Madras High Court
Commissioner Of Income Tax vs Amrutanjan Finance Limited on 24 August, 2011
Bench: Chitra Venkataraman, M.Jaichandren
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 24.08.2011 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN and The Honourable Mr.Justice M.JAICHANDREN TC(A). No. 294 of 2005 Commissioner of Income Tax Chennai ... Appellant -vs- Amrutanjan Finance Limited 42-45, Luz Church Road Mylapore, Chennai 600 004 ... Respondent Appeal against the order of the Income Tax Appellate Tribunal, Madras 'C' Bench in I.T.A. No. 1750/ Mds/ 2002 dated 6.8.2004 for assessment year 1998-99. For Appellant : Mr.K.Subramanian For respondent : Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyar JUDGMENT
(Judgment of the Court was made by CHITRA VENKATARAMAN,J) The Revenue is on appeal against the order of the Tribunal relating to assessment year 1998-99. Even though the above Tax Case Appeal is admitted only on the first substantial question of law, out of the two questions raised, we feel that as the grounds are comprehensive and for the proper consideration of the questions raised, in terms of proviso to sub clause (4) of Section 260A of the Income Tax Act, the second question of law raised also merits consideration. Hence, the substantial questions of law raised in the Tax Case Appeal read as under:-
(i) Whether in the facts and circumstances of the case, the Tribunal was right in allowing 100% depreciation on partitions and structures even though the assessee had not been in a position to establish that the same were temporary in nature?
(ii) Whether in the facts and circumstances of the case, the Tribunal was right in remitting the issue of admissibility of deduction of non performing assets and diminution in the value of investments back to the officer when such a claim of deduction is not contemplated under the provisions of the Income Tax Act?
2. Both the counsel submitted that the claim as regards 100% depreciation on partition and structures is covered by the decision of this Court in T.C.No.197 of 2005 dated 26.7.2011 (M/s.Thiru Arooran Sugars Ltd., Chennai-34 Vs. The Deputy Commissioner of Income-tax, Special Range-VII, Chennai), wherein, rejecting the claim of the Revenue, this Court upheld the order of the Tribunal that the temporary structure by means of false ceiling and office renovation had not resulted in a capital expenditure. Applying the decision reported in [1998] 233 ITR 468 (Commissioner of Income Tax Vs. Madras Auto Service P. Ltd.) and [2007] 292 ITR 266 (Mad) (Commissioner of Income Tax Vs. Ayesha Hospitals P. Ltd.), this Court held that the assessee was entitled to 100% depreciation on the false ceiling and wooden partition inclusive of furniture, electrical wiring and interior decoration. It is seen from the order of the Tribunal that an identical claim in respect of the same assessee for the block period ending 3.10.1996 was allowed and the order of the Tribunal had become final. The Tribunal pointed out that temporary erection would qualify for 100% depreciation. As far as the present case is concerned, the assessee put up temporary wooden structure and partition for running computer centres. Applying the decision of this Court as cited above, we have no hesitation in confirming the order of the Tribunal, thereby answering the question against the Revenue.
3. As regards the second question on the remand order of the Tribunal relating to the admissibility of deduction of non-performing assets and diminishing value of investment, it is seen from the order of the Tribunal that it followed the decision of this Court reported in [2005] 275 ITR 451 (Commissioner of Income Tax Vs. Annamalai Finance Ltd.). Although there is no reference as to the case law report and the reference is made giving the name of the party and as the decision of the Madras High Court, there is no dispute from either side that the same refers to the decision of this Court reported in [2005] 275 ITR 451 (Commissioner of Income Tax Vs. Annamalai Finance Ltd.).
