Tourism Finance Corporation of India Ltd.,, v. JCIT, SR-20,,

ITA 3155/DEL/2002 | 1998-1999
Pronouncement Date: 06-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 315520114 RSA 2002
Bench Delhi
Appeal Number ITA 3155/DEL/2002
Duration Of Justice 7 year(s) 5 month(s) 3 day(s)
Appellant Tourism Finance Corporation of India Ltd.,,
Respondent JCIT, SR-20,,
Appeal Type Income Tax Appeal
Pronouncement Date 06-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 06-01-2010
Date Of Final Hearing 05-01-2010
Next Hearing Date 05-01-2010
Assessment Year 1998-1999
Appeal Filed On 02-08-2002
Judgment Text
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 OF INDIA LTD. 61 IFCI TOWER 5 TH FLOOR NEHRU PLACE NEW DELHI-110019. VS. JCIT SPECIAL RANGE-20 NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJAY AGA RWAL C.A. RESPONDENT BY : SHRI JAYANT MISHRA CIT (D.R.) O R D E R 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 REA D 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 DEDUCT ION UNDER SECTION 36(1)(VIIA) OF THE INCOME TAX ACT 1961. 2. THE CIT(A) ERRED IN HOLDING THAT DEDUCTION UNDER SE CTION 36(1)(VIII) WILL FIRST BE ALLOWED AN AFTER COMPUTING TOTAL INCOME BE FORE ALLOWING DEDUCTION UNDER CHAPTER VIA AND U/S 36(1)(VIIA) DE DUCTION UNDER SECTION 36(1)(VIIA) WILL BE ALLOWED AS THE BASE FO R 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 HE LD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VIIA ) AND UNDER SECTION 36(1)(VIII) ON THE SAME INCOME BEFORE MAKING DEDUCT ION UNDER CHAPTER- VIA. ITA NO. 3155/DEL/2002 2 OF 11 3. IN THE COURSE OF HEARING OF THIS APPEAL IT WAS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT AN IDENTICAL ISSUE HA D COME FOR CONSIDERATION IN THE ASSESSMENT YEAR 1997-98 BEFORE THE ITAT DELHI BENC H I NEW DELHI WHERE THESE ISSUES WERE DECIDED AGAINST THE ASSESSEE. A COPY OF TRIBUNALS ORDER DATED 30 TH 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 T HESE ISSUES SHALL STAND DECIDED IN THE LIGHT OF THE ORDER OF THE TRIBUNAL P ASSED IN THE ASSESSMENT YEAR 1997-98 WHICH READS AS UNDER:- 9. GROUND NO.1 2 & 3 ARE INTER-CONNECTED WHICH RE AD 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 DE DUCTION UNDER SECTION 36(1)(VIIA) OF THE INCOME TAX ACT 1961. 2. THE CIT(A) ERRED IN HOLDING THAT DEDUCTION UNDER SE CTION 36(1)(VIII) WILL FIRST BE ALLOWED AN AFTER COMPUTIN G 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 B ASE 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 HE LD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 3 6(1)(VIIA) AND UNDER SECTION 36(1)(VIII) ON THE SAME INCOME BEFORE MAKI NG 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 COM PUTING THE TOTAL INCOME THE ASSESSEE HAS PREFERRED CLAIMS UNDER SEC TION 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 A SSESSING OFFICER THAT HOWEVER THE DEDUCTION UNDER SECTION 36(I)(VIII) I S 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 A SSESSMENT IN ITA NO. 3155/DEL/2002 3 OF 11 ASSESSMENT YEAR 1993-94 THIS ISSUE WAS TAKEN UP FO R CONSIDERATION AND AFTER HAVING CONSIDERED THE PROVISIONS IN THIS REGA RD AS ALSO THE OBJECTIONS RAISED BY THE ASSESSEE DEDUCTION WAS AL LOWED 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 AS SESSING OFFICER THAT LD CIT(A) HAS CONFIRMED THE ASSESSMENT ORDER IN THAT Y EAR. IT IS FURTHER NOTED BY THE ASSESSING OFFICER THAT IN 1994-95 ALSO THIS ISSUE WAS DECIDED BY THE ASSESSING OFFICER AGAINST THE ASSESS EE 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 WA S HELD BY THE ASSESSING OFFICER THAT DEDUCTION UNDER SECTION 36(1)(VIII) SH ALL BE ALLOWED ON THE REMAINDER AFTER ALLOWANCE HAS BEEN MADE UNDER SECTI ON 36(I)(VIIA) OF THE INCOME TAX ACT 1961 FROM THE GROSS TOTAL INCOME. B EING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD CI T(A). 