The Commissiosner of Income Tax-III vs. M/s. SOL Pharmaceuticals Limited

Page 1 of 4 IN THE HIGH COURT OF ORISSA, AT CUTTACK ITA No. 17 of 2008

Commissioner of Income Tax ….. Appellant

Mr. S.C. Mohanty, Sr. Standing Counsel, Income Tax along with Mr. A. Kedia, Jr. Standing Counsel, Income Tax

Vs. Orissa Rural Housing & Development Corporation Ltd. ….. Opposite Parties

CORAM:

DR. JUSTICE B.R. SARANGI

MR. JUSTICE G. SATAPATHY

ORDER 17.05.2024 Order No. 04.

This matter is taken up through hybrid mode. 2. Heard Mr. S.C. Mohanty, learned Senior Standing Counsel appearing along with Mr. A. Kedia, learned Jr. Standing Counsel for the Income Tax Department. 3. Perused the record. As it appears, the Orissa Rural Housing & Development Corporation Ltd., a State Government undertaking, which is engaged in the business of housing finance, was assessed under Section 143 (3) and such assessment was completed by the Assessing Officer on 28.03.2006. The income shown by the assessee included income from investment of Rs.2.32 crore and interest of Rs.1.0 crore from deposits with banks and financial institutions. The assessee also claimed a deduction of Rs.45,02,500/- under Section 36 (I) (viii) on account of amount transferred to the special reserve created by the assessee. The Assessing Officer examined the allowability of such deduction at the time of assessment and found that though the business of the assessee consisted of providing long term finance for housing, the interest as above earned by the assessee

Page 2 of 4 during the relevant previous year 2001-02 was received from investment and deposits of surplus funds which were not immediately required for the purpose of assessee’s business. Under such circumstances, the said income did not fall within the ambit of Section 28 of the Income Tax Act and was assessed under the head “income from other sources under Section 56 of the Income Tax Act.” The Assessing Officer also found that the deduction under Section 36(1) (viii) claimed by the assessee was not allowable because of the fact that the interest, in respect of which such deduction was claimed, was not derived from the business of providing long term finance by the assessee, though the assessee was engaged in such business. The said interest income, as discussed above, was treated by the Assessing Officer as income from other sources and not business income of the assessee for the purpose of assessment. The assessee claimed at the time of assessment that the sources of investments and deposits with the banks and financial institutions were mainly from deposits received by the assessee company and that was incidental to the object of the company. Therefore, the Assessing Officer held that the said income was not directly derived from the business of the assessee and, therefore, the deduction under Section 36 (1) (viii) was not allowable. Against the said order, the assessee preferred first appeal and the learned CIT (A), vide order dated 30.11.2005, deleted the disallowance made by the Assessing Officer and also differed with the findings of the Assessing Officer that the interest earned by the assessee from investments and deposits in banks and financial institutions out of surplus funds not immediately required by the assessee for the purpose of its regular business was assessable under the head “income from other sources” and not under the head “profits and

Page 3 of 4 gains of business”. The First Appellate authority also disagreed with the Assessing Officer that interest, as discussed above, was not directly derived from the regular business of the assessee, for which reason the deduction under Section 36(1)(viii) claimed by the assessee was not allowable. On further appeal preferred by the Department, the learned Tribunal, vide order dated 31.07.2007 passed in ITA No.84/CTK/2006, allowed the deduction in favour of the assessee following its earlier decision in ITA No.518/CTK/2003 dated 26.09.2005, which was referred to by the CIT (A) in its order dated 30.11.2005 in ITA No. 83/2005-06. The tribunal held that the income on account of interest earned by the assessee on investments and deposits constituted its business income, for which reason the deduction under Section 36(1)(viii) claimed by the assessee was allowable. The tribunal by allowing the deduction has erred in law. Firstly, the impugned interest was earned by the assessee from investments made out of surplus funds available with it and not required for its business of providing housing finance and such income has been judicially held to be assessable under the head “income from other sources” and not under the head “profits and gains of business”. Therefore, the question of law has to be considered by this Court whether the interest earned by the assessee construed to be under the heading “income from other sources” or under the heading “profits and gains of business”. Admittedly, interest was accrued subsequent to the deposits made by the assessee. Therefore, if subsequently the interest was accrued, the said interest can only be construed to be “income from other sources” not under the heading “profits and gains of business”. As such, the present appeal has been filed in the year 2008 and till date no steps have been taken by the Department for disposal of the same and in the

Page 4 of 4 meantime more than 16 years have passed. 4. In the above view of the matter, by efflux of time, the appeal cannot be sustained in the eye of law. However, the questions of law, which have been formulated in the appeal memo, be opened in other similar cases. 5. Accordingly, the appeal stands disposed of.

Ashok

(DR. B.R. SARANGI) JUDGE

(G. SATAPATHY)

JUDGE

Digitally Signed Signed by: ASHOK KUMAR JAGADEB MOHAPATRA Designation: Secretary Reason: Authentication Location: HIGH COURT OF ORISSA Date: 20-May-2024 14:24:59 Signature Not Verified