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TMI Blog2017 (7) TMI 820X X X X Extracts X X X X X X X X Extracts X X X X ..... rities which were confirmed by the Tribunal by impugned judgment dated 11.07.2016. Following questions have been presented for our consideration: "(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the appellant will not be entitled to the deduction of 40% of the profits derived from business of providing long term finance computed under the head "Profits and Gains of Business" in respect of income received on account of :EMI Residual? (ii) Whether the interpretation done by the Tribunal of clause (viii) of section 36(1) is in order because the language is "Profits derived from business of providing long term finance" and not "Interest from such business of providing long term f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing finance was made available and necessary reserve was created, the deduction under section 36(1)(viii) of the Act would be available. 3. The assessee further pointed out that after transfer of a particular portfolio, the HDFC had claimed deduction in respect of such portfolio of long term housing finance to the extent of interest received by it. The assessee even after the transfer of the portfolio, would retain a part of the interest received from the loanee and it is this interest component on which the assessee claimed the deduction. The Assessing Officer considered the contentions of the assessee but, found that the same cannot be accepted. He was of the opinion that once the portfolio was transferred, the assessee was no longer en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the ITAT in the Asstt. Year 200001 and 200102 extracted supra, we are of the view that the income from EMI residual offered for taxation is an income which represents difference of interest charged by the assessee for the services rendered by it for collecting EMI etc. on behalf of the HDFC. It is not linked with long term finance. Therefore, this income will not form part of the eligible profit derived from long term finance for the purpose of calculating 40% of the amount to claim deduction under section 36(1)(viii) of the Act. To this extent, we uphold the finding of the AO, and the rest of two folds of grievance of the assessee are allowed." 5. Before us, learned counsel Shri J.P.Shah for the assessee contended that the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arely within a few months of sanctioning the loans. According to the assessee, even after transferring the loan accounts, the assessee would continue to act as a collection agent. The loanees would deposit the EMIs with the assessee. The assessee would retain a small portion of the interest and transfer the rest to the HDFC. It is pointed out that the HDFC receives the benefit under section 36(1) (viii) of the Act on such income. We have noticed that the Revenue authorities and the Tribunal have held that, that the assessee for transferring the portfolios cannot be stated to have been in the business of longterm housing finance qua such accounts. 7. It was in this context we had a desire to peruse the agreement. A copy of the agreement pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hly payments to the beneficiary and service charges. This chapter contained following two articles: "6.1 In consideration for the Purchase Price paid by the Beneficiary to the Seller, the Seller shall remit the Amounts Due received in respect of the Assigned Receivables to the Beneficiary every month in such manner as may be directed by the Beneficiary so as to reach the Beneficiary by the end of the month for which the same are due. 6.2 The Seller shall be entitled to retain the residual from the interest component of each EMI after paying interest to the Beneficiary (in addition to the entire principal component of the EMI) at the rate of 6.75% per annum, on an annual rest basis." 10. Article XI provided as under: "The Seller agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the assessee transferred the entire business of housing finance to HDFC in connection with the loan portfolios in question. Neither the profit, nor the risk involved with such business remained with that of the assessee. The HDFC would receive the EMI including the interest and would also run the risk of defaults in repayment of loans. The assessee's involvement remained to the extent of acting as a receiving agent, transferring the received EMIs to the HDFC and in the process, retaining a small portion of 6.75% of the interest component. 13. Section 36(1)(viii) of the Act provides for the deduction in respect of any reserve created and maintained by a specified entity of an amount not exceeding twenty per cent of the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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