Income Tax Appellate Tribunal - Delhi
Tourism Finance Corporation Of India ... vs Assessee on 29 April, 2002
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E': NEW DELHI
BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER &
SHRI K.G. BANSAL , ACCOUNTANT MEMBER
ITA No. 3155/Del/2002
Assessment Year : 1998-99
Tourism Finance Corporation JCIT
of India Ltd. Special Range-20,
61, IFCI Tower, Vs. New Delhi.
th
5 Floor, Nehru Place,
New Delhi-110019.
(Appellant) (Respondent)
Appellant by : Shri Sanjay Agarwal, C.A.
Respondent by : Shri Jayant Mishra, CIT (D.R.)
ORDER
PER: C.L. SETHI, J.M. The assessee is in appeal against the order dated 29.04.2002 passed by the ld. CIT(A) in the matter of an assessment made u/s 143(3) of the Income Tax Act, 1961 by the A.O. for the assessment year 1998-99.
2. Ground Nos. 1 to 3 are inter-connected which read as under:-
1. Ld CIT(A) in holding that deduction under section 36()1)(viii) of the Income Tax Act, 1961 will have priority over deduction under section 36(1)(viia) of the Income Tax Act, 1961.
2. The CIT(A) erred in holding that deduction under section 36(1)(viii) will first be allowed an after computing total income before allowing deduction under Chapter VIA and u/s 36(1)(viia), deduction under section 36(1)(viia) will be allowed as the base for deduction u./s 36(1)(viia) and 36(1)(viii) is not the same.
3. On the facts and in law the CIT(A) ought to have held that the assessee was entitled to deduction under section 36(1)(viia) and under section 36(1)(viii) on the same income before making deduction under Chapter-
VIA."
ITA No. 3155/Del/20023. In the course of hearing of this appeal, it was pointed out by the ld.
Counsel for the assessee that an identical issue had come for consideration in the assessment year 1997-98 before the ITAT, Delhi Bench 'I', New Delhi where these issues were decided against the assessee. A copy of Tribunal's order dated 30th April, 2009 was placed before us. A copy of said decision was also provided to the ld. D.R.
4. In the light of the statement of the assessee, these issues shall stand decided in the light of the order of the Tribunal passed in the assessment year 1997-98 which reads as under:-
"9. Ground No.1, 2 & 3 are inter-connected which read as under:-
1. Ld CIT(A) in holding that deduction under section 36()1)(viii) of the Income Tax Act, 1961 will have priority over deduction under section 36(1)(viia) of the Income Tax Act, 1961.
2. The CIT(A) erred in holding that deduction under section 36(1)(viii) will first be allowed an after computing total income before allowing deduction under Chapter VIA and u/s 36(1)(viia), deduction under section 36(1)(viia) will be allowed as the base for deduction u./s 36(1)(viia) and 36(1)(viii) is not the same.
3. On the facts and in law the CIT(A) ought to have held that the assessee was entitled to deduction under section 36(1)(viia) and under section 36(1)(viii) on the same income before making deduction under Chapter-VIA.
10. Briefly stated, the facts are that it is noted by the Assessing Officer in para No.5 of the assessment order that while computing the total income, the assessee has preferred claims under section 36(i)(viia) and 36(i)(viii)of Rs.60,09,359/- and Rs.480,74,868/- at the rate of 5% & 40% of gross total income. It is further noted by the Assessing Officer that however, the deduction under section 36(i)(viii) is to be allowed after reducing from the gross total income, the claim of deduction under section 36(i)(viia), as was done while processing the return under section 143(1)(a) of the Income Tax Act, 1961. It is further noted by the Assessing Officer that during the proceedings for assessment in 2 of 11 ITA No. 3155/Del/2002 assessment year 1993-94, this issue was taken up for consideration and after having considered the provisions in this regard as also the objections raised by the assessee, deduction was allowed under section 36(i)(viii) on the remainder figure after allowing deduction under section 36(i)(viia) of the Act. It is also noted by the Assessing Officer that Ld CIT(A) has confirmed the assessment order in that year. It is further noted by the Assessing Officer that in 1994-95 also, this issue was decided by the Assessing Officer against the assessee and the assessment order in that year was also confirmed by the Ld CIT(A). By following the earlier assessment orders, in this year also, it was held by the Assessing Officer that deduction under section 36(1)(viii) shall be allowed on the remainder after allowance has been made under section 36(i)(viia) of the Income Tax Act, 1961 from the gross total income. Being aggrieved, the assessee carried the matter in appeal before Ld CIT(A).
