Reserve Transfers by NBFCs under RBI Act not Allowable Deduction in Computing Assessable Income: Madras HC

The Madras High Court ruled that statutory reserves transferred by Non-Banking Financial Companies (NBFCs) under the Reserve Bank of India (RBI) Act are not allowable as deductions when computing assessable income. This applies to both regular computation and computation of book profits under Section 115JB of the Income Tax Act. The court emphasized that income received as profit and reflected as part of total income cannot be deducted. This decision impacts NBFCs, which must now include these reserves in their taxable income, potentially increasing their tax liabilities. The ruling aims to ensure that NBFCs maintain higher capital buffers and adhere to regulatory requirements without reducing their taxable income through reserve transfers. This judgment reinforces the principle that statutory reserves, meant for financial stability, should not be used to lower tax obligations.