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TMI Blog2022 (3) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... du Government and Infrastructure and Leasing Financial Services Ltd has accrued during the previous, even though the liability to pay interest cannot be stated to have accrued until after 5 years and that too, is payable half yearly instalments along with principal amount beginning from 1st May 2013 and ending with 1st November 2022?" 2.2. By order dated 21.12.2009, T.C.A.Nos.1382 & 1383 of 2009 were admitted on the following substantial questions 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 Nadu Government Infrastructure and Leasing Financial Services Ltd had accrued during the previous year when 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 Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (IL&FS), with a view to implement a project under Tirupur Area Development Program. A shareholders agreement was entered into between the Government of Tamil Nadu and IL& FS on 24.05.2000, as per which, apart from equity, the promoters agreed to provide the assessee company (TWICL) unsecured loan of Rs. 40 crores in the following proposition: (i)Rs. 25 crores by the Government of Tamil Nadu and (ii) Rs. 15 crores by IL&FS for implementing the said project. While so, the respondent / assessee filed its returns for the assessment years in question. After scrutiny of the same, the Assessing officer was of the view that as per clause 1.2 of Article 1 of the loan 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, it is but necessary to refer to the relevant provisions of law, viz., Section 43 and Explanation 3C, which was inserted by the Finance Act, 2006 with effect from 01.04.1989, read as follow: "43B Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, 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 regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in detail, nor it is necessary for this Court to take note of facts in detail as also the submissions urged in support of various contentions except to place reliance on Expln. 3C to Section 43B and answer the questions against the assessee and in favour of Revenue." The Court in Pennar Profiles Limited (supra) considered the decisions in Mahindra Nissan (supra), Vinir Engineering (supra) and Eicher Motors (supra) and held as follows: "8.In this backdrop, we have perused the provisions contained in Section 43B of the Act, in particular, Explanation 3C thereof, which was inserted by the Finance Act, 2006 with retrospective 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, fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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.I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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