11. IT WAS HELD BY LD CIT(A) THAT THE ASSESSING OFF ICER HAD NOT CORRECTLY COMPUTED DEDUCTION UNDER SECTION 36(I)(V III) 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 INC OME 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 ASSESSIN G OFFICER WILL DETERMINE THE PROFIT FROM BUSINESS OF PROVIDING LON G 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 S ECTION 36(I)(VIII) OF THE INCOME TAX ACT 1961. FOR DEDUCTION UNDER SECT ION 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 SECT ION 36(1)(VIII). NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US RE GARDING COMPUTATION OF DEDUCTION UNDER SECTION 36(I)(VIIA) AND 36(I)(VI II) 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 HE NCE DEDUCTION ALLOWABLE UNDER SECTION 36(I)(VIII) CANNOT BE REDUC ED FROM TOTAL INCOME FOR WORKING OUT DEDUCTION ALLOWABLE UNDER SECTION 3 6(I)(VIIA) AS DIRECTED BY LD CIT(A). IN THIS REGARD RELIANCE WAS PLACED O N THE JUDGMENT OF HON'BLE PATNA HIGH COURT RENDERED IN THE CASE OF BI HAR 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). ITA NO. 3155/DEL/2002 4 OF 11 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND HAVE GONE THROUGH THE ORDER S 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 PROVISIO NS OF SECTION 36(I)(VIIA) ARE RELEVANT WHICH ARE REPRODUCED BELOW: 36(1)(VIIA) IN RESPECT OF ANY PROVISION FOR BAD A ND 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 SOCIE TY OR A PRIMARY CO- OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK AN AMOUNT NOT EXCEEDING FIVE PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKIN G ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE AGGREGATE AVERAGE ADV ANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESC RIBED MANNER: 15. FROM THE ABOVE IT CAN BE SEEN THAT DEDUCTION A LLOWABLE 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 SE CTION 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 CHA PTER-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 TOT AL INCOME FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE UNDER SECT ION 36(I) (VIIA). THE CLAIM OF THE ASSESSEE IS MERELY ON THIS BASIS T HAT 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 T HE INCOME TAX ACT 1961 WHICH IS COMING AFTER SECTION 36(I)(VIIA) CANN OT BE REDUCED FROM TOTAL INCOME SUCH AS SECTION 37(1) SECTION 43B ETC . THIS IS AN ABSURD PROPOSITION. REGARDING JUDGMENT OF HON'BLE PARTNA H IGH COURT RENDERED IN THE CASE OF BIHAR STATE FINANCIAL CORPORATION (S UPRA) WE FIND THAT THE ISSUE INVOLVED IN THAT JUDGMENT WAS REGARDING DEDUC TION 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 ITA NO. 3155/DEL/2002 5 OF 11 THE INCOME TAX ACT 1961 AVAILABLE TO THE FINANCIAL CORPORATION PROVIDING LONG TERM FINANCE FOR HOUSING SHOULD BE C ALCULATED ON THE TOTAL INCOME BEFORE DEDUCTION OF THE AMOUNT ALLOWABLE UND ER 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 BEFO RE US. MOREOVER IT IS PROVIDED IN SECTION 36(1)(VIIA) ITSELF THAT DEDUCTI ON ALLOWABLE UNDER THIS CLAUSE IS NOT TO BE REDUCED FROM TOTAL INCOME FOR T HE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 36(1)(VIIA). UND ER 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 REA D AS UNDER:- 4. THE CIT(A) HAS ERRED IN HOLDING THAT EXCEPT INT EREST ON RUPEE TERM LOAN INTEREST ON EQUIPMENT CREDIT SCHEME LEASE RE NTAL AND FINANCIAL CHANGE DIVIDENDS PROFITS ON SALE OF INVESTMENT M ISC. 