Income Tax Appellate Tribunal - Delhi
Oriental Bank Of Commerce, New Delhi vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E': NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
&
SH. C.M. GARG, JUDICIAL MEMBER
ITA No. 22/Del/2011
Assessment Year: 2006-07
Oriental Bank of Commerce, ACIT,
F-14, IVth Floor, Competent Circle 13(1),
House, Connaught Place, Vs. New Delhi.
New Delhi.
AAACO0191M
(Appellant) (Respondent)
&
ITA No. 173/Del/2011
Assessment Year: 2006-07
ACIT, Oriental Bank of Commerce,
Circle 13(1), F-14, IVth Floor, Competent
New Delhi. Vs. House, Connaught Place,
New Delhi.
AAACO0191M
(Appellant) (Respondent)
Appellant by: Shri K.V.S.R. Krishna, CA
Respondent by: Gunjan Prasad, CIT(DR)
ITA Nos. 22 & 173/D/2011 2
ORDER
PER S.V. MEHROTRA, A.M.
These cross appeals are directed against the order of ld. CIT(A) dated 18/10/2010 for AY 2006-07.
2. The assessee is a public sector/scheduled bank. It had filed its return of income declaring an income of Rs. 695,45,39,942/-. The assessment was completed at a total income of Rs. 714,07,00,170/-, inter-alia, after making following additions/disallowances:
1. disallowance of exemption claimed u/s 10(23G) of Rs.
5,69,65,390/-;
2. disallowance of expenses u/s 14A of Rs. 4,81,18,439/-;
3. disallowance of excess depreciation claimed on LAN, WAN of Rs. 2,17,31,255/-.
3. Ld. CIT(A) partly allowed the assessee's appeal.
4. Being aggrieved with the order of ld. CIT(A), both assessee and department have filed appeals before us.
5. First we take up the assessee's appeal i.e. ITA No. 22/D/2011 ITA Nos. 22 & 173/D/2011 3 The assessee has filed a petition no. HO/ACT/Income Tax/Asstt. Year 2006-07 dated 6th April, 2012, praying for admission and adjudication of following additional grounds:
1. "The appellant is making this legal claim pursuant to the judgment of the Hon'ble Supreme Court arising out of the interpretation of section 36(1)(viia) and section 36(1)(vii) of the Income Tax Act, 1961 in the case of Catholic Syrian Bank Ltd. vs. CIT reported in [2012] 248 CTR 1 (SC) wherein it has been held that the provisions of bad and doubtful debts u/s 36(1)(viia) applies only to rural advances and, therefore, the provisions of sec. 36(1)(vii) operate in their own field and are not restricted by the limitation of sec. 36(1)(viia) of the Act.
2. The appellant by this additional ground is claiming relief u/s 36(1)(vii) of Rs. 191,17,16,392/-
being the bad debts in respect of non-rural advances which may kindly be allowed.
3. The above additional grounds being legal grounds may kindly be admitted and adjudicated in view of the Supreme Court decision in the case of NTPC vs. CIT (1998) 229 ITR 383 (SC), Jute Corporation of India Ltd. vs. CIT (1991) 187 ITR 688 (SC) the powers of the appellate authority being co- terminous with that of the Assessing Officer, the claim of the appellant may kindly be admitted and adjudicated."
ITA Nos. 22 & 173/D/2011 4
6. The assessee in its petition has stated that the claim is a legal claim resulting out of the interpretation of sec. 36(1)(vii), 36(1)(viia) and 36(1) of the Income Tax Act by the Supreme Court of India in the case of Catholic Bank vs. CIT (2012) 248 CTR 1, wherein it has been held that provisions of sec. 36(1)(viia) applies only to rural branches and provisions of sec. 36(1)(vii) operate in their own field and are not restricted by the limitations u/s 36(1)(viia). Therefore, the bad debts in respect of non-rural branches are to be allowed u/s 36(1)(vii). In order to demonstrate that all facts necessary for adjudication of this ground, are on record, ld. Counsel further stated that in the return filed by the assessee for the A.Y. 2006-07, bad debts of Rs. 191,17,16,392/- pertaining to non-rural branches have been set off against provisions of Rs. 246,74,70,998/- u/s 36(1)(viia). This set off was done on the understanding that in view of the proviso to sec. 36(1)(vii), the bad debt even in respect of non-rural branches are to be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision of bad and doubtful debts made in the clause 36(1)(viia).