11. It was held by Ld CIT(A) that the Assessing Officer had not correctly computed deduction under section 36(i)(viii) and 36(i)(viia). It is also held by the Ld CIT(A) that deduction under section 36(i)(viii) should be allowed at the rate of 40% of taxable income out of interest on rupee term loan amounting to Rs.83,64,34,381/-. He has directed the Assessing Officer that on this amount, the Assessing Officer will determine the profit from business of providing long term finance as computed under the head Profits & Gains of Business or Profession before allowing deduction under clause 36(i)(viii) of the Income Tax Act, 1961 and on the profits so determined, the assessee will be eligible for deduction at the rate of 40% of such income under section 36(i)(viii) of the Income Tax Act, 1961. For deduction under section 36(1)(viia), it is held by him that the same should be allowed @ 5% of total income after deducting the amount deduction allowable under section 36(1)(viii).
Now, the assessee is in further appeal before us regarding computation of deduction under section 36(i)(viia) and 36(i)(viii) of the Act.
12. It was the submission of Ld AR of the assessee that section 36(i)(viia) comes before section 36(i)(viii) and hence, deduction allowable under section 36(i)(viii) cannot be reduced from total income for working out deduction allowable under section 36(i)(viia) as directed by ld CIT(A). In this regard, reliance was placed on the judgment of Hon'ble Patna High Court rendered in the case of Bihar State Financial corporation as reported in 142 ITR 518.
13. As against this, Ld DR of the revenue supported the orders of the Ld CIT(A).
3 of 11 ITA No. 3155/Del/2002
14. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below and the judgment of Hon'ble Patna High Court cited by Ld AR of the assessee. In this regard, we find that provisions of section 36(i)(viia) are relevant which are reproduced below:
"36(1)(viia) in respect of any provision for bad and doubtful debts made by ---
(a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-
operative agricultural and rural development bank, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner:"
15. From the above, it can be seen that deduction allowable under this section has to be computed at the rate of 5% of the total income computed before making any deduction under clause (viia) of Chapter- VIA. From the wording of the provisions of this section, it is apparent that total income to be considered for this purpose is to be computed before making any deduction under this clause i.e. clause (viia) of section 36(1) of the Act and deductions allowable under Chapter-VIA and hence, all other deductions are to be considered and hence we find no merit in this claim of the assessee that deduction allowable to the assessee under section 36(1)(viii) should not be reduced from total income for the purpose of computing deduction allowable under section 36(i) (viia). The claim of the assessee is merely on this basis that section 36(i)(viii) comes after section 36(i)(viia) and for this reason, this deduction should not be reduced from total income. If we go on that basis, then any other deduction which is allowable under any section of the Income Tax Act, 1961 which is coming after section 36(i)(viia) cannot be reduced from total income such as section 37(1), section 43B etc. This is an absurd proposition. Regarding judgment of Hon'ble Partna High Court rendered in the case of Bihar State Financial Corporation (supra), we find that the issue involved in that judgment was regarding deduction allowable to the assessee under section 36(i)(viii) and it was held in this case by Hon'ble Patna High Court that the statutory deduction under section 36(i)(viii) of 4 of 11 ITA No. 3155/Del/2002 the Income Tax Act, 1961 available to the financial corporation providing long term finance for housing should be calculated on the total income before deduction of the amount allowable under section 36(i)(viii). Computation of deduction allowable u/s 36(i)(viii) is not the subject matter in this case and hence this judgment of Hon'ble Patna High Court is not relevant in the case in hand before us. Moreover, it is provided in section 36(1)(viia) itself that deduction allowable under this clause is not to be reduced from total income for the purpose of computing deduction under section 36(1)(viia). Under this factual position, we are of the considered opinion that no interference is called for in the order of Ld CIT(A) on this issue. This ground of the assessee is rejected."
