INDUSTRIAL DEVELOPMENT BANK OF INDIA ,MUMBAI vs. JT. CIT- 19 , MUMBA

IN THE INCOME-TAX APPELLATE TRIBUNAL “C” BENCH MUMBAI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA No. 3626/Mum/2001 (Assessment Year 1997-98) Industrial Development Bank of Joint Commissioner of Income India, Taxation Cell, ICBI Tower, –tax, Range -19, 4th Floor, WTC Complex, Cuff 6th Floor, Aayakar Bhavan, Prade, Mumbai-400005 Mumbai-400020 Vs PAN: AACI 1105 R Appellant Respondent Appellant by : Sh. Satish Mody AR Respondent by : Sh. Awungshi Ginson ( Sr.DR) Date of Hearing : 23.04.2019 Date of Pronouncement : 21.06.2019 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee under section 253 of Income Tax Act is

directed against the order of learned Commissioner of Income

(Appeals) -XXVI, Mumbai dated 30.03.2011, which in turn arises

from the assessment order passed under section 143(3) of the

Income tax Act (Act) dated 25.02.2000 for Assessment Year 1997-

98.The assessee has raised following ground of appeal ;

Aggrieved by the Appellate Order dated 30tl1 March, 2001 passed by the Commissioner of Income Tax (Appeals) XXVI [CIT (A)], Mumbai for the assessment year 1997-98 u/s 250 of the I.T. Act, the appellant begs to file this appeal and raise the following grounds of appeal, which are independent of and without prejudice to each other.

2 IDBI (ITA No. 3626/M/2001) AY 1997-98

3 IDBI (ITA No. 3626/M/2001) AY 1997-98

(a) Since the funds have been utilised for the purposes of the business of the respective financial institutions, corporations, it is not used for the appellant's business. (b) The funds invested in these shares have gone out of circulating capital of the appellant and therefore interest expenditure in respect of those funds could not be said to have been incurred for appellant's business. (c) The proportionate expenses should be allocated under the head ‘income from other sources’ and consider for deduction under the said head. The factum, the method, tile manner and the conclusion with regard to the apportionment of expenses is totally contrary to law and is wholly unjustified. 3. Deduction u/s 80M : The learned CIT(A) committed a gross error of law and facts in not accepting the claim of appellant u/s 80M in the manner in which it was claimed. The appellant submits that its claim u/s 80M should be accepted in totality. The learned CIT(A) committed a gross error of law and fact in directing the Assessing Officer to give effect to the directions relating to the appellant's claim of deduction u/s 36(i)(iii) while considering the claim u/s 80M. Moreover, the learned CIT(A)'s directions relating to section 36 (1)(iii) are themselves contrary to law and unwarranted. 4. Investment in Shares: 4.1 The learned CIT(A) has no jurisdiction to hold that profit on sale of shares of joint stock companies should be taxed as business profit. Moreover, this issue did not arise out of grounds of appeal before the learned CIT(A) and he erroneously assumed jurisdiction to deal with this issue without any authority of law 4.2 The learned CIT(A) erred in holding that the appellant's investments in shares of joint stock companies should be treated as business assets and not capital assets. He has erred in holding that income arising out of sale of these investments should be treated as business profits without giving adequate opportunity to the appellant to explain its case and without considering the written submissions filed by the appellant.

4 IDBI (ITA No. 3626/M/2001) AY 1997-98

a brief background of the case can be summarised as follows. The

appellant before us is a public financial institution which has been

constituted under the Act of Parliament by way of IDBI Act, 1964

with the object of financing, promoting and developing industries as

well as assisting the development of institutions engaged in such

activity. For the assessment year under consideration, the assessee

filed return of income declaring a total income of

Rs.118,92,18,700/- which was subject to a scrutiny assessment

whereby the total income has been assessed at Rs 1326,62,24,540/- after making certain additions/disallowances. The additions so made

5 IDBI (ITA No. 3626/M/2001) AY 1997-98

were carried in appeal before the CIT(A), who has allowed partial

relief. Not being satisfied with the order of CIT(A), assessee is in

further appeal before us by way of the aforestated Grounds of

appeal. At the time of hearing, it was pointed out that so far as the

appeal preferred by the Revenue with regard to the relief allowed by

the CIT(A) was concerned, the same was dismissed by the Tribunal

in the absence of requisite permission from the Committee of Disputes (COD), vide order dated 29th September 2004 in ITA

No.3921/M/2001, and that aspect has become final. Therefore, in

this background, the rival counsels have made their submissions.