7. Ld. Counsel for the assessee referred to page 1 of paper book filed in support of additional ground, wherein the statement of assessable income for A.Y. 2006-07 is contained, to demonstrate that provision for bad and doubtful debts relating to rural branches amounting to Rs. ITA Nos. 22 & 173/D/2011 5 1,31,05,86,300/- and reserve for bad and doubtful debts - 7.5% on taxable income amounting to Rs. 79,00,00,000/- debted to Profit & Loss account, had been separately considered by adding the same to assessee's net profit as per Profit & Loss account. He referred to page 3 of the same statement, wherein provision u/s 36(1)(viia) for the year had been claimed as under:
VIII Less: Provision u/s 36(i)(viia) for the year:
a) 10% of average aggregate advances pertaining to rural branches: 10% of Rs. 13,105,863,133 1,310,586,300 (as per auditor certificate qualifying the Deduction under Rule 6BA read with sec. 36(i)(viia) enclosed)
b) Additional provision not exceeding 7.5% of the total Income before making any deduction under this clause And chapter VI-A: 7.5% of Rs. 8,937,284,388 670,296,329 (1,980,882,629)
8. Ld. Counsel referred to page 8 & 9 of the paper book, wherein the letter dated 10th October, 2007 requiring various details u/s 142(1) is contained in which AO had required the assessee to give complete working in order to justify its claim for provision u/s 36(1)(viia) read with section 36(1)(vii) and 36(1)(ii). Ld. Counsel referred to page 22 of the paper book, wherein the assessee's reply dated 18th October, 2007 is contained in which assessee had stated as under:
"The assessee bank has not debited to P&L account directly any bad debts written-off as can be seen from the detailed P&L account filed with the return. The deduction is made by the assessee in strict ITA Nos. 22 & 173/D/2011 6 compliance with the provisions of section 36(1)(viia) of the Income Tax Act, 1961.
The section allows deduction on account of provision for bad and doubtful debts of 10% of rural advances which as per the assessee's working comes to Rs. 131.05 crores, this is based on certificate issued by the auditors of the bank and also filed along with the return. The second deduction allowable under the same section is @ 7.5% of the gross total income (before allowing any deduction u/s 36(1)(viia) which as per the computation comes to Rs. 67.02 crores. This claim would correspondingly be increased in case any addition is made as it would also increase the gross total income."
9. Ld. Counsel referred to page 29 of paper book, wherein the statement of aggregate average advances from 01/04/2005 to 31/03/2006 pertaining to rural branches is contained on which 10% provision amounting to Rs. 131,05,86,300/- was made. Ld. Counsel referred to page 27 of paper book, wherein the working for claim made u/s 36(1)(viia) read with sections 36(1)(vii) and 36(1)(ii) is contained to demonstrate that against these provisions, bad debts aggregating to Rs. 191,17,16,392/- relating to non-rural branches, had been written off which, as per the decision of Hon'ble Supreme Court, should have been separately allowed.
ITA Nos. 22 & 173/D/2011 7
10. We have considered the submissions of both the parties and have perused the record of the case.
11. The Hon'ble Supreme Court in the case of Catholic Syrian Bank (supra) has observed as under: -
1. "The Appellant is a Nationalized Bank.
Appeal for the AY 2006-07 has been filed against the order u/s 143(3)dated 27.11.2007.
2. In the return filed by the Appellant for the AY 2006-07 bad debts of Rs. 191,17,16,392/-
pertaining to non-rural branches has been set off against the provisions of Rs.
246,74,70,998/- u/s 36(1)(viia) of the Income Tax Act, 1961.
