendra Kumar, Trustee, TIOL Trust, giving welcome speech at TIOL Awards 2023




Shri M C Joshi, Former Chairman, CBDT




Address by Shri Buggana Rajendranath, Hon'ble Finance Minister of Andhra Pradesh at TIOL Awards 2023