Accordingly, we proceed to adjudicate the various Grounds of

appeal raised by the assessee in seriatim. 3. Insofar as Ground of appeal nos. 1.1 to 1.3 is concerned, the same

relates to assessee’s claim for depreciation on the fixed assets which

have been leased out. The total claim of depreciation was to the

extent of Rs.157,78,82,261/- out of which an amount of

Rs.91,88,25,669/- pertained to assets which were leased out in

earlier period and such assets were part of the opening written down

value (WDV). The Assessing Officer has disallowed the entire

claim of depreciation primarily on the ground that it was a case of

‘financial lease’ of assets and that it was not a case of an ‘operating

6 IDBI (ITA No. 3626/M/2001) AY 1997-98

lease’. This stand of the Assessing Officer was consistent with the

stand of the assessing authorities in the past years. It has been

explained before us that the said dispute is not unique to the instant

assessment year, but arose for the first time in the course of

assessment for Assessment Year 1994-95. It has also been pointed

out that the matter travelled up to the Tribunal and vide order dated

29.10.2014 in ITA Nos. 1839/M/2004, 3369/M/2004, 3370/M/2004,

1951,3922,39923/M/2006 pertaining to Assessment Years 1994-95,

1995-96 and 1996-97, relief has been allowed to the assessee. It

was, therefore, contended that the dispute in the instant year be

decided in that light. The Ld. CIT-DR appearing for the Revenue

has not contested the factual matrix brought out by the Learned

Representative for the assessee, but supported the stand of the lower

authorities in denying the claim of depreciation.

may further notice that the CIT(A) has affirmed the action of the

Assessing Officer in denying the claim of depreciation on both

aspects, i.e. on fixed assets leased out during the year under

consideration as well as the opening WDV of fixed assets, which

were hitherto leased out in the earlier assessment years.

7 IDBI (ITA No. 3626/M/2001) AY 1997-98

relevant material and proceed to dispose of the issue in the

following manner. As briefly noted by us earlier, the appellant is a public financial institution which is, inter-alia, engaged in the

activity of providing finance including leasing also. In pursuance to

such objects, the assessee had leased out assets to various entities

and claimed depreciation on the value of such assets leased out. So

far as the terms and conditions of the lease are concerned, both the

lower authorities have converged that the same are on similar terms

and conditions as was in the past years. In fact, there is a

convergence between the two sides to the effect that the facts and

circumstances of the dispute stand on an identical footing as was

considered by the Tribunal in the earlier years, notably in

Assessment Years 1994-95 to 1996-97 by way of a combined order

dated 29.10.2014 (supra). We have perused the said decision and find that the Tribunal referred to various decisions, inter-alia, the

judgment of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd.

Vs CIT [2013] 350 ITR 527 (SC), wherein Hon’ble Court held that

even in cases of ‘financial leases’, the depreciation allowance

contemplated under Section 32(1) of the Act is allowable to the

lessor. It has not been shown by the Ld. CIT-DR that any of such

8 IDBI (ITA No. 3626/M/2001) AY 1997-98

precedents in assessee’s own case has been altered by any higher

authority. Therefore, so far as this aspect of the matter is

concerned, we do not find any hesitation in directing the Assessing

Officer to allow the claim of depreciation on lease of assets where it

involves ‘financial lease’.