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 DEDUC TION 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 FINANC IAL CHANGES DIVIDENDS PROFIT ON SALE OF INVESTMENTS MISC. INCOME INTERE ST ON DEPOSITS . OTHER FEES AND CHARGES SHOULD BE CONSIDERED AS INCOME FROM LON G TERM FINANCE BUSINESS. 6. IN RESPECT OF THESE GROUNDS AN IDENTICAL SUBMISS ION 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 TRIBUN AL 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 TH E GROUND NOS. 4 AND 5 ITA NO. 3155/DEL/2002 6 OF 11 ACCORDINGLY. THE TRIBUNALS 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 REA D AS UNDER::_ 4. THE CIT(A) HAS ERRED IN HOLDING THAT EXCEPT INTE REST ON RUPEE TERM LOAN INTEREST ON EQUIPMENT CREDIT SCHEME LEA SE RENTAL AND FINANCIAL CHANGE DIVIDENDS PROFITS ON SALE OF INV ESTMENT MISC. INCOME INTEREST ON DEPOSITS OTHER FEES AND CHARGE S 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 T HE 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 A ND FINANCIAL CHANGES DIVIDENDS PROFIT ON SALE OF INVESTMENTS M ISC. INCOME INTEREST ON DEPOSITS . OTHER FEES AND CHARGES SHOUL D BE CONSIDERED AS INCOME FROM LONG TERM FINANCE BUSINESS. 17. BRIEFLY STATED THE FACTS ARE THAT WHILE DECIDI NG 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 TER M FINANCE ON WHICH DEDUCTION IS ALLOWABLE UNDER SECTION 36(1)(VIII) A ND 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 FI NANCE 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 PROVIDE D FOR REPAYMENT ALONG WITH INTEREST THEREON DURING THE PERIOD NOT L ESS THAN FIVE YEARS. ON THIS BASIS IT WAS HELD BY LD CIT(A) THAT THE IN COME DERIVED BY THE ASSESSEE COMPANY FROM EQUIPMENT CREDIT SCHEME LEAS E RENTALS FINANCIAL CHARGES DIVIDENDS PROFITS ON SALE OF INVESTMENT MISC. INCOME INTEREST ON DEPOSITS OTHER FEES AND CHARGES ETC. WILL NOT F ALL 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 ITA NO. 3155/DEL/2002 7 OF 11 BE ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VIII ) IS INTEREST ON RUPEE TERM LOAN AMOUNTING TO RS.83 64 34 381/- WHICH IS F ROM 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 B USINESS OF PROVIDING LONG TERM FINANCE AS COMPUTED UNDER THE HEAD PROFIT S & GAINS OF BUSINESS OR PROFESSION BEFORE ALLOWING DEDUCTION UNDER SECTI ON 36(I)(VIII) OF THE INCOME TAX ACT 1961 AND ON THE PROFITS SO DETERMIN ED THE ASSESSEE WILL BE ELIGIBLE FOR DEDUCTION AT THE RATE OF 40% OF SUC H INCOME UNDER SECTION 36(I)(VIII) OF THE INCOME TAX ACT 1961. NOW THE A SSESSEE IS IN FURTHER APPEAL BEFORE US. 18. IT IS THE SUBMISSION OF THE LD AR OF THE ASSESS EE THAT INTEREST ON DEPOSITS INTEREST ON DEBENTURES LEASE RENTALS CO NSULTANCY AND OTHER PROFESSIONAL CHARGES LEGAL FEES GUARANTEE COMMISS ION APPRAISAL FEE FINANCIAL CHARGES LEGAL FEES INTEREST ON GUARANTE E COMMISSION AND MISC. INCOME CONSISTING OF INTEREST OF STAFF HOUSING LOAN INTEREST ON VEHICLE ADVANCE TO STAFF AND INTEREST ON COMPUTER ADVANCE T O 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 BEI NG CARRIED ON BY THE ASSESSEE AND HENCE THIS SHOULD NOT BE EXCLUDED. RE GARDING 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 W AS SUBMITTED THAT THIS ASPECT OF THE MATTER SHOULD BE RESTORED BACK T O THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE PERIOD OF DEBENTUR E 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 THI S REGARD RELIANCE WAS PLACED ON THE TRIBUNAL DECISION RENDERED IN THE CASE OF POWER FINANCE CORPORATION AS REPORTED IN 10 SOT 190 WHERE IN IT WAS HELD BY DELHI BENCH OF THE TRIBUNAL