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TMI Blog2017 (1) TMI 1676X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case and in law, the CIT(A) erred in not assessing Rs. 2,28,15,80,396 as long term capital loss in respect of write-off of shares and debentures made in certain companies." At the outset, the learned Counsel for the assessee stated that an identical issue has been decided by the Tribunal in favour of the assessee in assessee's own case in ITA No.5424/Mum/2001 wherein vide Para 7.2 and 7.3 of the order dated 13-07-2016. 3. We find that the AO noticed from the accounts of the assessee that profit on sale of investments was arrived at after providing for write off of investments of Rs. 228,15,80,396/- and this was claimed as deduction in the computation of filed along with the return of income on account of diminution in the value consequent to write off of investments. The CIT (A) confirmed the disallowance claimed by the assessee by observing in Para 5 and 5.1 of his order as under:- "5. Ground Nos. 9,10,11 & 12 raised by the Appellant challenge the action of the AO in not assessing Rs. 228,15,80,396/- as Long Term Capital Loss in respect of write of shares and debentures. 5.1 A similar issue had come up for consideration in appeal in the Appellant' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT (A) partly confirming the interest expenses of Rs. 379,11,90,416/- incurred for earning interest free income from bonds instead of Rs. 174,37,66,592/- being only direct expenses thereby allowing only part expenses u/s 10(23G) of the Act. For this, the assessee has raised following grounds No.3 and 4:- "(B) Re: Deduction under section 10(23G) Rs. 3,79,1 1,90,416 [Para 6, pages 2 S 3 of the CIT(A) Order] 3. On the facts and circumstances of the case and in law, the CIT(A) erred in partly confirming the interest expenses at Rs. 4,18,73,63,942 incurred for earning interest on tax free bonds instead of Rs. 1,74,37,66,592 being only direct expenses viz. interest on borrowings made for infrastructure financing and thereby allowing only part exemption under section 10(23G). 4. The CIT(A) also erred in not specifically dealing with the ground regarding guarantee commission excluded by the assessing officer while considering income exempt under section 10(23G) of the Act.". The Revenue has raised following ground No. 3 :- "3 (a) On the facts and circumstances of the case and in law, the learned ClT(A) erred in holding that computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 329*56.38% C 671,303.899 Net income exempt u/s. 10(23G) related to Borrowed bunds D (B-C) 519,448.430 Add: Gross income exempt u/s.10 (23G) E(A-B) Relating to owned fund 180,300.372 (137,10,52,710 - 119,07,329) Net income exempt u/s 10(23G) D+E 699,748,802 Less: Administrative expenses @1% of income received u/s 10(23G) 13,710.527 Net income exempt u/s 10(23G) 686,038.275 8.4 These facts have not been analysed by either of the lower authorities. In principle, we agree with the contention of the ld. Counsel that only those expenses which are relatable to earning of the exempt income can be deducted for computing net income available for exemption u/s 10(23G). Under these circumstances, we send this issue back to the file of the Assessing Officer, who shall decide this issue afresh after giving adequate opportunity of hearing to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee itself has disallowed direct expenses of Rs. 174,37,66,592/- by way of interest expenses for earning of income u/s 10(23G) of the Act, which has been offered for disallowance. We also agree that only those expenses which are relatable to earning of exempt income can be claimed as deduction for computing net income u/s 10(23G) of the Act. In term of the above and in term of the direction of the Coordinate Bench of the Tribunal in assessment year 1997-98 in assessee's own case in ITA No.5424/Mum/2001, the AO will decide the issue. Accordingly, this issue of assessee's appeal is allowed for statistical purposes and the issue of Revenue's appeal is dismissed. 8. The next common issue in this appeal of the assessee is as regards to the order of the CIT (A) upholding the disallowance of depreciation claimed on assets leased during the year amounting to Rs. 756,62,50,507/-. For this, the assessee has raised the following ground No.5: - "(C) Re: Disallowance of Depreciation claimed on assets leased during the year - Rs. 7,56,62,50,507/- Para 7, Pages 3 & 4 of the CIT(A) Order] 5. On the facts and circumstances of the case and in law, the CIT(A) erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 1,34,37,32,781 and managerial and administrative expenses @ 1% at Rs. 2,22,69,966 instead of Rs. Nil as declared by the Appellant." The Revenue has raised following ground No. 4(a) & 4(b):- "4(a) "On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that the computation of exemption uls.10(33) of the I.T. Act made by the Assessing Officer deserves to be modified applying the formula as devised by him." 4(b) "On the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate that the Assessing Officer had worked out the interest cost attributable to investment in shares in a correct and logical manner." 