shows that certain transactions of lease though not classified by the

Assessing Officer as ‘financial lease’, yet the depreciation was

denied on some other ground, namely, lack of appropriate evidence,

etc. On this aspect, wherein lease with four particular lessees were

identified, namely, Kedia Group, REPL Engineering, Patheja

Brothers Forging & Stamping Ltd and and Padma Alloys Casting

Ltd, the matter was set-aside by the Tribunal to the file of the

Assessing Officer for afresh adjudication as per law. It has been

further explained that in Assessment Year 1995-96 as well as 1996-

97 certain lease transactions were identified wherein depreciation

was denied for similar reasons, such parties being Trudent Steels,

Nathan Steels, Pathreja Brothers and Kedia Distilaries for

assessment years 1995-96 and Suman Metals, Kedia galleon Ltd

and Trident Steels for assessment years 1996-97. At the time of

hearing, the Learned Representative for the assessee pointed out that

9 IDBI (ITA No. 3626/M/2001) AY 1997-98

so far as depreciation claim in the instant year pertaining to said

seven lease transactions is concerned, the same amounted to Rs.

2,09,04,638/-. 7. It has also been explained that subsequent to the setting aside of the

matter by the Tribunal on this aspect for Assessment Years 1994-95

to 1996-97, no further order has been passed by the Assessing

Officer till date. Considering the aforesaid, we deem it fit and

proper to direct the Assessing Officer to decide about the

admissibility of depreciation of Rs. 2,09,04,638/- pertaining to the

aforesaid seven lease arrangements in the light of decision in the

earlier years following the order of Tribunal dated 29.10.2014

(supra). Needless to mention, on this aspect the Assessing Officer

shall allow the assessee a reasonable opportunity of being heard and

thereafter recompute the depreciation allowable to the assessee

keeping in mind the directions of the Tribunal in the earlier years,

and as per law. 8. Accordingly, insofar as Ground of appeal nos. 1.1 to 1.3 are

concerned, the same are allowed to the above extent. 9. Now, we may take-up Ground of appeal nos. 2.1 to 2.3 which, inter- alia, arise out of the action of Assessing Officer in disallowing

interest expenditure amounting to Rs.455,70,63,150/- by invoking

10 IDBI (ITA No. 3626/M/2001) AY 1997-98

Sec. 36(1)(iii) of the Act. It has been explained before us that the

Assessing Officer was of the opinion that three categories of

investments made by the assessee could not be treated as relating to

business and, therefore, interest attributable to the borrowing used

for making such investments could not be allowed under Section

36(1)(iii) of the Act. The investments so noted by the Assessing

Officer totaled to Rs. 4945 crores, whose break-up has been noted

by the CIT(A) in para 44 of his order, which reads as under :-

“The break-up of this investment was as follows: (Rs. In crores) (i) In securities of Central & State Governments 170 (ii) In stocks, shares, bonds & Debentures of financial institutions 1,230 (iii) In stocks, shares, bonds & Debentures of Various industrial concerns 3,545 Total : 4,945”

proportionate to the amount of such investments at Rs. 455.70

Crore, which was disallowed under Section 36(1)(iii) of the Act.

When the matter travelled before the CIT(A), assessee succeeded in

convincing the CIT(A) that so far as the investments made in stocks,

shares, bonds, debentures of various industrial concerns amounting

to Rs. 10545 crores is concerned, interest corresponding to such

investments would not fall for disallowance in terms of Sec.

36(1)(iii) of the Act. The CIT(A) has allowed relief on this aspect,

11 IDBI (ITA No. 3626/M/2001) AY 1997-98

whereas he has sustained the interest disallowance proportionate to

the investments made in securities of Central and State

Governments as well as stocks, shares, bonds and debentures of

other financial institutions, which totaled upto Rs. 1400 crores, and

the corresponding interest thereon which is disallowed is Rs.

113,38,12,959/-.

time of hearing, apart from canvassing that the utilisation of funds

by the assessee for acquiring the securities of Central and State

Government as well as shares and securities of other financial

institutions is an activity undertaken in the course of business, the

Learned Representative pointed to the position taken by the

Assessing Officer in different assessment years on this very aspect.

