TMI Blog2022 (3) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... , which has been converted into a loan or borrowing, shall not be deemed to have been actually paid. It is not in dispute that the interest payable to the Government of Tamil Nadu is not hit by the provisions of section 43B of the Act. However, in the present case, the assessee was provided with loan not only by the Government of Tamil Nadu, but also by M/s.Infrastructure Leasing and Financial Services Limited, and the interest liability, which accrued during the relevant assessment years, was not actually paid by the assessee, was sought to be deducted. In such circumstances, it has to be examined as to whether IL FS is a public interest institution. Without verifying the same, the Tribunal simply held that the promoters were not covered under the definition of Public Financial Institution as per Explanation 4 to section 43B r/w section 4A of the Companies Act and hence, the provisions of section 43B(d) r/w Explanation 3C would not be applicable to the case of the assessee. As decided in Tamil Nadu Small Industries Corporation [ 2020 (12) TMI 1315 - MADRAS HIGH COURT] Tribunal remanded the matter to the assessing officer to examine as to whether the assessee paid the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the interest is actually payable only after the expiry of moratorium period of five years? 2.3. This court admitted the appeals in T.C.A.Nos.87 483 of 2011 on the following substantial questions of law, vide respective orders dated 02.03.2011 and 08.11.2011: (i) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that interest on loan borrowed from the Tamil Nadu Government and M/s.Infrastructure and Leasing Financial Ltd had accrued during the previous year even though there was a moratorium for five years as per the agreement and the interest was payable only after the expiry of the said five year period? (ii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the provisions of Section 43B(d) and Explanation 3C to Section 43B were not applicable to the facts of this case? 2.4. On 02.09.2014, the appeal in T.C.A.No.619 of 2014 was admitted on the following substantial question of law: Whether on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the interest on loan borrowed from Tamil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement, the liability to pay interest on the unsecured loan arises only after five years from the operation date; the assessee was not required to pay the interest until the moratorium period; and they can claim interest after the moratorum period when the liability crystalizes. Therefore, the Assessing officer disallowed the claim for interest payable to the Tamil Nadu Government and IL FS and completed the assessment for the years in question. Aggrieved by the orders of assessment passed by the assessing officer, the assessee preferred appeals before the Commissioner of Income Tax (Appeals), who dismissed the appeal in respect of the assessment year 2003-04 and allowed the appeals in respect of other assessment years viz., from 2004-05 to 2011-2012, following the ITAT's order in respect of the assessee's own case for the Assessment Year 2003-2004. Challenging the dismissal of the appeal, the assessee went on further appeal before the Tribunal, whereas the Revenue filed appeals against the orders passed by the CIT(A) in respect of allowing the assessee's appeals. The Income Tax Appellate Tribunal allowed the assessee's appeal and dismissed the appeals filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees, or (c) any sum referred to in clause (ii) of sub-section (1) of Section 36, or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation in accordance with the terms and conditions of the agreement governing such loan or borrowing, or... shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which sum is actually paid by him. Explanation 3C For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid. The aforesaid provisions make it clear that deduction of any sum being interest payable under clause (d) of section 43B of the Act, shall be allowed if su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective effect from 01.04.1989. This provision was inserted in 2006 and ITA 110/2005 Page 10 hence, this Court in Mahindra Nissans case, had no occasion to deal with the case in the light of this provision. Insofar as the Karnataka High Court is concerned, though this provision was existing on the date of judgment, it appears that it was not brought to the notice of learned Judges and hence, the Division Bench proceeded to consider and decide the appeal of the assessee without referring to Explanation 3C appended to Section 43B of the Act. 9.As a matter of fact, from reading of Explanation 3C, in our opinion, the question as raised in the present appeals stands answered without further discussion. This provision was inserted for removal of doubts and it was declared that deduction of any sum, being interest payable under clause (d) of Section 43B of the Act, shall be allowed if such interest has been actually paid and any interest referred to in that clause, which has been converted into a loan or borrowing, shall not be deemed to have been actually paid. Thus, the doubt stands removed in view of Explanation 3C. This provision was considered by the Madhya Pradesh High Court in Ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the assessee. 10.At this juncture, the learned counsel for the appellant invited the attention of this court to a decision of the co-ordinate bench in TCA. No.63 of 2015, dated 14.12.2020 [CIT v. Tamil Nadu Small Industries Corporation Ltd] . In that case, the Tribunal remanded the matter to the assessing officer to examine as to whether the assessee paid the interest to the Government of Tamil Nadu or to any other financial institution, after having held that interest paid to Government of Tamil Nadu is not hit by the provisions of section 43B of the Act. 11.In view of the reasoning stated in the preceding paragraphs, the orders of the Tribunal are set aside and the matters are remanded to the Assessing Officer to examine, whether M/s.Infrastructure Leasing and Financial Services Limited (IL FS) is a public financial institution; and if it is in affirmative, then, section 43B(d) r/w explanation 3C will be applicable; and pass orders afresh, after providing due opportunity of hearing to all the parties, within a period of eight weeks from the date of receipt of a copy of this judgment. 12.All these tax case appeals are disposed of in the above terms. No costs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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