TMI Blog2011 (11) TMI 380X X X X Extracts X X X X X X X X Extracts X X X X ..... of power u/s 263, it is held that assessment order was erroneous in as much as it failed to take into account the amendment in Section 36(1)(viii) made by the Finance Act, 1985, thereby revisionary powers were rightly invoked by the CIT. - Decided against the assessee. - ITA Nos.512/2011, 513/2011, 810/2011, 811/2011, 1139/2011, 1140/2011 & 1141/2011 - - - Dated:- 28-11-2011 - MR. JUSTICE SANJIV KHANNA AND MR. JUSTICE R.V. EASWAR JJ. Represented by: Mr. Rajat Navet, Advicate for Appellant Ms. Suruchi Aggarwal, Advocate For Respondent R.V. EASWAR, J.: These are seven appeals filed by the assessee under Sec.260A of the Income Tax Act, 1961 ( the Act for short) against the orders of the Income Tax Appellate Tribunal ( Tribunal for short) passed on different dates and for different assessment years as shown in the table below: ITA No. Assessment year Date of Tribunal s order No. of questions raised 512/2011 1999-2000 20-11-2009 6 513/2011 2004-05 20-11-2009 6 810/2011 2007-08 31-1-2011 7 811/2011 2001-02 11-3-2011 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct in law in holding that interest on advances/deposits and misc. receipts were not eligible for deduction under Section 36(1)(viii) of the Act. In respect of the assessment year 2002-03, in addition to the above seven questions the assessee has raised the following question as question No.1: Whether in the facts and circumstances of the case, the Tribunal was correct in law in upholding initiation of proceedings by the Assessing Officer under Section 148 of the Income Tax Act, 1961. In respect of the assessment year 2003-04, the assessee has raised the following four questions: (1) Whether in the facts and circumstances of the case, the Tribunal was correct in law in upholding initiation of proceedings under Section 263 as well as the order passed by the CIT under Section 263 of the Act. (2) What is the true meaning and real effect in law of the provisions of Sec.36(1)(viii) of the Income Tax Act, 1961 as it existed for the relevant assessment year and what items of income can be considered as profits derived from business of providing log term finance which would in law be eligible for deduction u/s 36(1)(viii). (3) What are the principles to be applied for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in respect of which the deduction was claimed and recorded the following findings in paragraph 13 of its order: a) That the dividend from redeemable preference shares represents return/dividend on investment and it cannot be said to represent profit from providing long-term finance and that there was nothing to show that the investment in the shares was made with a view to providing long-term finance; b) That the interest from bank was received on deposits/FDs which were for short periods and even if they were for long periods they cannot be considered as profit derived from the provision of long-term finance to banks as essentially they are the assessee s investments; c) The service charges received by the assessee in respect of SDF loans did not represent any interest, that they were only service charges received by the assessee on loans given by the government but routed through the assessee and therefore the service charges cannot be said to be income or profit derived from the business of providing long-term finance. 6. We may first take up question No.4. In our view, it is a substantial question of law. The point to be considered is whether the dividend income rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CIT, Kanpur vs Sahara India Savings and Investment Corporation Ltd. (2010) 321 ITR 371. The question before the court was whether interest earned on bonds and debentures was chargeable to tax under the aforesaid Act having regard to the definition of the word interest in sec.2(7) of the said Act. Under this definition, interest means interest on loans and advances made in India; it included and excluded certain interest which is not relevant for our purpose. The question was whether bonds and debentures can be treated as loans and advances. It was observed by the Court that the interest on loans and advances will not cover interest on bonds and debentures bought by the assessee by way of investment , within the meaning of Section 2(7). In this view it was held that such interest was not chargeable under the Interest Tax Act. 10. We may also refer to a judgment of the Gujarat High Court in Anarkali Sarabhai v. CIT Gujarat [1982] 138 ITR 437 . That case arose under the Income Tax Act and the question was whether the assessee was liable to pay capital gains tax on receipt of an amount equal to the face value of the preference shares when the company redeem them. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money or render other value before it is due; to furnish something before an equivalent is received or to furnish money for a specific purpose understood between the parties, the money or some equivalent to be returned etc. Thus an advance is also quite different from preference shares in nature and character. 12. Having regard to the aforesaid discussion, we are of the view that there is no merit in the assessee s claim that the dividend received in interest of the redeemable preference shares amounts to profits derived from providing long term finance within the meaning of Section 36(1) (viii) of the Act read with clause (h) of the Explanation to the Section. We, accordingly, answer the substantial question of law in the affirmative and in favour of the Revenue. 13. Question No.5 is directed against the finding of the Tribunal that interest earned on short-term deposits made during the interregnum period between disbursement of funds was not profit derived from the business of providing long-term finance. As held by the Tribunal, this is also an investment of the funds of the assessee for making use of the idle funds remaining with it during the interregnum period. The inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. Our reasoning in respect of the other questions applies to this question also. We therefore decline to admit the question No.6 in this appeal. 18. We now take up ITA Nos. 810 811/2011 relating to the assessment years 2007-08 and 2001-02 respectively. The first six questions raised by the assessee are identical with the six questions raised by it in ITA Nos. 512 513/2011. For the same reasons given by us in those appeals, we decline to admit these questions. Question No.7 in these two appeals (i.e., ITA Nos.810 811/2011) are identical to Question No.6 raised in ITA No.1139/2011, i.e., against the finding of the Tribunal that interest on advances or loans to employees does not qualify for the deduction. Following our reasoning given in the preceding paragraph, we decline to admit this question for this year. The question also refers to miscellaneous receipts . The Tribunal has not dealt with this item of receipt separately and has applied the earlier orders passed by it for the assessment years 1999-2000 and 2004-05 to the miscellaneous receipts and held that they do not also qualify for the deduction. In our view, the same reasoning given by us in respect of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resh assessment order in respect of the various claims made by the assessee under Sec.36(1)(viii). These claims are the same as have been made in respect of the other years, viz., dividend on redeemable preference shares, interest on bank deposits/FDs, service charges on SDF loans, miscellaneous receipts, interest on loans/advances to employees etc. The Tribunal has taken the view in paragraph 5 of its order that the assessment order was erroneous in as much as it failed to take into account the amendment in Section 36(1)(viii) made by the Finance Act, 1985. It has also been held that the AO has failed to examine the claims made by the assessee for deduction under Sec.36(1)(viii). It is seen from the order of the CIT that in taking proceedings under Sec.263 he has referred to and relied upon the judgment of this Court in Gee Vee Enterprises (1975) 99 ITR 375 wherein it was held that failure to make relevant enquiries would invite action under the Section on the ground that the assessment order is erroneous and prejudicial to the interest of the revenue. In our opinion, this judgment was rightly invoked by the CIT in the present case and his action was rightly upheld by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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