TMI Blog2013 (11) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... par with loans or advances. Therefore, interest on deposits will never fall within the definition of long term finance given in Explanation (e) to section 36(1)(viii) of the Act – Decided against the Assessee. Disallowance u/s 43D of the Income Tax Act - By virtue of Sec.43D, it was necessary to offer such interest income, only when interest was realized - Assessee had advanced a sum of Rs. 300 lakhs, as term loan to M/s. NEPC Micon Ltd., who had failed to repay the installments due from 01.04.1997. Assessee had classified the dues as Non-Performing Asset in its books based on Reserve Bank of India guidelines. Assessee had not shown any accrual of interest on such term loan in its accounts. Assessing Officer was of the opinion that since it was following mercantile system of accounting, it was mandatory to show the accrued interest. As per the Assessing Officer, RBI guidelines were only for the purpose of supervision, and management of non banking financial companies and was not relevant for ascertaining income under the Income Tax Act – Held that:- No doubt that assessee had not charged in its books of accounts any interest on the loans classified by it as non performing asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on items other than interest on direct long term finance, back to the file of the Assessing Officer for consideration afresh. Such directions were given by the Tribunal for a reason that lower authorities had not gone into the aspect whether such deductions claimed assessee fell within the scope of Explanation (e) of the said section. This Tribunal noted that deduction under section 36(1)(viii) was available only to profits derived from a business of long term finance and since term 'long term finance' was defined in Explanation (e), it was necessary to see whether the claims of assessee fitted into the said definition. 5. Accordingly, the matter was once again, considered by the Assessing Officer. In such fresh proceedings, assessee was required to furnish documents justifying its eligibility for deduction under section 36(1)(viii) of the Act, with respect to its leasing income, hire purchase income and interest on deposits. Reply of the assessee was that it was a Non-banking Financial Corporation incorporated by the State in 1991, for providing long term finance for infrastructure development. As per the assessee, it was eligible for claiming deduction of these amounts since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee moved in appeal before the CIT(A) once again. Argument of the assessee was that its entire income was derived from long term finance, provided to Tamilnadu Electricity Board, whatever the classifications were. According to the assessee, long term finance included not only direct loans, but also indirect loans in the form of hire purchase, leasing and other advances. Argument of the assessee was that the agreements of hire purchase and lease were effectively only for financing the purchase of items mentioned therein and were not operating lease or hiring of goods simpliciter. Assessee also claimed that it had not availed depreciation on assets given under the hire purchase agreement. Reliance was placed on the decision of Hon'ble Apex Court in the case of Sundaram Finance Ltd., v. State of Kerala 1966 AIR (SC) 1178, and Asea Brown Boveri Ltd. v. Industrial Finance Corpn. of India [2006] 154 Taxman 512 (SC). Ld. CIT(A) was impressed with such argument in so far as it related to income from hire purchase. According to him, assessee was only financing the purchase of the assets by M/s. Tamilnadu Electricity Board. Assessee had also paid interest tax on the hire charges receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced on the decision of Co-ordinate Bench in ITA No.530 531/03, 1497/04, 1561 1562/06 dated 20th July, 2007 in assessee's own case in which it was held that word 'derive' used in Section 36(1)(viii) would not bring under its sweep, items of income which were not having immediate nexus with long term financing business. D.R. also placed reliance on the decision of Delhi bench of this Tribunal in the case of Tourism Finance Corpn. of India Ltd. v. Jt. CIT [2010] 2 ITR (Trib) 1 and National Co-operative Development Corpn. v. Asstt. CIT (2012) 33 CCH 154 (Del.). Further, according to him, equitable consideration were out of place while interpreting a taxing statute and when the language was clear and un-ambiguous, there was no scope for importing into the statute, words, which were not there. In this regard reliance was placed on the decisions of the Hon'ble Apex Court in the case of CIT v. Orissa State Warehousing Corpn. [1993] 201 ITR 729 and Smt Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC). 