It is pointed out by the Learned Representative that so far as past

assessments are concerned, similar investments were made by the

assessee and there has been no disallowance under Section 36(1)(iii)

of the Act. Further, it is pointed out that so far as interest relatable

to the investments in State Financial Corporation is concerned, from

Assessment Year 2003-04 upto Assessment Year 2008-09, the

disallowance made by the Assessing Officer was deleted by the

CIT(A) and the Department has not contested the same in further

12 IDBI (ITA No. 3626/M/2001) AY 1997-98

appeal before the Tribunal except for Assessment Year 2007-08. It

is further pointed out that from Assessment Year 2009-10 onwards

to Assessment Year 2012-13, there has been no disallowance under

Section 36(1)(iii) of the Act meaning thereby that even with regard

to investments made in State Financial Corporations, corresponding

interest has not been disallowed under Section 36(1)(iii) of the Act.

inconsistency in the approach of the Revenue so far as Assessment

Year 1997-98 and upto Assessment Year 2002-03 is concerned.

Undoubtedly, the aforesaid factual position relating to the

investments made in State Financial Corporations, bears out that

there is lack of uniformity in the approach of the assessing authority

on a similar issue. Be that as it may, even otherwise on merit, we

do not find potency in the stand of the Assessing Officer that

investments made in other State Financial Corporations are not in

the line of assessee’s business activity. In this context, we may

quote Sec. 9(1) of IDBI Act, 1964 under which assessee operates,

which reads as under :-

13 IDBI (ITA No. 3626/M/2001) AY 1997-98

(a) granting loans and advances to— (i) the Industrial Finance Corporation, any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf by way of refinance of any loans or advances granted to industrial concerns by such Corporation or institution which are repayable within a period not exceeding twenty-five years; 1[which may be approved by the Board in this behalf] by way of refinance of any loans or advances granted to industrial concerns by such Corporation or institution which are repayable within a period not exceeding twenty-five years, (ii) any scheduled bank or State Co-operative Bank, by way of refinance of any loans or advances granted to industrial concerns by such bank which are repayable within a period not exceeding fifteen years; by such bank which are repayable 4[within a period not exceeding fifteen years; (iii) any scheduled bank or State Co-operative Bank or the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be notified by the Central Government in this behalf, by way of refinance of any loans or advances granted to industrial concerns or group of industrial concerns by such bank or institution which are for the purpose of, or in connection with, the export of capital goods, commodities or merchandise from India or the execution of any turnkey project outside India by any industrial concern as aforesaid or by any person in India, and, in any case, are repayable— (i) within a period not exceeding twelve years in the case of persons outside India, and (ii) within a period not exceeding fifteen years in the other cases; (b) subject to such conditions as may be prescribed, accepting, discounting, or re-discounting bills of exchange and 7[promissory notes made, drawn, accepted or endorsed by industrial concerns or by any person selling capitals goods manufactured by one industrial concern]; 6[promissory notes made, drawn, accepted or endorsed by industrial concerns or by any person selling capitals goods manufactured by one industrial concern;" (c) subscribing to or purchasing stocks, shares, bonds or debentures of the Industrial Finance Corporation, any State Financial Corporation or any other financial institution whether within or outside India which may be approved by the Board in this behalf. (ca) granting letters of credit or loans and advances to the Industrial Finance Corporation, any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf, for the purpose of any business of such Corporation or institution; (d) granting loans and advances to any industrial concern or subscribing to, or purchasing, or underwriting the issue of, stocks, shares, bonds or debentures of any industrial concern:

