TMI Blog2008 (5) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... t the following incomes earned by the assessee are not in the nature of housing finance: (i) Pre-EMI amount Rs. 7.89 lacs (ii) Discounting charges Rs. 52.92 lacs (iii) Interest on bank deposit + ICD Rs. 290.42 lacs (iv) Fees and other charges Rs. 202.34 lacs --------------- Rs. 553.57 lacs --------------- 17. He accordingly initiated the proceedings under s. 147 by issuing notice under s. 148 dt. 3rd Oct., 2002., The AO ultimately held that the aforesaid sum of Rs. 553.57 lacs is not the income derived by the assessee from its business of providing long-term finance for purchase/construction of residential house, though not eligible for computation of deduction under s. 36(1)(viii) has not been considered as eligible income and such deduction has been wrongly claimed and allowed in excess than what was admissible. The proportionate income not eligible for deduction under s. 36(1)(viii) was calculated at Rs. 47.02 lacs in the following manner: Total business income taken for calculation Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities to various customers amounting to Rs. 52.92 lacs and interest receipts amounting to Rs. 290.42 lacs received by the assessee on the bank deposits and other inter-corporate deposits, is concerned. The CIT(A) took the view that in view of the decision of the Hon'ble Supreme Court in the case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC) this income cannot be said to have been derived from business of providing long-term housing finance. 5. Before us, the learned Authorised Representative vehemently contended that the assessee has received the funds from the National Housing Bank and other financial institutions. When the funds were not temporarily required, the same are deposited by the assessee in the bank deposits or advances as inter-corporate deposits. The income derived by way of interest is the income from the business of housing finance as the immediate source of such income is the business of providing the long-term housing finance. Reliance was also placed on the following case law: - Rajeev Enterprises vs. AO (2003) 78 TTJ (Jp)(SB) 330; - Asstt. CIT vs. Gallium Equipment (P) Ltd. (2001) 73 TTJ (Del)(TM) 130 : (2001) 79 ITD 41 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or profession" (before making any deduction under this clause), carried to such reserve account:......... Provided.......... that where the aggregate of the amounts carried to such reserve account from time to time exceeds (twice the amount of) the paid-up share capital (and of the general reserves) of the corporation (or, as the case may be, the company), no allowance under this clause shall be made in respect of such excess. Explanation-In this clause,- (a) "financial corporation" shall include a public company and a Government company; (b) "public company" shall have the meaning assigned to it in s. 3 of the Companies Act, 1956 (1 of 1956); (c) "Government company" shall have the meaning assigned to it in s. 617 of the Companies Act, 1956 (1 of 1956); (d) "infrastructure facility" shall have the meaning assigned to it in cl. (23G) of s. 10; (e) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years;" The words "industrial or agricultural development or development of infrastructure facility in India" ending with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to a deduction of an amount not exceeding 40 per cent of its total income carried to a special reserve. The deduction was allowed on the 'total income' and not with reference to the income from the activities specified in s. 36(1)(viii). 26.2 It was noticed that many of these approved financial corporations/approved public companies had diversified their activities and were claiming deduction under this section even in respect of their income derived from activities other than those specified in this section. As there was no justification for allowing the deduction with reference to income from other activities or from sources other than business, the Finance Act, 1995, has amended s. 36(1)(viii) to limit the deduction to 40 per cent only in respect of income derived from providing long-term finance for the activities specified in s. 36(1)(viii). Now, income arising from other business activities or from sources other than business will not be taken into account for computing deduction under s. 36(1)(viii)." From the reading of the said circular also it is clear that the intention of the Government is not to allow the deduction under s. 36(1)(viii) in respect of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of residential houses, is entitled for a deduction of an amount not exceeding 40 per cent of its total income carried to a special reserve. The deduction is allowed on the "total income" and not with reference to the income from the activities specified in s. 36(1)(viii). These organizations have diversified their activities and are claiming deduction under this section even in respect of their income from activities other than those specified in this section. There is no justification for allowing the deduction with reference to income from other activities or from sources other than business. It is, therefore, proposed to limit the deduction of 40 per cent only to the income derived from providing long-term finance for the activities specified in s. 36(1)(viii). It will thus be outside the purview of deduction, income arising from other business or from sources other than business. Development of infrastructure is "an important area requiring fiscal support for encouraging private sector participation. The Bill proposes to amend s. 36(1)(viii) of the IT Act to extend the benefit of deduction upto 40 per cent of the income credited to a special reserve account to approved fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is taken into account. Last year, the above referred to two parties had advanced loans to the assessee and there were closing credit balances of Rs. 4,14,051 and Rs. 2,36,382 in accounts of Jaipur Trading Co. and M/s S.K. Gems, respectively. Last year, interest was paid and allowed as a deduction and treated as a business transaction. This