5. Ground No. 4 and 5 are inter-connected which read as under:-
"4. The CIT(A) has erred in holding that except interest on rupee term loan, interest on equipment credit scheme, lease rental and financial change, dividends, profits on sale of investment, misc. income, interest on deposits, other fees and charges do not fall within the ambit of income derived from long term finance and as such no deduction allowable under section 36(1)(viii) of the Income Tax Act, 1961'
5. On the facts and in law the CIT(A) ought to have held that interest on equipment credit scheme, lease rental and financial changes, dividends profit on sale of investments, misc. income, interest on deposits,. other fees and charges should be considered as income from long term finance business."
6. In respect of these grounds an identical submission has been made by the ld. Counsel for the assessee that these issues also had come for consideration before the Tribunal in the assessment year 1997-98 where the grounds were partly allowed for statistical purpose. The Tribunal order is dated 30.04.2009, which is placed on record.
7. In the light of the terms of the decision of the Tribunal on an identical issue passed in the assessment year 1997-98, we decide the ground Nos. 4 and 5 5 of 11 ITA No. 3155/Del/2002 accordingly. The Tribunal's order dated 30.04.2009 in assessment year 1997-98 on these issues involved in ground Nos. 4 and 5 are as under:-
"16. Ground No.4 & 5 are inter-connected, which read as under::_
4. The CIT(A) has erred in holding that except interest on rupee term loan, interest on equipment credit scheme, lease rental and financial change, dividends, profits on sale of investment, misc. income, interest on deposits, other fees and charges do not fall within the ambit of income derived from long term finance and as such no deduction allowable under section 36(1)(viii) of the Income Tax Act, 1961'
5. On the facts and in law the CIT(A) ought to have held that interest on equipment credit scheme, lease rental and financial changes, dividends profit on sale of investments, misc. income, interest on deposits,. other fees and charges should be considered as income from long term finance business.
17. Briefly stated, the facts are that while deciding this issue regarding allowability of deduction under section 36(i)(viia) and 36(i)(viii), it was held by Ld CIT(A) that for the purpose of deduction under section 36(i)(viii), it is the income derived from long term finance on which deduction is allowable under section 36(1)(viii) and not the entire business income as has been claimed by the assessee. It is also observed by Ld CIT(A) that Explanation (h) to clause (viii) of section 36(i) inserted w.e.f. 1.4.1996 defines the expression long term finance which means any loan or advance where the terms under which moneys are loaned or advanced provided for repayment along with interest thereon during the period of not less than five years. On this basis, it was held by Ld CIT(A) that in order to qualify profits derived from long term finance, the following conditions should be satisfied:-
a) profit should be defined from any loan or advance;
b) terms under which moneys loaned or advanced provided for repayment along with interest thereon during the period not less than five years.
On this basis, it was held by Ld CIT(A) that the income derived by the assessee company from equipment credit scheme, lease rentals, financial charges, dividends, profits on sale of investment, misc. income, interest on deposits, other fees and charges etc. will not fall within the ambit of income derived from long term finance and hence the assessee is not eligible for deduction under section 36()I)(viii) on account of these incomes. It is further held by Ld CIT(A) that the only income which will 6 of 11 ITA No. 3155/Del/2002 be eligible for deduction under section 36(1)(viii) is interest on rupee term loan amounting to Rs.83,64,34,381/- which is from the business of long term finance. It is further held by Ld CIT(A) that on this amount, the Assessing Officer will determine the profits from business of providing long term finance as computed under the head profits & gains of business or profession before allowing deduction under section 36(i)(viii) of the Income Tax Act, 1961 and on the profits so determined, the assessee will be eligible for deduction at the rate of 40% of such income under section 36(i)(viii) of the Income Tax Act, 1961. Now, the assessee is in further appeal before us.
18. It is the submission of the Ld AR of the assessee that interest on deposits, interest on debentures, lease rentals, consultancy and other professional charges, legal fees, guarantee commission, appraisal fee, financial charges, legal fees, interest on guarantee commission and misc. income consisting of interest of staff housing loan, interest on vehicle advance to staff and interest on computer advance to staff etc. are in fact income from business of long term finance and hence for the purpose of allowing deduction under section 36(i)viii), these incomes should also be considered.