10. Per contra, Ld. A.R. in support of his appeal and supporting the order of CIT(A) with regard to his allowance of hiring income submitted that long term finance had many facets. It did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re from. Finance can be in many ways viz., loans, equities, hire purchase, lease, investments and deposit. These all can be and are in fact for long term. Hence, the entire income is from business of providing long term finance and the assessee has no other business. The learned departmental representative in rebuttal of the aforesaid claim placed reliance upon the sanguine provisions of section 36(1)(viii) and the explanation thereto which reads as under: "(viii) [in respect of any special reserve created [and maintained] by a financial corporation which is engaged in providing long-term finance for .. [industrial or agricultural development or development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived from such business of providing long-term finance (computed under the head ''Profits and gains of business or profession" [before making any deduction under this clause]) carried to such reserve account:] Provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income arising from other business activities or from sources other than business will not be taken into account for computing deduction under section 36(1)(viii)." Considering the present case, particularly in the light of the CBDT circular clarifying the rationale behind the amendment, it is evident that the intention of providing deduction u/s. 36(1)(viii) is only in respect of income derived from providing long term finance for the activities specified u/s 36(l)(viii). Hence, the learned counsel of the assessee's interpolation that the word "derived" used in the section will bring omnibus activities of the assessee under the sweep of this section is not on terra firma. As is evident from the aforesaid circular, the very purpose of bringing this amendment was to restrict this deduction as income derived from other diversified activities were being claimed under it. Under the circumstances, the reliance placed by the learned counsel of the assessee on the word "derived" cannot oxygenate the assessee's claim. As held by Privy Council in Commissioner of Income Tax v. Raja Bahadur Kamakhaya Narayan Singh Others [1948] 16 ITR 325, the word "derived" is not a term of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as hired assets, whereas the CIT(A) in his order says that assessee had not claimed depreciation on assets hired out. Further, Assessing Officer mentions in his order that hire purchase income was claimed by the assessee as exempt from interest tax, whereas CIT(A) says that assessee had paid interest tax on hire receipts. However, none of the lower authorities went into the agreements entered by the assessee with its customers to find the true nature of the transactions. 13. Difference between a finance lease and operating lease and hire purchase finance and simple hiring of goods, have been well brought out by the decision of Hon'ble Apex Court in the case of ICDS Ltd. v. CIT ( Civil appeal No.3286 to 3290 of 2008 dated 14.01.13).. Relevance of Accounting Standards-19 of Institute of Chartered Accountant of India, while deciding on such issues has been clearly brought out by the Special Bench of this Tribunal in the case of IndusInd Bank Ltd. v. Addl. CIT in(2012) 135 ITD 165. What comes out of these decisions is that nature of a hire and for lease have to be seen before coming to a conclusion whether these were mere operational or financial. No doubt, Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ekta Promoters (P.) Ltd. [2008] 113 ITD 719. However, we find that Hon'ble jurisdictional High Court in the case of CIT v. Infrastructure Development Finance Co. Ltd. 340 ITR 580 has held that where regular assessment was completed after the amended provision came into operation, assessee was liable to pay interest on the refunded amount. Therefore, the issue of levy of interest for these years is remitted back to the file of the Assessing Officer, for verifying the date on which the regular assessments were completed for the impugned Assessment Years. If regular assessments were completed after 01.06.03, levy of penalty under section 234D was justified and if the regular assessment was completed prior to that date, there could not be any levy of penalty under section 234D of the Act. Ordered accordingly. Related ground of the Revenue is allowed for statistical purposes. 16. Only other issue left in Revenue appeal is a ground in its appeal for Assessment Year 2006-07, regarding disallowance under section 43D of the Act, which was deleted by the CIT(A). 17. Facts apropos are that assessee had advanced a sum of Rs. 300 lakhs, as term loan to M/s. NEPC Micon Ltd., who had failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for a period exceeding six months, as non-performing assets. Once it was so classified, interest could not be charged in its accounts and taken as income. Jurisdictional High Court in the case of CIT v. Elgi Finance Ltd [2007] 293 ITR 357 (Mad.) has held that assessee was justified in not recognizing income from non performing assets in consonance with the notification issued by RBI. We are of the opinion that this decision of Hon'ble jurisdictional High Court goes in favour of the assessee. We therefore, cannot find any reason to interfere with the order of the CIT(A) in this regard. 21. To summarise the result, appeals of assessee for Assessment Years 1996-97, 1997-98, 1998-99, 1999-00, 2000-01, 2001-02, 2002-03, 2003-04 and 2006-07 are allowed for statistical purposes whereas its appeal for Assessment Year 2007-08 is partly allowed for statistical purposes. Appeal of Revenue for Assessment Years 1996-97, 1997-98, 1998-99, 1999-00, 2000-01, 2001-02, 2002-03, 2003-04 2007-08 are allowed for statistical purposes whereas its appeal for Assessment Year 2006-07 is partly allowed for statistical purposes. Order pronounced on Thursday, the 21/03/2013 at Chennai. - - TaxT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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