14 IDBI (ITA No. 3626/M/2001) AY 1997-98

Provided that nothing contained in this clause shall be deemed to preclude the Development Bank from granting loans or advances to, or subscribing to debentures of, industrial concern, the amounts outstanding thereon may be convertible at the option of the Development Bank into stocks or shares of that concern within the period the loan, advance or debenture is repayable; the amounts outstanding thereon may be convertible at the option of the Development Bank] into stocks or shares of that concern within the period the loan, advance or debenture is repayable;" Explanation.—In this clause, the expression "the amounts outstanding thereon" used in relation to any loan or advance, shall mean the principal, interest and other charges payable on such loan or advance as at the time when the amounts are sought to be converted into stocks or shares. (da) granting loan and advances-— (i) to any person exporting products of industrial concerns; or (ii) to any person outside India, in connection with the export of capital goods from India; or (iii) for the execution of turn-key projects outside India by any industrial concern or by any person in India; (db) transferring for consideration any instrument relating to loans and advances granted by it to industrial concerns; (dc) granting loans and advances to any person for purposes of investment in any industrial concern;] (e) guaranteeing deferred payments due from any industrial concern; (f) guaranteeing— (i) loans raised by industrial concerns which are floated in the public market; and (ii) loans raised by industrial concerns from any scheduled bank or State Co-operative Bank or the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf; which may be approved by the Board in this behalf; (g) guaranteeing the obligations of any scheduled bank or State Co- operative Bank or the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf arising out of, or in connection with, underwriting the issue of stocks, shares, bonds or debentures of any industrial concern; (ga) granting, opening, issuing, confirming or endorsing letters of credit and negotiating or collecting bills and other documents drawn thereunder; (gb) providing consultancy and merchant banking services in or outside India; (gc) acting as the trustee for the holders of debentures or other securities; (gd) acquiring, with the approval of the Central Government, the undertaking, including the business, assets and liabilities of any institution the principal object of which is the promotion or

15 IDBI (ITA No. 3626/M/2001) AY 1997-98

development of industry in India, or the grant of financial assistance for such promotion or development;] (h) undertaking research and surveys for evaluating or dealing with marketing or investments and undertaking and carrying on techno- economic studies in connection with the development of industry; (i) providing technical, legal, marketing] and administrative assistance to any industrial concern or any person for promotion, management or expansion of any industry; legal, marketing] and administrative assistance to any industrial concern or any person for promotion, management or expansion of any industry;" (j) planning, promoting and developing industries to fill up gaps in the industrial structure in India; (k) promoting, forming or conducting or associating in the promotion, formation or conduct of companies, subsidiaries, societies, trusts or such other associations of persons as it may deem fit;] (ka) acting as agent of— (i) the Central Government or of the Reserve Bank, or (ii) such other Government or person as the Central Government in consultation with] the Reserve Bank, may authorise; in consultation with the Reserve Bank, may authorise; (l) performing functions entrusted to, or required of, the Development Bank by this Act or by any other law for the time being in force; (m) doing any other kind of business which the Central Government, may authorise; may authorise;" (n) generally doing such other acts and things as may be incidental to, or consequential upon, the exercise of its powers or the discharge of its duties under this Act or any other law for the time being in force including sale or transfer of any of its assets. (2) The Development Bank may receive in consideration of any of the services mentioned in sub-section (1) such commission, brokerage, interest, remuneration or fees as may be agreed upon. (3) The Development Bank shall not grant any loan or advance or other financial accommodation on the security of its own bonds or debentures. 13. Shorn of other details, so far as is relevant for our purpose, a perusal

of the aforesaid sub section (1) of section 9 of the IDBI Act, 1964

shows that granting of loans and advances, financing of or

refinancing of State Financial Corporations is one of the primary

objects of the assessee, as mandated by the Parliament. Therefore,

on this very count itself, we are unable to subscribe to the stand of

16 IDBI (ITA No. 3626/M/2001) AY 1997-98

the income-tax authorities that the investments made for financing

or refinancing of State Financial Corporations is not an activity

undertaken in the course of assessee’s business; in our view the

interest expenditure relatable to such investments cannot be

disallowed in terms of Sec. 36(1)(iii) of the Act having regard to the

fact that such activity is in the tune of assessee’s business objects.

relatable to investments made in securities of Central and State

Governments amounting to Rs.170 crores. On this aspect, it has

been emphasised that in the earlier years, no such disallowance was

made by the Assessing Officer. The rival stands on this aspect

remain the same as it pertained to the interest relatable to

investments made in State Financial Corporations. It was a

common point between the parties that the assessing authority has

not differentiated between the two items and the disallowance has

been made on a consolidated basis in all the years, therefore, the

assessing authority has disallowed the expenditure for similar

reasoning as advanced for disallowing interest pertaining to

investments in State Financial Corporations.