THAT LEASE FINANCING IS LONG TERM FINANCE. REGARDING LEASE RENTALS IT WAS SUBMITTED THAT LEAS ING OF PLANT & MACHINERY IS ALSO MEANS OF LONG TERM FINANCE. REGAR DING PROFESSIONAL CHARGES LEGAL FEE GUARANTEE COMMISSION APPRAISAL FEES FINANCIAL CHANGES INTEREST OF GUARANTEE COMMISSION IT WAS S UBMITTED THAT ALL THESE RECEIPTS ARE INTER-CONNECTED WITH LONG TERM FINANCE AND HENCE THESE RECEIPTS SHOULD BE CONSIDERED AS INCOME FROM BUSINE SS OF LONG TERM FINANCE. REGARDING MISC. INCOME CONSISTING OF INTE REST ON STAFF HOUSING LOAN INTEREST ON VEHICLE ADVANCE TO STAFF AND INTE REST ON COMPUTER ADVANCE TO STAFF ETC IT WAS SUBMITTED THAT THESE A DVANCES TO STAFF ARE IN THE COURSE OF BUSINESS OF THE ASSESSEE OF PROVIDING LONG TERM FINANCE AND ITA NO. 3155/DEL/2002 8 OF 11 HENCE SHOULD BE CONSIDERED AS INCOME FROM BUSINES S OF LONG TERM FINANCE. 20. AS AGAINST THIS THE LD DR OF THE REVENUE SUPPO RTED 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 ORDER S 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 B ELOW:- 36(1)(VIII) IN RESPECT OF ANY SPECIAL RESERVE CREA TED AND MAINTAINED BY A SPECIFIED ENTITY AN AMOUNT NOT EXC EEDING TWENTY PER CENT OF THE PROFITS DERIVED FROM ELIGIBLE BUSIN ESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION (BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE) CAR RIED 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 P ROFITS DERIVED FROM BUSINESS OF PROVIDING LONG TERM FINANCE COMPUTED UN DER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. THE LONG TERM F INANCE IS DEFINED UNDER CLAUSE (H) OF EXPLANATION TO SECTION 36(I)(VI II) AS PER WHICH THE LONG TERM FINANCE MEANS ANY LOAN OR ADVANCE WHERE T HE TERMS UNDER WHICH MONEYS ARE LOANED OR ADVANCED PROVIDED FOR RE PAYMENT ALONG WITH INTEREST THERE ON DURING THE PERIOD OF NOT LES S THAN FIVE YEARS. FROM THE ABOVE IT IS CLEAR THAT PROFITS DERIVED FROM LO NG 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 F EES GUARANTEE COMMISSION APPRAISAL FEES FINANCIAL CHANGES INTE REST ON GUARANTEE COMMISSION AND MISC. INCOME ETC. ARE NOT IN THE NAT URE OF INCOME FROM LONG TERM FINANCE AND HENCE THESE RECEIPTS CANNOT B E INCLUDED IN TOTAL INCOME FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOW ABLE TO THE ASSESSEE UNDER SECTION 36(I)(VIII) OF THE ACT. THESE RECEI PTS CAN BE ATTRIBUTED TO THE INCOME OF BUSINESS OF PROVIDING LONG TERM FINAN CE BUT IT CANNOT BE SAID THAT THESE ARE INCOME DERIVED FROM THE BUSINES S OF PROVIDING LONG TERM FINANCE BECAUSE THE BUSINESS OF PROVIDING LONG TERM FINANCES CAN BE CARRIED OUT EVEN WITHOUT THESE ACTIVITIES SUCH A S CONSULTANCY LEGAL SERVICE APPRAISAL ETC. IN LEASING THERE IS NO FIN ANCE AND HENCE LEASE RENTAL IS NOT INCOME FROM PROVIDING LONG TERM FINAN CE. OTHER INTERESTS AND FINANCIAL CHARGES ARE NOT SHOWN TO BE OUT OF PR OVIDING LONG TERM FINANCE AND HENCE NO ELIGIBLE DEDUCTION UNDER SECTI ON 36(10(VIII). REGARDING INTEREST ON DEBENTURES WE ARE IN AGREEME NT WITH LD AR OF THE ASSESSEE THAT THIS INCOME IS IN THE NATURE OF INTER EST ON LOANS BECAUSE DEBENTURE IS NOTHING BUT LOAN BUT WHETHER THE SAME IS FOR LONG TERM OR ITA NO. 3155/DEL/2002 9 OF 11 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 REGARD ING THE PERIOD OF REPAYMENT OF THESE DEBENTURES ALONG WITH INTEREST A ND 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 C LAIMING DEDUCTION UNDER THIS SECTION ON RECEIPTS ON ACCOUNT OF DIVIDENDS AN D 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 STAT ISTICAL PURPOSES. 