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Income Tax Appellate Tribunal, ‘ D’ BENCH : CHENNAI
Before: SHRI GEORGE MATHAN & SHRI S.JAYARAMAN
आदेश / O R D E R
PER BENCH
These are appeals files by the Revenue against the common order of the Commissioner of Income-tax (Appeals)-9, Chennai in & 54 (2011-12)/CIT(A)-9 dated 28.04.2017 for assessment years 2008-09 & 2009-10 and correspondingly, the ITA Nos.1912 & 1913/CHNY/17 :- 2 -: C.O. Nos.12 & 13/CHNY/2018 assessee filed Cross Objections in support of the order of Ld.CIT(A), involving identical issues, therefore, the appeals and cross-objections are taken up together for adjudication.
Mr.Sreenivasa Rao represented on behalf of the Revenue, and Mr.Farrokh V.Irani represented on behalf of the Assessee.
Both the Cross objections filed by the assessee are delayed by 102 days for which the assessee had filed affidavits for condonation of delay of 101 days. The assessee has presented these affidavits, which were found to be defective and notices for rectification of defects has been issued to the assessee on 23.02.2018. The same has not been rectified, consequently both the cross objections filed by the assessee stand dismissed on account of the defects in filing of the Condonation Petitions. Accordingly, the two Cross Objections for assessment years 2008-09 & 2009-10 are dismissed in liminie on account of delay.
In respect of the appeals of Revenue, the ld.A.R submitted a chart before us in respect of the various grounds raised by the Revenue in its appeals. Each of the issues are disposed off on ground number wise mentioned in grounds of appeal by the Revenue.
5. Grounds Nos.1 & 5 in both the appeals of Revenue are general in nature and no specific argument has been raised for & 1913/CHNY/17 :- 3 -: C.O. Nos.12 & 13/CHNY/2018 these grounds. Hence, Grounds Nos. 1 & 5 of the Revenue does not call for any adjudication.
6. Grounds Nos.2 to 2.5 are against the disallowance made u/s.14A r.w.Rule 8D of Income Tax Rules, 1962. It was submitted by ld.D.R that ld. Assessing Officer had made disallowance of nearly `91.11 crores for assessment year 2008-09 and `132.96 crores for assessment year 2009-10 by invoking the provisions of the section 14A in respect of dividend income received the assessee. It was a submission that on appeals, Ld.CIT(A) had restored the issue to the file of ld. Assessing Officer for re-adjudication for verification whether the assessee’s own funds were available more than the invested funds at the time of making investment in the exempt income yielding instruments. It was a submission that the order of the CIT(Appeals) was liable to be reversed and the order of ld. Assessing Officer is restored.
In reply, ld.A.R submitted that the issue was squarely covered by the decision of Co-ordinate Bench of this Tribunal in assessee's own case for assessment year 2003-04, 2004-05 & 2005-06 to 2007-08 in & 2066/Mds./2011 and ITA Nos.99 to 100/Mds./2012 vide order dated 28th September, 2012.
It was a submission that Ld.CIT(A) had followed the decision of the Co-ordinate Bench of Chennai Tribunal in assessee's own case & 1913/CHNY/17 :- 4 -: C.O. Nos.12 & 13/CHNY/2018 cited supra at para No.7.3.5. Ld.A.R supported the order of the ld.CIT(Appeals.)
We have considered the rival submissions. A perusal of order of the ld.CIT(A) under para No.7.3.4 at page No.9 shows that the ld.CIT(A) has extracted the para No.4.6 of the Order of Co-ordinate Bench of this Tribunal in assessee's own case for assessment year 2003-04,2004-05 & 2005-06 to 2007-08 vide order dated 28.09.2012 following the Tribunal decision at para No.7.3.5 at page No.10. As the Ld.CIT(A) has followed the judicial discipline on this issue, we find no reason to interfere in the order of the CIT(Appeals), and on identical findings, the said issues in grounds Nos.2 to 2.5 are restored to the file of ld. Assessing Officer for re-adjudication.
In respect of grounds Nos.3 to 3.1, it was submitted by ld.D.R that the issue was against the action of the Ld.CIT(A) in directing the ld. Assessing Officer to compute the profits for the purpose of deduction u/s.36(1)(viii) of the Act by allocating the expenditure in proportion to the interest bearing fund and interest free funds. It was a submission that this issue was also restored to the file of ld. Assessing Officer for re-adjudication. It was a submission that the order of the CIT(Appeals) was liable to be reversed. & 1913/CHNY/17 :- 5 -: C.O. Nos.12 & 13/CHNY/2018
In reply, the ld.A.R submitted that this issue was squarely covered by the decision of Co-ordinate Bench of this Tribunal in assessee's own case referred to supra wherein the issue is restored to the file of ld. Assessing Officer for re-adjudication. He vehemently supported the order of the ld. CIT(Appeals).
We have considered the rival submissions and perused the materials available on record. A perusal of para No.9.3.1 of the order of the CIT(Appeals) clearly shows that Ld.CIT(A) has followed the decision of Co-ordinate Bench of this Tribunal in assessee's own case in assessee's own case for assessment year 2003-04,2004-05 & 2005-06 to 2007-08 referred to supra wherein Ld.CIT(A) has also extracted para No.11.3 of the Order of this Tribunal dated 28.09.2012 referred to supra. This being so, we find no reason to interfere in the order of the CIT(Appeals) on this issue, and his findings stand upheld. Consequently, grounds Nos.3 to 3.1 are restored to the file of ld. Assessing Officer for re- adjudication.
