TMI Blog2009 (7) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel did not press ground No. 3 pertaining to broken period interest. The only effective issue to be considered in both the appeals is the issue of claim of bad debts written off. 3. Briefly stated, the assessee, established by the Act of the Small Industries Development Bank of India Act, 1999 is in the business of banking for small industries. Its profits and gains were exempt from tax by virtue of section 50 of the SIDBI Act which was however, repealed from 1-4-2002 by the Finance Act, 2001. Accordingly the assessee has filed return of income from assessment year 2002-03 onwards. While scrutinising the return the Assessing Officer has examined the claim of bad debts and noticed that the assessee has claimed Rs. 84,70,66,503 for the assessment year 2002-03 and an amount of Rs. 178,23,55,838 for assessment year 2003-04 as bad debts in the Profit and Loss Account. The Assessing Officer asked the assessee to explain how the deduction claimed is allowable. The assessee stated that these were claimed as deduction since they satisfied the provisions of section 36(2) and the claim is allowable under section 36(1)( vii ). The Assessing Officer, however, rejected the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 or any other enactment for the time being in force related to income or any other tax of income, profit or gains of small industries shall not be eligible to income-tax or any other tax in respect of any income, profit or gains accrued or arisen. This provision was omitted with effect from 1-4-2002. Referring to the provisions of SIDBI Act and various case laws relied upon by the Assessing Officer in denying the bad debts claim, the learned counsel made two propositions to support the contentions. 6. The first proposition is with reference to the Assessing Officer s claim that its incomes were exempt up to assessment year 2001-02, hence the debts arisen in those years are not an allowable debts in the years in which the assessee became taxable. It was submitted that the Assessing Officer had relied on the decision of the Hon ble Supreme Court in the case of Hariprasad Co. (P.) Ltd. ( supra ) wherein the Hon ble Supreme Court has held that if the loss is from a source or head of income not liable to tax or congenitally exempt from income-tax, neither the assessee is required to show the same in the return, nor is the Income-tax Officer is under any obligation to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute use the words "income, profits or gains" it did not exclude the business itself. He referred to the facts of the case above which are as under : "The relevant facts are these : the assessee held the managing agency of the Ahmedabad Manufacturing and Calico Printing Co. Ltd. It also had a pharmaceutical business in the Baroda State, which was at the relevant time an Indian State run in the name and style of Sarabhai Chemicals. The assessee s business in India (we shall use the expression India in this judgment to mean British India as it was then called in contradistinction to an Indian State) showed business profits assessable under the provisions of the Act; but the business carried on in the name and style of Sarabhai Chemicals in Baroda showed a loss in the relevant chargeable accounting periods which were four in number, namely, (1) 1-4-1946 to 31-12-1946; (2) 1-1-1947 to 31-12-1947; (3) 1-1-1948 to 31-12-1948; and (4) 1-1-1949 to 31-3-1949. The assessee claimed that its assessable income in India should be reduced by the loss suffered by it in its business in Baroda. The Income-tax Officer rejected the claim of the assessee and held that the Act did not apply to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Act the expression "Chargeable accounting period" meant ( a ) any accounting period falling wholly within the term beginning on 1-9-1939 and ending on 31-3-1946, and ( b ) where any accounting period fell partly within the partly without the same term, such part of that accounting period as fell within the said term. It may be here stated that originally the term was from 1-9-1930 to 31-3-1941, but by several annual Finance Acts the term was extended up to 31-3-1946. In 1947 came the Act in which "Chargeable accounting period" means : ( a )any accounting period falling wholly within the term beginning on 1-4-1946, and ending on 31-3-1949, and ( b )where any accounting period falls partly within and partly without the said term, such part of that accounting period as falls within the said term. The Act extended to the whole of India. The word "business" is defined in section 2(3) of the Act as including any trade, commerce or manufacture, etc., the profits of which are chargeable according to the provisions of section 10 of the Indian Income-tax Act, 1922. There are two provisos to this definition clause, and the second proviso states that all business to which the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rue scope and effect the third proviso has merely the effect of exempting the income, profits or gains of the Baroda business except when they are received or brought into India, but the business itself is not excluded from the purview of the Act; the business is still one to which the Act applies under the substantive part of section 5 and as the third proviso exempts income, profits or gains only, the losses of the Baroda business can be set off against the profits of business in India." 9. Then the assessee referred to the analysis of third proviso to section 5 and the phraseology of Excess Profit Tax which were referred to therein in page No. 115 of the order as under : "Now the third proviso to section 5 of the Act uses not the phraseology of the Excess Profit Tax Act, but the very phraseology which according to the learned Chief Justice would have made all the difference. Learned counsel for the assessee has argued, and we think it has considerable force, that the Legislature had before it the language used in section 14(2)( c ) of the Indian Income-tax Act and it knew the effect of those provisions and it used the same language in the third proviso to section 5 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of business of banking or money-lending which is carried on by the assessee. Section 50 of the Small Industrial Development Bank of India Act, 1989 "Notwithstanding anything to the contrary contained in the Income-tax Act, 1961 or in any other enactment for the time being in force relating to income tax or any other tax on income, profits or gains, the Small Industries Bank shall not be liable to pay income-tax or any other tax in respect of ( a )any income, profits or gains accruing or arising to the Small Industries Development Assistance Fund or any amount received in that Fund; and ( b )any income, profit or gains derived or any amount received by the Small Industrial Bank." 12. Relying on the similarity of the provisions the learned counsel submitted that the decision of the Hon ble Supreme Court in the case of Karamchand Premchand Ltd. ( supra ) will apply to the case. It was the submission that the business per se was not exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt the monies in the ordinary course of business of banking, the bad debt claim is allowable. 15. The learned counsel also submitted that they have raised an additional ground with reference to the amount of bad debts disallowed by the Assessing Officer for assessment year 2002-03. It was submitted that the amount actually written of in the books of account is Rs. 102.43 crores and not Rs. 84.71 crores and it was submission of the learned counsel that further amount of Rs. 17.72 crores should have been considered and allowed as deduction under section 36(1)( vii ). Since it is a legal ground the learned counsel submitted that the additional ground can be raised before the ITAT. 16. The learned D.R., however, objected to raising the additional ground and submitted that the Assessing Officer has considered only Rs. 84.71 crores and disallowed only to that extent and hence further allowance of Rs. 17.72 crores does not arise as the same was not disallowed. With reference to the main ground the learned D.R. submitted that the provisions of section 36(2) will apply if the money is lent in the course of banking business but it is the contention of the Assessing Officer that provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s established by the Hon ble Supreme Court, we are of the opinion that the assessee s business per se is not exempt and the decision will equally apply. The above said decision is also followed by the Hon ble Calcutta High Court in the case of Royal Calcutta Turf Club ( supra ) in which the decision of the Hon ble Madras High Court and also the Hon ble Supreme Court relied upon by the Revenue were analysed and distinguished. Similarly, here also we are of the opinion that the proposition laid down by the Hon ble Madras High Court in the case of S.S. Thiagarajan ( supra ) and by the Hon ble Supreme Court in the case of Hariprasad Co. (P.) Ltd. ( supra ) cannot be applied to the facts of the case. Coming to the second proposition that the assessee is a banking institution so second part of provisions of section 36(2) will apply is also correct. The assessee is a bank and amounts lent, which have become bad, represent the money lent in the ordinary course of business of banking and the condition that the bad debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such bad debt or part thereof is w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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