Learned Representative is that the interest income earned by the

17 IDBI (ITA No. 3626/M/2001) AY 1997-98

assessee on such Central and State Government securities have all

along been assessed as ‘business income’ and, therefore, there was

no justification for disallowing the corresponding interest

expenditure on the plea that that the investments are for non-

business purpose. Even in the instant assessment year, a reference

has been made to the assessment order to point out that the interest

income from such securities is lying assessed as ‘business income’.

Regulations, 1994 prescribe for making investments in securities of

Central and State Governments, we do not find any reason to uphold

the stand of the income-tax authorities that such investments are not

in the course of assessee’s business. In fact, there is an apparent

contradiction in the stand of the assessing authority inasmuch as the

interest yielded by such investments is assessed as ‘business

income’ whereas the interest expenditure attributable to such

investments has been sought to be treated as a non-business

expenditure. Considering the aforesaid, we deem it fit and proper to

set-aside the order of CIT(A) on this aspect and direct the Assessing

Officer to allow the claim made by the assessee. Thus, on this

aspect, assessee succeeds. In the result this ground of appeal is

allowed.

18 IDBI (ITA No. 3626/M/2001) AY 1997-98

80M. The ld. AR of the assessee submits that this ground of appeal

is covered by the decision of Tribunal in assessee own case for A.Y.

1994-95, 1995-96 & 1996-97, wherein the similar disallowance was

restricted to 1% of dividend income.

of lower authorities.

through the orders of Tribunal for earlier years. During the

assessment, the Assessing Officer asked to furnish the details of

deduction under section 80M and issued show-cause notice as to

why the deduction under this section should not be recalculated

after deducting interest on money borrowed for investment in shares

and after deducting other expenses wholly and exclusively for

earning dividend. The Assessing Officer recorded that the assessee

filed various submission and stated that as a part of their business

the assessee advance loan and provides other financial facilities to

various persons engaged in business. For this purpose, the assessee

raised funds and loans by issuing bonds, debentures etc. on the

borrowings, the assessee has paid interest and debited in Profit &

Loss Account. Investments in shares are primarily done as part of

19 IDBI (ITA No. 3626/M/2001) AY 1997-98

assessee’s lending activities. The Assessing Officer has not given

any clear finding. However, the ld. CIT(A) recorded that perusal of

assessment order reveals that decision on computation under section

80M is not clear. The ld. CIT(A) concluded his finding in the

following manner:

“109. A perusal of the assessment order shows that the A.O.s decision and computation of deduction u/s. 80M is not clear. In the computation of income, on p.77, he has shown the deduction u/s. 80M to be Rs. 79,84,44,45/-, as per Annexure ‘A’. In the Annexure ‘A’, he has computed the deduction u/s.80M at Rs. 79,84,44,450/-. On the other hand, at page 75 of the assessment order, he states that ‘the claim of deduction u/s. 80M of Rs. 82,73,23,090/- is withdrawn’. In view of this, the A.O. is directed to pass a clear, speaking order on the appellant’s claim of deduction u/s. 80M. While doing so, he should keep note of, and give effect to, my directions relating to the appellant’s claim of deduction u/s. 36(1)(iii).” 20. We have noted that on similar disallowances in appeal for A.Y.

1995-96 in ITA No. 3369/M/2004, the co-ordinate bench of

Tribunal by following the decision in assessee’s own case for A.Y.

1992-93 in ITA No. 3249/Bom/1995 dated 24.12.2002, restricted

the disallowances to 1% of dividend income. Therefore, respectfully

following the decision of Tribunal, we direct the Assessing Officer

to restrict the disallowance under section 80M to 1% of the dividend

income. In the result, the assessee succeeded on this ground of

appeal.

