REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE/ORIGINAL JURISDICTION

CIVIL APPEAL NO. 1337/2003

M/s Southern Technologies Ltd.

… Appellant(s)

versus

Joint Commnr. of Income Tax, Coimbatore

… Respondent(s)

with

C.A.No. 154 /2010 @ SLP(C) No. 22176/2009

TRANSFERRED CASE NO. 5/2005 & 6/2005

J U D G M E N T

S.H. KAPADIA, J.

Leave granted in the Special Leave Petition.

Introduction

An interesting question of law which arises for determination in these

Civil Appeals filed by Non-banking Financial Companies (“NBFCs” for

short) is:

“Whether the Department is entitled to treat the “Provision for

NPA”, which in terms of RBI Directions 1998 is debited to the

P&L Account, as “income” under Section 2(24) of the Income

Tax Act, 1961 (“IT Act” for short), while computing the profits

and gains of the business under Sections 28 to 43D of the IT

Act?”

Facts

For the sake of convenience, we may refer to the facts in the case of

M/s. Southern Technologies Ltd. [Civil Appeal No. 1337 of 2003].

At the outset, it may be stated that categorization of assets into

doubtful, sub-standard and loss is not in dispute.

The financial year of the Appellant is J