3. The set off was done on the understanding that in view of the proviso to sec. 36(1)(vii), the bad debt even in respect of non-rural branches are to be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision of bad and doubtful debts made in the clause 36(1)(viia).
4. This fact has been brought to the notice of the AO during the course of assessment proceedings which is available on record of the department.
5. The Hon'ble Supreme Court in the case of Catholic Syrian Bank vs. CIT reported in [2012] 248 CTR 1 (SC), has held that ITA Nos. 22 & 173/D/2011 8 provisions of sec. 36(1)(viia) applies only to rural advances and provisions of sec.
36(1)(vii) operate in their own field and are not restricted by the limitations u/s 36(1)(viia) of the Act. Therefore, the bad debts in respect of non-rural branches are to be allowed u/s 36(1)(vii). The relevant portion of the judgment are reproduced below:
"Indisputably, clause (viia) (a) applies only to rural advances".
"Mere provision for bad and doubtful debts may not be allowable, but in the case of a rural advance, the same, in terms of sec. 36(1)(viia) (a), may be allowable without insisting on an actual write off".
"It is useful to notice that in the proviso to sec. 36(1)(vii), the explanation to that Section, Section 36(1)(viia) and 36(2)(v), the words used are provision for bad and doubtful debts' while in the main part of sec. 36(1)(vii), the Legislature has intentionally not used such language. The proviso to sec.
36(1)(vii) and Sections 36(1)(viia) and 36(2)(v) have to be read and construed together. They form a complete scheme for deductions and prescribe the extent to which such deductions are available ITA Nos. 22 & 173/D/2011 9 to a scheduled bank in relation to rural loans etc., where Section 36(1)(vii) deals with general deductions available to a bank and even on-banking businesses upon their showing that an account had become bad and written off as irrecoverable in the accounts of the assessee for the previous year, satisfying the requirements contemplated in that behalf u/s 36(2)."
6. The Appellant prays that the claim is a legal claim resulting out of the interpretation of sec. 36(1)(vii), 36(1)(viia) and 36(2) of the Income Tax Act, 1961 by the Supreme Court of India and in view of the Supreme Court decision in the case of NTPC vs. CIT (1998) 229 ITR 383 (SC), Jute Corporation of India Ltd. vs. CIT (1991) 187 ITR 688 (SC) the powers of the appellate authority being co- terminus with that of the Assessing Officer, the claim of the Appellant may kindly be admitted and adjudicated."
12. The claim of assessee is that bad debts in respect of non rural branches are to be allowed u/s 36(1)(vii) in view of aforementioned decision.
ITA Nos. 22 & 173/D/2011 10
13. Admittedly, it is a legal claim and, therefore, can be raised at any stage of proceeding. We, therefore, admit this claim as all the relevant details necessary for adjudication of this issue, are on record. We, therefore, now proceed to adjudicate this ground.
14. Ld. DR referred to page 29 of paper book and pointed out that assessee has not given the details of rural branches. He submitted that in the statement assessee has only referred to the name of regional offices. He referred to Explanation 1A to section 36(i), wherein the definition of 'rural branch' is given. He submitted that basic conditions of 'rural branches' have to be verified. Ld. Counsel, in the rejoinder, submitted that AO has already examined rural branches.
15. We have considered the submissions of both the parties and have perused the record of the case. In view of the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank (supra), bad debts in respect of non rural branches are to be allowed u/s 36(i)(vii). The assessee's claim is that bad debts of Rs. 191,17,16,392/- pertaining to non rural branches have been set off against the provisions of Rs. 246,74,70,998/- u/s 36(i)(viia). In support of this contention, ld. Counsel referred to page 27 of paper book, wherein the working for claim u/s 36(i)(viia) is contained, to demonstrate that assessee had set off bad debts relating to non rural branches against the opening provision u/s ITA Nos. 22 & 173/D/2011 11 36(i)(viia). In the same statement, assessee had claimed bad debts relating to rural branches amounting to Rs. 10,38,51,000/-. Considering the entirety of facts, we are of the opinion that the claim of assessee needs to be examined afresh in the light of decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank (supra). If on verification, the AO finds that no separate bad debts had been written off in respect of non rural branches, then the same is to be allowed after due verification.