20 IDBI (ITA No. 3626/M/2001) AY 1997-98

Business Income. The ld. AR of the assessee submits that the A.O.

has assessed the income from sale of shares of Joint Stock Company

as Capital Gains for all the years i.e. AY 1997-98 to AY 2012-13.

However, for AYs 1997-98 to 2001-02, CIT(A) assessed profits

from sale of shares of Joint Stock Companies (JSCs) as business

income. From AY 2002-03 onwards, the profit on sale of shares of

JSCs has been accepted as Capital Gains by AO as well as CIT(A).

The ld. AR further submits that the assessee has shown the said

share as investment. In earlier, the said shares have been accepted

by revenue as investment. Even in subsequent year, the AO has

taken a view that investment in Joint Stock Company is Capital

Gain and not Business Income. The ld. CIT(A) during the hearing,

suo moto held that share of Joint Stock Company constitute

assessee’s stock in trade and the profit on the sale of these shares

constitute business profit. It was further submitted that from A.Y.

2002-03 to 2012-13, the ld. CIT(A) has not directed the A.O. to

assessee income from sale of Joint Stock Company as Business

Income. The ld. AR of the assessee submits that a chart showing

that profit from sale of share of Joint Stock Company’s offered by

assessee under Capital Gain has been accepted is filed at page no.

21 IDBI (ITA No. 3626/M/2001) AY 1997-98

282 of the Paper Book. The ld. AR submits that the the revenue has

accepted the order of ld. CIT(A) and has not challenged the same

before Tribunal. The ld. AR also relied upon the CBDT Circular No. 6 of 2016 dated 29th February 2016. 22. On the other hand, the ld. DR for the revenue relied upon the order

of lower authorities.

records. We have noted that the ld. AR of the assessee vehemently

submitted that the A.O. taxed the income from sale of Joint Stock

Company under the head Capital Gain. However, the ld. CIT(A) has

treated the profit on sale of Joint Stock Company as Business Profit.

We have further noted that the department has accepted the similar

profit on sale of investment as a Capital Gain from A.Y. 2002-03 to

2012-13 as the same has not been disputed by ld. DR while making

his submission. Considering the fact that similar profit is accepted

as Capital Gain from the year 2002-03 till 2012-13, therefore, the

revenue should follow the consistency when there is no variance in

the facts. Hence, we direct the A.O. to treat the profit on sale on

investment as Capital Gain as has been accepted from A.Y. 2002-03

onwards. Therefore, the assessee also succeeded on this ground.

22 IDBI (ITA No. 3626/M/2001) AY 1997-98

have noted that the ld. AR of the assessee has not argued anything

against the disallowance of Guest House Expenses. Therefore, this

ground is treated as not pressed. Even otherwise we have noted that

the ld. CIT(A) has already held that except depreciation other

expenses are allowable.

assessee submits that assessee claimed income exempt under section

10(23G) of Rs. 8,36,34,794/-. The assessee has claimed income

exempt on gross basis in the return of income furnished by assessee.

During the course of assessment, on the direction of A.O., the

assessee rework the claim on net basis after disallowing

proportionate expenditure, thereby reduced the claim under section

10(23G) to Rs. 1,86,27,921/-. Before the ld. CIT(A), the assessee

raised additional ground of appeal for revising the claim under

section 10(23G) on gross basis i.e. Rs. 8,63,34,794/-. However, the

ld. CIT(A) while passing the order upheld the action of A.O.

holding that exemption under section 10(23G) ought to be allowed

on net basis after deducting proportionate expenses. The ld. CIT(A)

also held that the assessee did not press the said ground of appeal

which is factually incorrect. The ld. AR for assessee submits that

23 IDBI (ITA No. 3626/M/2001) AY 1997-98

the assessee has raised ground before the Tribunal that exemption

ought to be allowed on gross basis. In support of his submission, the

ld. AR of the assessee relied upon the decision of Tribunal in

Reliance Industries Ltd. in ITA No. 4475/Mum/2007, the ld AR for

the assessee further rely on the order of Tribunal in ADIT vs. Credit

Agricole Indosuez for AY. 1997-98 in ITA No. 6615/Mum/2003,

Abu Dhabi Commercial Bank Ltd. vs. DDIT in ITA No.