4. A reading of the order of the assessment shows that the assessee is a Non Banking Finance Company. Out of the loan and advances made by the company under lease transaction, finance and hire purchase transaction, the assessee classified the advances that had become irrecoverable as non-performing assets and a provision was made for the same in the books of accounts. The assessee claimed that the provision made was in line with the guidelines of the Reserve Bank of India, prescribed for non-banking finance company and hence, the said transaction was allowable as deduction. As regards the investments made, the actual market value had dwindled down due to market fluctuation. The difference between the cost of acquisition and the lower realisable value of these investments were ascertained and a provision was made in the profit and loss account for writing off the same in the coming years. The Assessing Officer held that the assessee was not entitled to claim deduction unless the debts were written off so in the accounts. Here the provision made for non performing assets were added back and assessed. As regards the diminishing value of investments, there was no transfer of assets to compute the loss arising to the assessee on account of dimunition in market value. Hence, the provision made for dimunition in value of investments was also rejected and added back and assessed. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who held that even though the Reserve Bank of India's circular might govern the functioning of the Non Banking Finance Companies, in the absence of corresponding provision under the Income Tax Act, the claim of the assessee could not be allowed. Thus, the assessee went on further appeal before the Income Tax Appellate Tribunal. The Tribunal remanded the matter back to the Assessing Officer to consider the claim in the light of the decision of this Court reported in [2005] 275 ITR 451 (Commissioner of Income Tax Vs. Annamalai Finance Ltd.).
5. Learned Standing Counsel appearing for the Revenue placed reliance on the decision of the Apex Court reported in 320 ITR 577 SOUTHERN TECHNOLOGIES LIMITED v. JOINT CIT, holding that the nature of expenditure under the Income Tax Act cannot be conclusively determined in the manner in which accounts are presented in terms of the direction of the Reserve Bank of India. The Apex Court held that provision for non performing assets in terms of the Reserve Bank of India's directions did not constitute expense on the basis for granting deduction under Section 36(1)(vii) of the Income Tax Act. In the light of the said decision, learned Standing Counsel submitted that the remand order has to be set aside.
6. Per contra, learned counsel appearing for the assessee referred to the subsequent decision of the Apex Court reported in 323 ITR 166 VIJAYA BANK v. CIT, wherein the issue was again considered to hold that the provision under Section 36(1)(vii) covered the case of banking as well as non banking assessees. In the light of the said decision, learned counsel for the assessee submits that the Assessing Officer may be directed to consider the case of the assessee, keeping in mind the law declared by the Apex Court reported in 323 ITR 166 VIJAYA BANK v. CIT, as well as in 320 ITR 577 SOUTHERN TECHNOLOGIES LIMITED v. JOINT CIT.
7. In the decision of the Apex Court reported in 323 ITR 166 VIJAYA BANK v. CIT, the Apex Court held that after insertion of explanation to Section 36(1)(vii), the assessee is required not only to debit the profit and loss account but simultaneously also reduce loans and advances or the debts from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. Thus, the Apex Court held that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of the Act as there was an actual write off by the assessee in its books, as indicated above. The Apex Court pointed out that Section 36(1)(vii) of the Act applies both to banking and non banking business. The manner in which the claim could be allowed has to necessarily follow what was stated herein above viz., apart from debiting the profit and loss account to the extent of the impugned bad debt, it must simultaneously show the reduction in the amount of loans and advances or the debtors at the year end on the asset side of the balance sheet so that the balance sheet shows the net of the provisions for the bad debt. On the question as to whether in granting the said relief, the Officer has to consider each and every individual account of the debtor, the Apex Court pointed out that it is always open to the Assessing Officer to call for details of individual debtor's account if the Assessing Officer has reasonable grounds to believe that the assessee had claimed deduction twice over.
8. In the light of the said pronouncement of the Apex Court, we feel that the proper course would be for the Officer to consider the claim of the assessee, keeping in mind the law declared by the Apex Court in 320 ITR 577 SOUTHERN TECHNOLOGIES LIMITED v. JOINT CIT as well as 323 ITR 166 VIJAYA BANK v. CIT and pass orders thereon.
In the result, the Tax Case Appeal is dismissed. No costs.
To
1. Commissioner of Income Tax, Chennai
2. Income Tax Appellate Tribunal, Madras Bench 'C' bg