12. We find that the assessee claimed exemption u/s 10(33) of the Act but the AO disallowed interest expenses and managerial & administrative expenses at Rs. 257.63 crore and Rs. 2.70 crore respectively and disallowed exemption u/s 10(33) of the Act as against the claim of the assessee of Rs. 222,69,96,573/-. The CIT (A) partly confirmed the disallowance of interest expenses at Rs. 134,37,32,781/- and managerial and administrative expenses at 1%. The assessee before us now claimed that no interest exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s 36(1)(viii) of the Act. For this, the assessee has raised following ground Nos.7 and 9:- (E) Re: Deduction of share issue expenses-Rs. 73,32,08,329 [Para 9, page 4 of the CIT(A) order] 7. The CIT(A) erred in confirming the disallowance of expenses incurred for issue of shares on the ground that they are capital in nature. (G) Re : Calculation for deduction under section 36(1)(viii) [Para 14, Pages 7 & 8 of the CIT(A) order) 9. On the facts and circumstances of the case and in law, the CIT(A) erred in not accepting the working of special reserve in accordance with the method submitted by the Appellant in absence of a format/formula prescribed under section 36(1)(viii)." The revenue has raised following ground No.6: - "6. On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that for the computation uls.36(1)(viii) of the I.T. Act, the Assessing Officer will also take into account the interest cost attributable to non-finance income, in addition to administrative overheads estimated by him at 10%." 15. At the outset, the learned Counsel for the assessee sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-fund based commission amounting to Rs. 1,29,41,05,983/- from the business income to arrive at the income from finance." The learned Sr. DR only requested that let the calculation provided by assessee at page 142 of its paper book be verified by the AO. On this, learned Counsel has not objected. Hence, the matter in this regard is referred back to the file of the AO for verification purpose only. 17. The next two issues in this appeal of assessee are as regards to disallowance of depreciation on fixed assets and disallowance of interest on loan for building. For this assessee has raised following ground Nos.12 & 13:- "(H) Re : Disallowance of depreciation on fixed assets - Rs. 17,05,52,154 [Para 15, pages 8 & 9 of the CIT(A) order] 12) On the facts and circumstances of the case and in law, the CIT(A) erred in not allowing depreciation on fixed assets amounting to Rs. 17,05,52,154 claimed on business and commercial rights acquired by the Appellant at the time of merger with Anagram Finance Limited. (I) Re : Disallowance of interest on loans for building - Rs. 3,92,75,669 [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for Bad Debts amounting to Rs. 272,94,72,271/-. At the outset, the learned Counsel for the assessee stated that she has instructions from the assessee not to press this ground and accordingly, the same is dismissed as not pressed. 21. The next common issue in this appeal of the assessee is as regards to charging of interest u/s 234B of the Act. The learned Counsel for the assessee as well as learned CIT DR fairly conceded that charging of interest u/s 234B of the Act in the present case is consequential in nature, hence, needs no adjudication. Accordingly, this common issue is infructuous and hence, dismissed. 22. The next issue in this appeal of assessee is against the order of CIT(A) upholding the erroneous addition of write backs previously sought to be taxed. This ground is common in the departmental appeal also and we will deal both the issues here. The grounds raised by the assessee which reads as under: - Re: Erroneous Addition of Writeback previously sought to be taxed - Rs. 12,78,93,145/- 17) The CIT(A) erred in not granting relief in respect of non-cash write backs amounting to Rs. 12,78,93,145/- not exigible to tax as per provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our opinion, the assessee should raised this plea before the AO. We accordingly, while upholding the setting aside of this matter back to the file of AO, direct him to examine the assessee's claim in the light of the decision of Hon'ble Apex Court in the case of United Provinces Electric Supply Co. (supra). He will also allow opportunity of being heard to the assessee". 28. Respectfully following Tribunal's decision in earlier year, we exactly on same directions, restore the matter back to the file of the AO for fresh adjudication. This issue of Revenue's appeal is set aside." 24. Respectfully following Tribunal's decision in earlier year, we exactly on same directions, restore the matter back to the file of the AO for fresh adjudication. This issue of Revenue's appeal is set aside. 25. The next issue in this appeal of assessee is as regards to disallowance of Bad Debts written off during the year amounting to Rs. 49,31,79,076/-. The learned Counsel for the assessee stated that she has instructions from the assessee not to press this issue as provisions were allowed in earlier years. The DR has not objected to the withdrawal. Hence, this issue is dismissed as not press ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the decision of Bombay High Court in the case of Bhor Industries Ltd., reported at 128 Taxation 626. The Appellant succeeds in ground No.38 & 39." Aggrieved, revenue preferred appeal before Tribunal. 29. Before us, revenue could not point out how the expenses are capital in nature and could not find fault with the findings of CIT(A). Even otherwise, the expenses on VRS are incurred wholly and exclusively for the purpose of business and hence revenue in nature and allowable entirely in the year in which these are incurred. Admittedly, these expenses are incurred in this very year, which is not in dispute. Accordingly, we confirm the order of CIT(A) and this issue of revenue's appeal is dismissed. 