In respect of ground Nos.4 to 4.2, , it was submitted by ld.D.R that the issue was against the action of the Ld.CIT(A) in directing the ld. Assessing Officer to work out the deduction u/s.36(1)(viia)(c) of the Act on the income without deducing the eligible profits u/s.36(1)(viia)(c) of the Act not exceeding 5% of the total income before making any deduction u/s.36(1)(viia)(c) or & 1913/CHNY/17 :- 6 -: C.O. Nos.12 & 13/CHNY/2018 under Chapter VIA of the Act. It was the prayer that the order of the ld. Assessing Officer was liable to be restored.
In reply, ld.A.R drew our attention to the order of Hon’ble jurisdictional High Court in the case of assessee for assessment years 2000-02 & 2001-02 in Tax case No.1288 & 1290 of 2007 dated 08.09.2015 wherein in para No.25 to 33, the Hon’ble jurisdictional High Court held as follows:-
“25. That leaves us only with the third question in T.C.(A) No.1288 of 2007 and the fifth question in T.C.(A) No.1290 of 2007. Since they are identical, they are extracted only once as follows:-
“Whether the Income Tax Appellate Tribunal erred in holding that the deduction to which the appellant was entitled under Section 36(1)(viia)(c) of the Act was to be granted after reducing from the appellant's income, the deduction to which the appellant was entitled under Section 36(1)(viii) of the Act?”
In short, the question that falls for consideration is as to whether the deduction should first be allowed in terms of Section 36(1)(viii) for the application of the deduction under Section 36(1)(viia)(c).
All the three authorities were of the unanimous view that there is a distinction between the two types of deduction. The deduction allowable under Section 36(1)(viii), after its amendment under the Finance Act, 1995, is on the profits derived from business. The deduction allowable under Section 36(1)(viia)(c) is on the total income. Therefore the authorities held that the deduction under clause (viii) will have to be computed first before applying the deduction under clause (viia)(c).
But keeping aside the amendment introduced in 1995 for a moment, if we have a look at the import of Section 36(1) by itself, it is clear that sub-section (1) of Section 36 lists out the matters in respect of which deductions can be allowed while computing the income referred to in Section 28. Clauses (i) to (xi) of sub-section (1) of Section 36 did not make any of those matters dependent upon one another. If an assessee is entitled to the benefit under one clause of sub-section (1) of Section 36, & 1913/CHNY/17 :- 7 -: C.O. Nos.12 & 13/CHNY/2018
the assessee was not deprived of the benefit of the other clause. This is how several clauses in sub-section (1) have been arranged.
It is true that before the amendment introduced under the Finance Act, 1995, the deduction to be allowed under clause (viia)(c) and clause (viii) were placed on par. The deduction was only on the total income. But, as rightly contended by the learned counsel for the appellant, the amendment did not change the character of the deduction, but changed merely the method of computation. Instead of directing the assessee to compute it at 40 percent on the total income, the amendment directed the assessee to compute the deduction at 40 percent on the profits derived out of business.
Such an interpretation is what appears to be borne out by the memorandum explaining the provisions in the Finance Bill, 1995, whereunder the amendment was introduced. The relevant portion of the memorandum reads as under:-
“Under clause (viii) of sub-section (1) of section 36 of the Income Tax Act, 1961, an approved financial corporation engaged in providing long-term finance for industrial or agricultural development in India, or an approved public company formed and registered in India with the main object of carrying on business of providing long-term finance for construction or purchase of residential houses, is entitled for a deduction of an amount not exceeding 40 per cent of its total income carried to a special reserve. The deduction is allowed on the total income and not with � reference to the income from the activities specified in section 36(1)(viii).
These organisations have diversified their activities and are claiming deduction under this section even in respect of their income from activities other than those specified in this section. There is no justification for allowing the deduction with reference to income from other activities or from sources other than business. It is, therefore, proposed to limit the deduction of 40 per cent only to the income derived from providing long- term finance for the activities specified in section 36(1)(viii). It will thus take outside the purview of deduction, income arising from other business activities or from sources other than business.”
If each of the clauses under sub-section (1) of Section 36 is independent in its operation and if each one of them does not depend upon the other clause for the extension of the benefit, & 1913/CHNY/17 :- 8 -: C.O. Nos.12 & 13/CHNY/2018
then the interpretation given by the respondent cannot be accepted.
Yet another distinction brought forth by the learned counsel for the appellant, also deserves consideration. While the benefit of deduction under clause (viia)(c) is available to any public financial institution or State financial corporation or State industrial investment corporation, in respect of a provision for bad and doubtful debts, the benefit of the deduction under clause (viii) is available only for the financial corporations engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India. Therefore, if the interpretation as given by the authorities are accepted, the benefit that will accrue to a finance corporation incorporated in India and providing long-term finance for infrastructure development would be lesser than what is received by the foreign banks and foreign financial institutions. This could not have been the purport of the amendment brought forth under the Finance Bill, 1995.
Therefore the third question in T.C.(A) No.1288 of 2007 and the fifth question in T.C.(A) No.1290 of 2007 are also answered in favour of the assessee. In fine, both the tax case appeals are allowed. No costs.” It was a submission that the issue was liable to be held in favour of the assessee.
We have considered the rival submissions and perused the materials available on record. As it is noticed that the issue was squarely covered by the decision of the Hon’ble jurisdictional High Court in assessee's own case for assessment years 2000-02 & 2001-02 referred to supra, respectfully following the decision of the Hon’ble jurisdictional High Court cited supra, it is held that assessee is entitled to reduction u/s.36(1)(viia)(c) of the Act on the income of assessee without reducing the assessee’s entitled deduction u/s.36(1)(viii) of the Act. & 1913/CHNY/17 :- 9 -: C.O. Nos.12 & 13/CHNY/2018
In the result, both the appeals of the Revenue are partly allowed for statistical purposes and both the Cross Objections filed by the assessee stand dismissed.
Order pronounced in the open court after conclusion of hearing on 03rd July ,2018, at Chennai.