16. In the result, this ground is allowed for statistical purposes.
17. The other grounds raised by assessee are as under:
1. "The ld. CIT(A) has erred in law and on facts in upholding the disallowance u/s 14A and directing the AO to compute disallowance.
The direction given by the ld. CIT(A) is ignoring the facts of the assessee's case, being that of a nationalized bank where investments are held as stock in trade and expenditure is incurred for the purpose of banking business.
2. The appellant contends that no expenditure is incurred for earning tax free income. Neither the Assessing Officer nor the CIT(A) has any material to support any expenditure incurred for earning tax free income for disallowance. Hence the order of the CIT(A) upholding ITA Nos. 22 & 173/D/2011 12 disallowance u/s 14A is wrong and bad in law.
3. It is contended that appellant has sufficient own funds namely share capital of Rs. 250.54 crores and reserves of Rs. 4920.24 crores, both aggregating to Rs. 5170.78 crores covering investments in shares/investment in UTI/Mutual funds/bonds/long term loans as on 31.03.2006 of approximately rs. 441.37 crores yielding tax free income. As against this positive evidence, the AO as well as CIT(A) has no material or evidence to show that any expenditure was incurred to earn tax free income. Therefore, there is no question of disallowance u/s 14A.
4. It is further contended that it is the policy of the Govt. to exempt or not to exempt the income and not in the hands of the bank.
Therefore, as a banking company having one individual business, the expenses incurred during the course of carrying banking business should be allowed. The investments in the bank are made to realize gains or losses and earning dividend is only incidental.
Therefore, also the provisions of sec. 14A cannot be applied in the case of banking company.
ITA Nos. 22 & 173/D/2011 13
5. The appellant contends that the CIT(A) has erred in not allowing the losses of EGTB u/s 72AA of the Income Tax Act, 1961.
6. The above grounds (including part thereof) are independent and without prejudice to one another."
18. At the time of hearing ld. Counsel for the assessee did not press ground no. 5 and, therefore, the same is dismissed as not pressed.
19. Brief facts apropos ground nos. 1 to 4 are that in course of assessment proceedings, the AO noticed that assessee had shown exempt income of Rs. 50,61,40,162/- which, inter-alia, comprised of dividend income from securities of companies and UTI/Mutual funds and interest received on tax fee bonds and interest of Rs. 5,69,65,390/- derived from long term finance made available to infrastructure capital funds/company, which he had already disallowed u/s 10(23G) of Income Tax Act.
20. The AO, after considering the assessee's submissions, computed expenditure of Rs. 4,81,18,439/- as expenses attributable to earning of income exempt from tax and disallowed the same u/s 14A of the Act.
21. Ld. CIT(A) confirmed the AO's action.
ITA Nos. 22 & 173/D/2011 14
22. Ld. Counsel for the assessee submitted that the matter may be restored back to the file of AO to re-examine the entire issue in the light of decision of Hon'ble Delhi High Court in the case of Maxopp Investment Ltd.& Ors. vs. CIT (Del.), 247 CTR 162, wherein it has been held as under:
41. "Sub-s. (2) of s. 14A, as we have seen, stipulates that the AO shall determine the amount of expenditure incurred in relation to income which does not form part of the total income "in accordance with such method as may be prescribed". Of course, this determination can only be undertaken if the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of s. 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in s.14A(1) (as it now stands) as also in its initial Avatar as s. 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, s. 14A, even prior to the introduction of sub-ss. (2) and (3) would require the AO to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the ITA Nos. 22 & 173/D/2011 15 question of determination of such expenditure by the AO would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-s. (2) of s. 14A.
Prior to that, the assessing authority was free to adopt any reasonable and acceptable method.
42. Thus, the fact that we have held that sub-ss.
(2) and (3) of s. 14A and r. 8D would operate prospectively (and, not retrospectively) does not mean that the AO is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort (supra) to the following effect:
"The theory of apportionment of expenditure between taxable and ITA Nos. 22 & 173/D/2011 16 non-taxable has, in principle, been now widened u/s 14A."