19. Regarding interest on deposits, it is submitted that this is only incidental to the business of long term finance being carried on by the assessee and hence this should not be excluded. Regarding interest on debentures, it is submitted that debenture loan is also a loan coupled with the security of debenture certificates issued by the borrower company and hence it is also a loan only. When it was enquired by the Bench regarding terms repayment of debentures, it was submitted that this aspect of the matter should be restored back to the file of the Assessing Officer to examine the period of debenture and if it is found that the same is more than five years, the interest on debenture should be considered as income from long term finance. In this regard, reliance was placed on the Tribunal decision rendered in the case of Power Finance Corporation as reported in 10 SOT 190 wherein it was held by Delhi Bench of the Tribunal that lease financing is long term finance. Regarding lease rentals, it was submitted that leasing of plant & machinery is also means of long term finance. Regarding professional charges, legal fee, guarantee commission, appraisal fees, financial changes, interest of guarantee commission, it was submitted that all these receipts are inter-connected with long term finance and hence these receipts should be considered as income from business of long term finance. Regarding misc. income consisting of interest on staff housing loan, interest on vehicle advance to staff and interest on computer, advance to staff etc, it was submitted that these advances to staff are in the course of business of the assessee of providing long term finance and 7 of 11 ITA No. 3155/Del/2002 hence, should be considered as income from business of long term finance.
20. As against this, the Ld DR of the revenue supported the order of the authorities below.
21. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below. We find that the provisions of section 36(i)(viii) are relevant for this issue and hence we reproduce the same herein below:-
"36(1)(viii) in respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head "Profits and gains of business or profession"
(before making any deduction under this clause) carried to such reserve account:"
22. From the above, it is seen that for the purpose of allowing deduction under this section, we have to consider profits derived from business of providing long term finance computed under the head profits & gains of business or profession." The long term finance is defined under clause (h) of Explanation to section 36(i)(viii) as per which, the long term finance means any loan or advance where the terms under which moneys are loaned or advanced provided for repayment along with interest there on during the period of not less than five years. From the above, it is clear that profits derived from long term finance only can be considered for the purpose of allowing deduction under section 36(i)(viii) and hence these receipts as interest on deposits, lease rentals, consultancy and other professional charges, legal fees, guarantee commission, appraisal fees, financial changes, interest on guarantee commission and misc. income etc. are not in the nature of income from long term finance and hence these receipts cannot be included in total income for the purpose of computing deduction allowable to the assessee under section 36(i)(viii) of the Act. These receipts can be attributed to the income of business of providing long term finance but it cannot be said that these are income derived from the business of providing long term finance because the business of providing long term finances, can be carried out even without these activities such as consultancy legal service, appraisal etc. In leasing there is no finance and hence lease rental is not income from providing long term finance. Other interests and financial charges are not shown to be out of providing long term finance and hence no eligible deduction under section 36(10(viii). Regarding interest on debentures, we are in agreement with ld AR of the assessee that this income is in the nature of interest on loans because debenture is nothing but loan but whether the same is for long term or 8 of 11 ITA No. 3155/Del/2002 not, this fact is not available on record and hence, this aspect of the matter should go back to the file of the Assessing Officer for a fresh decision after examining this factual aspect regarding the period of repayment of these debentures along with interest and if the same is found to be as per Explanation (h) to section 36(i)(viii), interest on debentures should be considered for the purpose of allowing deduction under section 36(i)(viii). The assessee is also claiming deduction under this section on receipts on account of dividends and profits on sale of investment. As per the above discussion, these two receipts are also not in the nature of income from long term finance and hence this cannot be considered for allowing deduction under section 36(i)(viii). Both these grounds of the assessee are partly allowed for statistical purposes."
8. Ground Nos. 6 and 7 read as under:-
"6. The order of the CIT(A) confirming the disallowance of claim of Rs.2,76,74,270/- for bad debts made by Addl. CIT arising on account of difference in interpretation of section 36(1)(viii) and 36(1)(viia) as concealment which is contrary to law and the facts of the case.