year, interest is received on account of credit given. The interest earned like interest paid is an act of business prudency. This earning of interest cannot be looked into in isolation and taken as a source of income. It is part and parcel of the main business and interest earned is an incidental receipt generated in the manner business of export is carried with gaps of time. The payment and receipt of interest are two sides of the same coin. They cannot be looked at differently and given different treatment for purposes of taxation. We are, therefore, of the view that as expenditure of interest has been treated part of business, the receipt has also to be held 'business receipt'. Having held that interest is business receipt, there is no need to examine whether it would fall under the residuary head of 'Income from other sources'. The above re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t taken from the bank. The learned Third Member after looking to the language of s. 80-I(1) which was in existence during the relevant year noted that the words used in section "where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof". The learned Third Member held that when the FDRs were integral part of the business activities of the assessee then interest earned on such FDRs cannot be excluded from the scope of industrial undertaking; phrase "industrial undertaking" is the name given to combined business activities being carried out by the assessee. If the FDR were essential part of the business activities, the earning of the interest on such FDRs was having a direct nexus and such interest was in connection with the industrial undertaking of the assessee and the interest is to be treated as derived from the said undertaking and the assessee is entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or purchase of houses in India. Therefore, the immediate source of income which is eligible for deduction under s. 36(1)(viii) must be the business of providing long-term finance for construction or purchase of houses in India for residential purposes. There is no dispute that the assessee has earned the discounting charges from the business of discounting the investments and not from the business of providing long-term finance. Similarly the interest on bank deposits and inter-corporate deposits was earned from the deposits being made with the bank and corporate entity, the immediate source of such income is the interest earned on the deposits made by the assessee. The immediate source is not providing long-term finance for construction or purchase of residential houses. The Hon'ble Supreme Court has held in the case of CIT vs. Sterling Foods that the words "derived from' used in s. 80HH would meet the direct nexus between the profits and gains of an industrial undertaking. It has been pointed out by the Hon'ble Supreme Court that for availing the deduction, an industrial undertaking should be the immediate source of the profits and that mere commercial connection between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the assessee, all facts were disclosed by the assessee in the computation of income along with the original return of income and since no inaccurate particulars were furnished, penalty is not leviable. The CIT(A) after considering the above submissions cancelled the penalty by observing as under: "4. I have considered the above submission of the appellant and the facts stated by the AO in his penalty order. As mentioned earlier, this is a case where appellant's claim of deduction under s. 36(1)(viii) amounting to Rs. 68,66,728 has been disallowed and finally confirmed by the CIT(A) to the extent of Rs. 13,85,992. While making this claim in the original return of income, the appellant has filed a detailed computation by giving all the facts along with computation of income. In this computation of income, the appellant has shown a calculation of deduction under s. 36(1)(viii). In this calculation, the following income has been shown as income from long-term housing:- (i) Pre-EMI amount Rs. 7.89 lacs (ii) Discounting charges Rs. 52.92 lacs (iii) Interest on bank deposit + ICD Rs. 290.42 lacs (iv) Fees and other charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come and since no inaccurate particulars were furnished, penalty is not leviable. He reiterated the submissions which were made before the CIT(A). 16. We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities below. We have also gone through the case laws as relied on before us. As per the provisions of s. 271(1)(c) the penalty under this section is leviable if the AO is satisfied in the course of any proceeding under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In the assessment order, the AO has not recorded such satisfaction to the effect that the assessee has concealed the particulars of income or has furnished inaccurate particulars of income, as contended by the assessee before the CIT(A). The penalty proceedings and the assessment proceedings both are different. The assessee has given detailed computation of deduction under s. 36(1)(viii) of the Act. Explanation 1 to s. 271(1)(c) in respect of any fact relating to the computation of total income states that the amount added or disallowed in computing the total income of an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false, the Explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee. Alternatively, treating the Explanation as dealing with both the ingredients (i) and (ii) above, where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. Even in this view of the matter the Explanation alone cannot justify levy of penalty. Absence of proof acceptable to the Department cannot be equated with fraud or wilful default." 18. Therefore, we are of the view that the aforesaid decision is equally applicable to the facts of the case before us and support the contentions of the assessee. The assessee, in our opinion, has duly discharged its onus and the explanation given by the assessee is a plausible explanation which cannot be regarded not (sic) to be a mala fide one. In view of this, we are of the view that it is not a fit case where penalty und ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