8. GROUND NOS. 6 AND 7 READ AS UNDER:- 6. THE ORDER OF THE CIT(A) CONFIRMING THE DISAL LOWANCE OF CLAIM OF RS.2 76 74 270/- FOR BAD DEBTS MADE BY ADDL. CIT AR ISING 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 N OT HAVE TREATED RS.2 76 74 370/- AS CONCEALMENT. 9. IN THIS CONNECTION THE LD. COUNSEL FOR THE ASSE SSEE HAS SUBMITTED THAT ISSUE INVOLVED IN GROUND NOS. 6 AND 7 HAD COME FOR CONSID ERATION 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 THA T 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 DECI SION OF THE TRIBUNAL IN THE ASSESSMENT YEAR 1997-98 WHICH READ AS UNDER:- 27. GROUND NO.8 9 OF THE APPEAL ARE INTER-CONNEC TED 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 AR ISING ON ACCOUNT ITA NO. 3155/DEL/2002 10 OF 11 OF DIFFERENCE IN INTERPRETATION OF SECTION 36(1)(VI II) 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 N OT HAVE TREATED RS.2 76 74 370/- AS CONCEALMENT. 28. BRIEFLY STATED THE FACTS ARE THAT AS PER THE A SSESSMENT 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.7 6 OF HIS ORDER THAT IN THE INTIMATION UNDER SECTION 143(1)(A) THE ASSESS ING 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 SEC TION 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 TIM E 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 DEDUC TION CLAIMED AT RS.276 74 370/- THE ASSESSING OFFICER HAS CONSIDER ED THE PROVISION FOR BAD DEBTS FOR ASSESSMENT YEAR 1995-96 AT RS.125 LAK HS 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/-. TH IS 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 AMOUN T BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROV ISION 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 T HIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL D ECISION RENDERED IN THE CASE OF OMAN INTERNATIONAL BANK SAOG V. DCIT AS REP ORTED IN 92 ITD 76 (MUM.). IT IS SUBMITTED THAT AS PER THIS TRIBUN AL DECISION THE PROVISION UNDER SECTION 36(1)(VIIA) FOR THE CURREN T YEAR IS NOT REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF QUANTIFYING DEDUCT ION ALLOWABLE TO THE ASSESSEE UNDER SECTION 36(I)(VII). LD DR OF THE REV ENUE 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) SHOUL D BE ALLOWED TO THE ASSESSEE WITHOUT TAKING INTO ACCOUNT THE ADMISSIBL E DEDUCTION UNDER SECTION 36(I)(VIIA) FOR THE CURRENT PREVIOUS YEAR. IT WAS HELD BY THE ITA NO. 3155/DEL/2002 11 OF 11 TRIBUNAL THAT THE SAME SHOULD BE TAKEN INTO ACCOUN T 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 1996-9 7 AND NOT FOR THE CURRENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 1997-9 8. THE PROVISION FOR THE CURRENT ASSESSMENT YEAR SHOULD BE CONSIDERED FO R REDUCTION FROM DEDUCTION ALLOWABLE TO THE ASSESSEE UNDER SECTION 36 (I) (VII) IN THE SUCCEEDING YEAR/YEARS. BUT WE FIND THAT SUCH DEDUCT ION 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 TH E PRESENT ASSESSMENT YEAR CONSIDERED FOR THIS PURPOSE IS ONLY RS.66 07 2 45/- AND HENCE EVEN IF THE SAME IS OMITTED THE DISALLOWANCE OF BALANCE AM OUNT OF RS210 67 1235/- HAS TO BE MADE. WE CONFIRM THE SAME AND ONLY DISALLOWANCE OF RS.66 07 245/- IS DELETED. GROUND N O.8 IS PARTLY ALLOWED. REGARDING GROUND NO.9 NO ARGUMENT WAS ADVANCED AND HENCE THIS GROUND IS REJECTED AS NOT PRESSED. THIS GROUND OF T HE ASSESSEE IS REJECTED AS NOT PRESSED. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. 11. THIS DECISION IS PRONOUNCED IN THE OPEN COURT I MMEDIATELY AFTER THE HEARING WAS OVER ON 6 TH JANUARY 2010. (K.G. BANSAL) ACCOUNTANT MEMBER (C.L. SETHI) JUDICIAL MEMBER DATED: 6 TH JANUARY 2010. MAMTA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT NEW DELHI. BY ORDER DEPUTY REGISTRAR