7. On the facts brought on record, the CIT(A) should not have treated Rs.2,76,74,370/- as concealment."
9. In this connection, the ld. counsel for the assessee has submitted that issue involved in ground Nos. 6 and 7 had come for consideration before the Tribunal in assessment year 1997-98 vide ground No. 8 and 9 of that year and, hence, the issue may be decided accordingly. In the light of the submission of the assessee and after hearing the ld. D.R. and having found that identical issue has been decided by the Tribunal vide its order dated 30.04.2009 in assessment year 1997- 98, we decide these issues in the light of the decision of the Tribunal in the assessment year 1997-98 which read as under:-
"27. Ground No.8 9 of the appeal are inter-connected which read as under:-
6. The order of the CIT(A) confirming the disallowance of claim of Rs.2,76,74,270/- for bad debts made by Addl. CIT arising on account 9 of 11 ITA No. 3155/Del/2002 of difference in interpretation of section 36(1)(viii) and 36(1)(viia) as concealment which is contrary to law and the facts of the case.
7. On the facts brought on record, the CIT(A) should not have treated Rs.2,76,74,370/- as concealment.
28. Briefly stated, the facts are that as per the assessment order, the Assessing Officer has allowed deduction of Rs.13,64,25,630/- on account of bad debts. It is noted by Ld CIT(A) in para No.76 of his order that in the intimation under section 143(1)(a), the Assessing Officer has worked out excess deduction claimed by the assessee at Rs.2,46,74,370/- on the basis of the amount of bad debts to be written off Rs.17.30 crores., It is also noted by Ld CIT(A) that in the order under section 143(3), the Assessing Officer has taken the amount of bad debt at Rs.17 crores against Rs.17.30 crores originally taken at the time of process of return under section 143(1)(a) and this has resulted into further disallowance of R.30 lakhs and hence the total disallowance has been worked out at Rs.276,74,370/-. While working out the excess deduction claimed at Rs.276,74,370/-, the Assessing Officer has considered the provision for bad debts for assessment year 1995-96 at Rs.125 lakhs, for assessment year 1996-97 at Rs.144,67,125/- and for the present assessment year also i.e. assessment year 1997-98 at Rs.66,07,245/-. This disallowance of Rs.276,74,370/- has been confirmed by Ld CIT(A) on the basis that as per the provisio to section 36(i)(vii) in the case of the assessee to which clause (viia) of section 36(1) applies, the amount of deduction relating to write off of bad debt shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debt account made under section 36(1)(viia). Now, the assessee is in further appeal before us.
29. It is submitted by Ld AR of the assessee that this issue is now covered in favour of the assessee by the Tribunal decision rendered in the case of Oman International Bank SAOG v. DCIT as reported in 92 ITD 76 (Mum.). It is submitted that as per this Tribunal decision, the provision under section 36(1)(viia) for the current year is not required to be considered for the purpose of quantifying deduction allowable to the assessee under section 36(i)(vii). Ld DR of the revenue supported the orders of authorities below.
30. We find that similar issue was there before the Tribunal in the case of Oman International Bank SAOG (supra) and in that case, it was held by the Tribunal that deduction u/s 36(i)(vii) should be allowed to the assessee without taking into account the admissible deduction under section 36(i)(viia) for the current previous year. It was held by the
10 of 11 ITA No. 3155/Del/2002 Tribunal that the same should be taken into account for computing deduction under section 36()I)(vii) for subsequent years. Accordingly, we direct the Assessing Officer to allow deduction to the assessee under section 36(1)(vii) after reducing credit balance in provision for bad and doubtful debts account up to assessment year 1996-97 and not for the current assessment year i.e. assessment year 1997-98. The provision for the current assessment year should be considered for reduction from deduction allowable to the assessee under section 36 (i) (vii) in the succeeding year/years. But we find that such deduction disallowed by the Assessing Officer and confirmed by the Ld CIT(A) is of Rs.276,74,370/- but the provision for bad and doubtful debts for the present assessment year considered for this purpose is only Rs.66,07,245/- and hence even if the same is omitted, the disallowance of balance amount of Rs210,67,1235/- has to be made. We confirm the same and only disallowance of Rs.66,07,245/- is deleted. Ground No.8 is partly allowed. Regarding Ground No.9, no argument was advanced and hence this ground is rejected as not pressed. This ground of the assessee is rejected as not pressed."
10. In the result, the appeal of the assessee is partly allowed in the manner as indicated above.
11. This decision is pronounced in the open court immediately after the hearing was over on 6th January, 2010.
(K.G. BANSAL) (C.L. SETHI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 6th January, 2010.
Mamta
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
By Order
Deputy Registrar
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