So, even for the pre-r.8D period, whenever the issue of s. 14A arises before an AO, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the AO will have to verify the correctness of such claim. In case, the AO is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the AO is to accept the claim of the assessee insofar as the quantum of disallowance u/s 14A is concerned. In such eventuality, the AO cannot embark upon a determination of the amount of expenditure for the purposes of s. 14A(1). In case, the AO is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so.
Having done so, the AO will have to determine the amount of expenditure ITA Nos. 22 & 173/D/2011 17 incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment."
23. Having heard both the parties, we restore this issue to the file of AO to examine the issue afresh in the light of aforementioned observations of Hon'ble Delhi High Court.
24. In the result, all these grounds are allowed for statistical purposes.
25. Now we take up the Department's appeal vide ITA No. 173/Del/2011. The Department has taken following grounds of appeal:
1. "That on the facts and circumstances of the case as well as in law the ld. CIT(A) erred in deleting the disallowance of Rs. 5,69,65,390/- made by the AO on account of exemption claimed by the assessee u/s 10(23G) of the I.T. Act, 1961.
2. On the facts and circumstances of the case, the ld. CIT(A) has erred in ignoring the fact that the CBDT vide Circular No. 762 dt. 18.02.1998 had made it clear that exemption u/s 10(23G) of the I.T. Act, 1961 would be available only to such 'infrastructure capital funds' or 'infrastructure capital comanier' which are established for the purposes of mobilizing resources for financing ITA Nos. 22 & 173/D/2011 18 infrastructure facilities and to no other type of assessee.
3. That on the facts and circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance of Rs. 2,17,31,255/- made by the AO on the issue of excess depreciation claimed LAN and WAN equipments."
26. Brief facts apropos this issue are that the assessee had claimed exemption of interest u/s 10(23G) of Rs. 5,69,65,390/- derived from long term finance made available to infrastructure capital funds/company. The assessee was required to justify its claim u/s 10(23G) as the same was available only to infrastructural capital fund, infrastructural capital company or a cooperative bank. The assessee, in its reply submitted that infrastructure capital company has been defined in Explanation 1 to sec. 10(23G) as under: -
Sec. 10(23G) Expl. 1. - For the purposes of this clause, -
(a) "infrastructure capital company" means such company as has made investments by way of acquiring shares or providing long term finance to an enterprise wholly engaged in the business referred to in this clause;
(b) "infrastructure capital fund" means such fund operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908) established to raise monies by the ITA Nos. 22 & 173/D/2011 19 trustees for investment by way of acquiring shares or providing long-term finance to an enterprise wholly engaged in the business referred to in this clause;
(c) [***]
(d) "long-term finance" shall have the meaning assigned to it in clause (viii) of sub-section (1) of section 36;
(e) "co-operative bank" shall have the meaning assigned to it in clause (dd) of section 2 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (47 of 1961);
(f) "interest" includes any fee or commission received by a financial institution for giving any guarantee to, or enhancing credit in respect of, an enterprise which has been approved by the Central Government for the purposes of this clause;
(g) "hotel project" means a project for constructing a hotel of not less than three star category as classified by the Central Government;
(h) "hospital project" means a project for constructing a hospital with at least one hundred beds for patients."
27. The assessee's contention was that the aforementioned definition of infrastructure capital company covers the banks as assessee is a banking company and is providing long term finance, which is for a period of more ITA Nos. 22 & 173/D/2011 20 than five years and is covered u/s 36(1)(vii) of the I.T. Act. The AO did not accept the assessee's contention and observed that following conditions should have been satisfied by the assessee to avail exemption:
1. "There is 'an infrastructure capital fund' or 'infrastructure capital company' or a 'Co- operative Bank',
2. It has earned income by way of dividend (not being covered u/s 115O of the I.T. Act,1961), interest or long capital gains;
3. The aforesaid income is derived from investments made on or after June, 1998 by way of shares or long term finance in any "infrastructure enterprise"&
4. The infrastructure enterprise is approved by the Central Govt. on an application made by it in accordance with the prescribed rules."