6530/Mum/2006, Dresdner Bank Ag vs. ACIT (2007) 108 ITD

375(Bom) and Dresdner Bank Ag vs. ADIT (ITA No.

2962/Mum/2004). It was canvassed by ld AR for the assessee that

Credit Agricole Indosuez (supra) the Tribunal discussed the

language of section 10(15) which is similar to section 10(23G) of

the Act.

ld. CIT(A).

the orders of authorities below. We have noted that in the return of

income, the assessee claimed income exempt under section 10(23G)

of Rs. 8,36,34,794/-. The assessee claimed exemption under section

10(23G) on gross basis. During the course of assessment, the

assessee furnished revised working, thereby reduced the claim

24 IDBI (ITA No. 3626/M/2001) AY 1997-98

under section 10(23G) to Rs. 1,86,27,921/-. Before the ld. CIT(A),

the assessee raised additional ground of appeal regarding

restructuring the assessee’s claim under section 10(23G) in respect

of infrastructure business to Rs. 1,86,27,921/- as against Rs.

8,36,34,794/- claimed in the return of income. The ld. CIT(A) in

para-114 of his order recorded that this ground was not pressed by

assessee. Before us, ld. AR of the assessee vehemently submitted

that the assessee has raised specific as well as additional ground of

appeal and that the finding of ld. CIT(A) that the assessee has not

pressed this ground, is factually incorrect. Before us, the ld. AR of

the assessee submits that exemption under section 10(23G) is to be

allowed on gross basis. The ld. AR strongly makes reliance on the

decision of Tribunal in Reliance Industries vs. ACIT (supra). The

co-ordinate bench of Tribunal in Reliance Industries vs. ACIT

(supra) held as under:

“9.6 We have carefully considered the orders of authorities below and the submissions of ld. Representatives of the parties. We have also considered the earlier order of the Tribunal dated 28.5.2012 in the assessee's own case for preceding assessment year 2002-03. We observe that AO disallowed an estimated proportionate interest on borrowed funds in respect of investment made by assessee as income was exempt u/s 10(33) and 10(23G) of the Act. However, ld. CIT(A) deleted the said disallowance after stating that it had not been shown by the AO that borrowed funds were employed for making investment which yielded exempt interest income and in the absence of any

25 IDBI (ITA No. 3626/M/2001) AY 1997-98

nexus, disallowance made out of the interest expenses could not be sustained, particularly when own funds of the assessee company were far in excess of the total amount of investment made. We are of the considered view that similar facts are applicable in the assessment year under consideration and also for the reasons stated hereinabove in paras 7.2 and 7.3, we hold that proportionate disallowance of interest of Rs.22.25 crores made by ld. CIT(A) is not justified as the assessee's own I.T.A. No.4475/Mum/2007 12 and 7 other appeals funds are far in excess than the interest free advance given by assessee and the investment made, which is giving exempt interest income to the assessee.” 28. The co-ordinate bench of Tribunal in ADIT vs. Credit Agricole

Indosuez (supra) also held that it is an undisputed proposition that

exemption under section 10(15) on the gross interest and not on net

interest. The co-ordinate bench followed the decision Dresdner

Bank Ag (supra) and JCIT vs. American Express Bank Ltd.

(24 taxmann.com 50 (Mum. Trib.). Considering the decision of co-

ordinate bench of Tribunal, we direct the A.O. to allow the

deduction on gross basis, ofcource after deducting the direct

expenses attributable to earning such income. In the result, the

assessee also succeeded on this ground.

Order pronounced in the open court on 21/06/2019. Sd/- Sd/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER Mumbai, Date: 21.06.2019 SK

26 IDBI (ITA No. 3626/M/2001) AY 1997-98

Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4.The concerned CIT 5. DR “C” Bench, ITAT, Mumbai 6. Guard File BY ORDER, Dy./Asst. Registrar ITAT, Mumbai