30. The next issue in this appeal of revenue is as regards to discount on repurchase of foreign currency bonds. For this, revenue has raised following grounds: 7. "On the facts and circumstances of the case and in law, the learned CIT(A) erred in allowing the deduction of Rs. 84,23,492/-, being discount on re-purchase of foreign currency borrowings." 31. We have heard rival contentions on this issue and gone through facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by observing as under:- "29. The last common issue in these two appeals of the Revenue is as regards to the order of the CIT(A) deleteing charging of interest under section 234 B read with section 143 (4) of the Act. 30. After hearing both the sides, we find that the CIT(A) has rightly observed that no interest is payable under section 234 B of the Act on deemed tax payable under section 143 (4) of the Act. The CIT (A) is Para 15.2 observed as under:- 15.2 I have carefully considered the facts of the case and the submissions made before me. I find that the charge of interest under section 234 B is consequential and there was no discretion with the AO in levy of the same. The AO was fully justified in charging interest under section 234 B. However, in so far as the levy of interest on the deemed tax payable amounting to Rs. 28,79,44,919/- as per section 143(4) is concerned. I find that the assessed tax for the purposes of Section 234 B is clearly defined under the Actg. This definition does not include the deemed tax payable as per Section 143(4). I find that such interest has been deleted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue for our adjudication is: "Whether Sub-section (4A) as inserted in section 41 of the Income Tax Act, 1961 by the Finance Act, 1997 with effect from 01.04.1998 to provide that where a deduction has been allowed in respect of "any special reserve created and maintained under sec. 36(1)(viii)" any amount subsequently withdrawn from such special reserve shall be deemed to be profits and gains of business and accordingly charged to tax as income of the year in which such amount is withdrawn but will it applies to the reserve created in the prior years i.e. up to AY 1997-98 or not?" The Ld. Counsel for the assessee argued that this issue is decided against the revenue by coordinate bench of this Tribunal in assessee's own case for AY 1998-99 in ITA No.4114/mum/2004, although the issue was decided on reopening, but observed on merits also vide para 5.4 as under:- "5.4 It is noticed that during the original assessment proceedings, the assessee was required to file details in respect to reserve created, withdrawn and deduction claimed. The assessee has filed complete details of reserve credited, withdrawn and the deduction claimed. The AO has discussed this issue while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the simple reason that the amount withdrawn was from special reserve created upto AY 1997-98. The details were sought from the assessee. The complete details were filed and after examining the details and provisions of respective sections, the AO concluded that deduction claimed by the assessee was on higher side; therefore, he recalculated the deduction. Accordingly, in our considered view, the reopening of the assessee was merely on account of change of opinion." 40. Further Ld. Counsel explained that Section 36(1)(viii) of the Act permits deduction of an amount not exceeding 40% of the profits derived from the business of providing long term finance carried to a reserve account inter alia by a financial corporation engaged in providing long term finance for industrial or agricultural development or development of infrastructural facility in India. The deduction is admissible subject to the limits laid down in the proviso to the said section. She explained that the said section was amended by the Finance Act, 1997 with effect from 1.4.1998i.e.for &from A.Y.1998-99. The amended section mandated a special reserve to be created and maintained. Simultaneously, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limitation with respect to such reserve. From AY 1998-99, an assessee had to create and maintain the special reserve and in the event of withdrawal suffer tax under Section 41 (4A). Thus, a special reserve created before AY1998-99 and from AY 1998-99 was governed by different conditions. She explained facts of the present case that the assessee created a separate special reserve for the financial year 1999-2000 terming it as "special reserve created and maintained in terms of sec. 36(1)(viii) of the Act" ('Special Reserve 2). The reserve created for the prior years was described as " special reserve created in terms of sec 36(1)(viii) of the Act upto AY1997-98" ('Special Reserve 1').During AY2000-01 the Appellant company withdrew a sum of Rs. 310.27 Cr. from Special Reserve I. This amount was appropriated to the provision for bad debts. The amount withdrawn has been assessed under sec. 41(4A) of the Act by the AO and confirmed by CIT(A). 42. On the other hand, ld. CIT DR explained the issue under consideration that the addition of Rs. 310.26 crore u/s 41(4A) of the Act, being the withdrawal from special reserve created u/s 36(1)(viii) of the Act. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied it in the provisions itself. No exception has been provided in the provisions of the Act in this regard. On the other hand, Explanation to section 41(4A) makes it clear that even if the business is not in existence, the provisions of section 41(4A) shall apply where any amount is withdrawn from the special reserve. Thus, it is clear from reading of the provisions of section 36(1)(viii), 41(4A) and the Explanatory Note that section 36(1)(viii) was amended only to impose obligation for maintenance of "special reserve" which was already created and which would be created from AY1998-99 onwards. Accordingly, any money withdrawn both from the "special reserve created" and "special reserve created and maintained "are liable for taxation u/s 41(4A), if the same is withdrawn on or after 01.04.1998. 43. Ld. CIT DR argued that the AO has also rightly given the example of another financial institution i.e. IDBI where much larger amount of Rs. 2409.38 crore withdrawn from the "special reserves created "as well as the "special reserve created and maintained" u/s 36(1)(viii) was offered for taxation in AY 2002-03. The above amount includes amounts withdrawn from the "special reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existed prior to AY 1998-99 as it would amount to giving it retrospective effect. In other words, when the assessee created the reserve in assessment years prior to AY 1998-99 there was no obligation to maintain it. Nor did the free utilisation of the reserve attract any tax. That right which was vested with an assessee qua the special reserve created prior to AY 1998-99 cannot be curtailed or infringed upon by a subsequent amendment. It is well-settled that unless the terms of the statute expressly so provide or unless there is necessary implication, retrospective operation should not be given to the statute so as to affect, alter or destroy any right already acquired. This view of ours is supported by the decision of Hon'ble Supreme Court in the case of Govinddas v ITO, 103 ITR 123 (SC)). Since the assessee was not obliged to maintain the special reserve created upto AY 1997-98 and was entitled to freely use such reserve, provisions ofsec.41(4A) would not be applicable to the sum withdrawn from the special reserve created upto AY 1998-99. Further we find that, Coordinate Bench of Mumbai Tribunal in the case LIC Housing Finance Ltd vs. DCIT in ITA No.672 & 673/Mum/2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in CIT vs. I.F.C.I. (supra) has followed the analysis of the Kerala High Court in the matter of Kerala Finance Corporation Vs. CIT (2003) 261 ITR 708 (Ker). While interpreting the provisions of the amendment, the Kerala High Court held that the amendment was prospective and would be applicable only for the assessment year 1998-99 and therefore cannot be applied for the assessment years prior thereto. The said judgment has held that deduction that has been allowed in respect of amounts transferred to the special reserve under section 36(1)(viii) of the Act prior to amendment and which amounts were subsequently withdrawn should not be subjected to tax. Going by the plain language as it stood at the relevant time, it can be seen that creation of a reserve was sufficient to entitle the assessee to claim the benefit under section 36(1)(viii) and the assessee was not obliged to maintain the said reserve. The inclusion of words "and maintain" was not retrospective. We doITA604.11 not find any reason to differ from this view expressed by the Kerala High Court and which was quoted with approval by Delhi High Court in CIT vs. I.F.C.I. (supra)." We find that Hon'ble Bombay High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 35. Let us sharpen the discussion a little more. We may note that under certain circumstances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labeled as "declaratory statutes". The circumstances under which a provision can be termed as "declaratory statutes" is explained by Justice G.P. Singh7 in the following manner: "Declaratory statutes The presumption against retrospective operation is not applicable to declaratory statutes. As state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law." The above summing up is factually based on the judgments of this Court as well as English decisions. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas & Anr.8, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: "The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional juris-diction was before the amendment derived from s. 115, Code of Civil Procedure, and the legislature has by the amending Act attempted to explain the meaning of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only." 37. In the case of C.I.T., Bombay v. Scindia Steam Navigation Co. Ltd.11, this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year, i.e., the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year. Answer to the Reference 38. When we examine the insertion of proviso in Section 113 of the Act, keeping in view the aforesaid principles, our irresistible conclusion is that the intention of the legislature was to make it prospective in nature. This proviso cannot be treated as declaratory/statutory or curative in nature. There are various reasons for coming to this conclusion which we enumerate herein below: 46. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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