28. He disallowed the assessee's claim, inter-alia, observing as under:
"Therefore, in accordance with the principles of statutory interpretation of legal statute, the provisions of sec. 10(23G) of the I.T. Act, 1961 cannot be interpreted to mean anything else than what has been concluded above. The phrase 'infrastructure capital company' as discussed above has been used with a specific intention by Legislature to provide exemption only to such 'infrastructure capital company' which are established for the purpose of mobilizing resources ITA Nos. 22 & 173/D/2011 21 for financing infrastructure facilities, meaning thereby that even an 'infrastructure capital company' which has not been established for purpose of mobilizing resources for financing infrastructure facilities will not be eligible for exemption u/s 10(23G) of the I.T. Act, 1961."
29. Ld. CIT(A) allowed the assessee's appeal following the decision of ITAT, Amritsar Bench in the case of Jammu & Kashmir Bank Ltd. vs. Asstt. CIT, 114 TTJ 728.
30. We have considered the submissions of both the parties and have perused the record of the case.
31. Admittedly, the assessee company had earned interest on long term loan given to Gujarat State Energy Generation Ltd. which is notified as engaged in the business of infrastructure development within the meaning of sec. 80(i)(a) sub-section (4) clause (iv) sub clause (a) of the Act vide CBDT's notification dt. 29/06/2006. Therefore, there is no dispute that assessee had provided long term finance to an eligible undertaking. The AO's main contention is that exemption u/s 10(23G) is available only to such infrastructure capital funds or infrastructure capital companies which are established for the purpose of mobilizing resources for financing infrastructure facilities. We find that ITAT ITA Nos. 22 & 173/D/2011 22 Tribunal Bench in the case of Jammu & Kashmir Bank has, inter-alia, observed as under:
"There is no dispute about the fact that the assesseeis a banking company. The essential feature of the business of a banking company is to mobilize resources from the public and lend it on interest to various sectors. The Revenue has not denied that assessee had indeed made investment in shares and providing long term finance to enterprises engaged in infrastructural facility. Therefore, all the conditions laid down for claiming exemption u/s 10(23G) are fulfilled by the assessee. It is not proper to take a narrow view of the issue when the assessee had in fact made investments in shares and financed the enterprises engaged in providing infrastructure facilities on long term basis. It is not necessary that the 'infrastructure capital company' should be formed solely for the purpose of mobilizing resources for financing infrastructure facilities. If it includes one of the objects of the banking business, the same should be sufficient to entitle the assessee to claim exemption of its income u/s 10(23G). This view also finds support from the fact that subsequently this benefit of sec. 10(23G) has been extended to co-operative banks, though such banks have also not been set up for the purpose of mobilizing resources for financing the infrastructure facilities. Therefore, the assessee falls in the category of 'infrastructure capital ITA Nos. 22 & 173/D/2011 23 company' entitled to exemption u/s 10(23G). The view that banks are entitled to exemption of its income falling in the nature mentioned u/s 10(23G) is reinforced by the recent news item which appeared in The Economic Times dt. 19.01.2008. From the said news item, it is clear that the banking sector was enjoying exemption u/s 10(23G) which has been deleted by the Finance Act, 2006. If it were not so, there was no need for the banks to make such representation."
32. In view of above mentioned decision, the view taken by AO is not correct. Further, we are in agreement with the finding of ld. CIT(A) that Explanation 1A to sec. 10(23G) of the Act, defining infrastructure capital company does not exclude banking companies so long as banking company is a company and has made investment in providing long term finance to an enterprise wholly engaged in the infrastructure business and approved by the Central Government.
33. Ld. Counsel for the assessee has also filed a decision of ITAT Delhi Bench in the case of Punjab National Bank, wherein in principle Tribunal agreed that PNB was entitled for deduction u/s 10(23G) subject to the condition that the finance was given to approved infrastructure companies.
