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2019 (3) TMI 366 - HC - Income TaxExemption u/s 10(23G) in respect of the liquidated damages - interest income earned from long term finance provided to enterprises undertaking developing, maintaining and operating infrastructure facilities - liquidated damages were admittedly on account of defaults committed by the borrowers - HELD THAT:- There are instances when lenders of money on long term basis impose an obligation on the borrowers to pay commitment charges. This is necessitated since after the sanction of the loan, the borrower could not make use of the funds upto a particular point of time. In the case of default in redemption of default payment of interest and all other monies (except Liquidated Damages) on their respective due dates, Liquidated Damages at the rate of 2.10% per annum is levied and is payable by the borrowers for the period of default. It is also seen that arrears of Liquidated Damages shall carry interest at the rate mentioned in Clause 2.4(iv) stating all interest on the Debentures and on all other monies accruing and due under this Agreement shall, in case the same be not paid on the respective due dates, carry further interest at the rate of 2.5% (plus applicable interest tax), over and above the interest rate mentioned in (i) and (iii) above prevailing on the date of such default. It is thus seen that though the term Liquidated Damages is used in the agreement, it actually signifies interest claimed by the appellant. This term “interest” would come within the word 'charge' as provided under the definition of interest in the Act. Consequently, we hold that the three authorities had erred in understanding the scope of the expression 'Liquidated Damages' while coming to a conclusion that it would not come within the purview of the word “interest” under Section 2(28A) of the Act. - Decided in favour of assessee. Claim for deduction under Section 36(1)(viia)(c) after reducing from the appellant's income deduction under Section 36(i)(viii) - carrying of eligible business - HELD THAT:- It is an admitted fact that the appellant comes within the definition of a 'specified entity' and is carrying on 'eligible business' as provided under Section 36(1)(viii). A provision had been made for deduction of provisions for Bad and Doubtful debts under Section 36(1)(vii)(c) independent of Section 36(1)(viii) which provide for deduction upto 40% for special Reserve created by Assessee providing long term finance for development of infrastructure facility. The Tribunal in the present case had actually not applied its mind on this issue. They had simply reaffirmed the earlier order dated 05.09.2003 for the Assessment Year 2000-2001, and the order dated 19.01.2004 for the Assessment Year 2001-2002 and followed the same principles. However, as pointed out above, the appeals against the said orders had been allowed by a Co-ordinate Bench of this Court and the answer has been given in favour of the Assessee. If Section 36(1) is examined, it is clear that sub-section (1) gives the list of matters in respect of which deduction can be allowed while computing the income referred under Section 28. Clause (i) to (xi) of sub-section 1 of Section 36 do not imply that those deductions depend on one another. If an Assessee is entitled to the benefit under Clause (i) sub-section (1) of Section 36, the Assessee cannot be deprived of the benefit the other Clauses. This is how the provisions have been arrayed. The computation of amount of deduction under both these clauses has to be independently made without reducing the total income by deduction under clause (viii) of Section 36 of the Act. - Decided in favour of assessee.
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