Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2016 (10) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (10) TMI 164 - AT - Income TaxRevision u/s 263 - Deduction u/s. 36(1)(viii)eligibility - Held that:- No material indicating any query – that being the ground on which jurisdiction stands assumed by the ld. CIT in the instant case, was also led during hearing. We, accordingly, uphold the same; it being the settled law that absence or lack of enquiry, in-as-much as it exhibits non application of mind, would result in the result order being erroneous.We, accordingly, uphold the invocation of section 263 qua the relevant issues. Deduction u/s. 36(1)(viii) – Eligibility - Held that:- We are not inclined to be in agreement with the assessee, but with the Revenue, so that the assessee-bank cannot be considered as an eligible entity u/s.36(1)(viii) of the Act, placing reliance on the decision in the case of The Federal Bank Ltd. (2011 (1) TMI 1184 - Kerala High Court ). We may before parting also add that the assessee is not, as contended, a Government company, which is only a company in which the Central Government’s share holding is 51% or more. This is as the assessee is not a company in the first place. Both the terms ‘public company’ and ‘Government company’ are defined under the Companies Act, 1956 (refer sections 2(10), 2(18), 3 and 617 thereof). It is not necessary to go into those definitions, and suffice to state that the term stands defined per section 2(10) of the Companies Act, 1956 to mean a company as defined u/s. 3 thereof, i.e., a company formed and registered under the said Act, including existing companies, which stand specified therein, so that the assessee is not a company. The holding of it’s share capital by the Central Government in excess of 51% would therefore be of little consequence. Deduction u/s. 36(1)(viii) – Quantification - The Revenue’s concern is for eliminating the influence of the ‘other income’ in computing the deduction u/s. 36(1)(viii) - Held that:- The concern is valid. In our view the appropriate ratio would be the proportion of taxable business income (stated at ₹ 5509.44 cr. – at net of all deductions, save u/s. 36(1)(viii), i.e., prior to deductions under Chapter VI-A), to the gross business income (refer: CIT vs. Kerala State Industrial Development Corporation [1998 (2) TMI 6 - SUPREME Court ] . This ratio is to be applied to the gross income from the eligible activity – providing of long-term finance to industry and agriculture. This would yield the taxable income from this activity/s, 40% of which, subject to the creation of the special reserve, would be the amount exigible to deduction u/s. 36(1)(viii). Further, the word used is ‘derived’, which has to be assigned a restrictive meaning as compared to the word ‘attributable’. As such, to the extent possible, all direct costs are to be identified and adjusted, and the proportion applied only for the indirect costs (refer: Power Finance Corporation Ltd. (2006 (8) TMI 332 - ITAT DELHI). Provision for bad and doubtful debts u/s. 36(1)(viia) - Held that:- The parameters of the deduction stand provided in the section itself, i.e., for a sum not exceeding 7.5% of the total income (before allowing any deduction under this clause and Chapter VI-A) and an amount not exceeding 10% of the aggregate average advances made by the rural branches of the bank computed in the prescribed manner. The deduction, it may be appreciated, is qua a provision, general in nature, toward the loss that may arise to the bank on account of its rural advances being not realized in whole or in part. The upper limit of the deduction stands specified in the provision itself. As long as, therefore, the provision itself does not exceed the total advances, i.e., by the rural branches of the bank as at the year-end, qua which the provision is created, we see no reason to impose any restriction thereto with reference to the assessment of all advances under the prudential norms provided by the RBI. The cap suggested by us is as the provision is provided on a yearly basis, and upon considering that a provision for risk of loss of an asset cannot exceed the value of the asset under risk itself. We may here also clarify that the provision is to be adjusted against the actual write off on the debt becoming irrecoverable – and accordingly claimed u/s. 36(1)(vii), applicable to all the assessees, including Scheduled Banks as the assessee falling under section 36(1)(viia)(a).
|