ITA Nos. 22 & 173/D/2011 24
34. In view of above discussion, we uphold the order of ld. CIT(A).
35. In the result, the ground no. 2 is dismissed.
36. Brief facts apropos ground no. 3 are that the AO noticed that in the block of assets "Computer" an addition of Rs. 9,34,62,000/- had been made on account of purchase of certain equipments in form of LAN, WAN and the assessee had claimed depreciation @ 60%. The assessee had claimed deduction @ 60% by treating LAN, WAN as integral part of computer software. The AO did not accept the assessee's contention and held that LAN, WAN equipments, in the case of assessee, are special purpose business machines, which are specifically made for banking business only and cannot function as computer. He, therefore, allowed depreciation @ 20% only.
37. In the submissions made before ld. CIT(A), the assessee had submitted as under:
6.1 "In this regard, the ld. AR vide written submission dt. 26.05.2009 has argued as under:
"The assessee hascharged60% depreciation as they fall under item (5) of the depreciation schedule in the I.T. Rules, 1962 "Computer including computer software" under the major head "machinery and plant". Copy of ITA Nos. 22 & 173/D/2011 25 the rules is enclosed. We are enclosing the photocopy of the relevant page of the tables. Secondly below the table at note No.7 it is also mentioned that 'computer software' means any computer program recorded on any disk, tape, perforated media or other information storage devise i.e., not only the hardware but the software is also entitled for depreciation @ 60%. Your goodself will appreciate that after the introduction of "block of assets" concept the computer head which is depreciated at the rate of 60% is one single block of assets. Therefore, the cost of the assets of LAN, WAN equipments gets merged into the other computer costs and, therefore, the current year additions is made available.
The LAN equipment is called Local Area Network equipment which is part of the computer hardware which enables for a group of computers and associated computer devises to share the data through this devise. In other words the data is stored at single computer processor or server and all the other computers are connected through local area network equipment and the single processor can be accessed by the other computers and the data stored is used by the other computers. Therefore, this is part of the ITA Nos. 22 & 173/D/2011 26 computer hardware and the rate of 60% has been rightly applied by the assessee. Similarly, WAN equipment is called Wide Area Network, to put it simply, two or more LAN would form a WAN i.e., to cover larger geographical area the computer networking is done by use of Wide Area Network equipment (WAN). This is also integral part of computer hardware and the rate of 60% has been rightly claimed and allowed.
In this connection, reference is invited to the Information Technology Act, 2000 wherein, section 2(i) defines the term "computers" which also includes "computer network".
Section 2(j) defines the term "Computer Network" means the interconnection of one or more computers through -
(i) the use of satellite, microwave, terrestrial line or other communication media; and
(ii) terminals or a complex consisting of two or more interconnected computers whether or not the interconnection is continuously maintained;
(copy of extracts enclosed)"
38. Ld. CIT(A) allowed the assessee's appeal in view of following decisions:
1. CIT vs. BSES Rajdhani Powers Limited in ITA No. 1266/2010 (Del.) (HC), wherein it has been held that computer accessories ITA Nos. 22 & 173/D/2011 27 and peripherals such as printers, scanners and server etc. form an integral part of the computer system.
2. DCIT vs. M/s Datacraft India Ltd. (SB), ITA Nos. 7462 & 754/Mum./2007.
39. We have considered the submissions of both the parties and have perused the record of the case. From the submissions made before CIT(A), noted earlier, it is evident that LAN and WAN, both formed integral part of computer system as computer could not be utilized without there devises for assessee's business purposes and, therefore, assessee was entitled to depreciation @ 60%.
40. We, accordingly, confirm the order of ld. CIT(A).
41. In the result, this ground is dismissed.
42. In the result, assessee's appeal is partly allowed for statistical purposes and Department's appeal is dismissed.
Order pronounced in the open court on 15/03/2013 Sd/- Sd/-
(C.M. GARG) (S.V. MEHROTRA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 15/03/2013
*Kavita
ITA Nos. 22 & 173/D/2011 28
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
TRUE COPY
By Order
ASSISTANT REGISTRAR