TMI Blog2013 (8) TMI 1107X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of its income since the assessee was not liable for any tax, the assessee was also not obliged to file its return of income. 4. With the omission of section 37 of Export Import Bank of India Act, 1981, by the Finance (No. 2) Act, 1998, the assessee became liable to tax regimen w.e.f. 01.04.1999. As a result thereof, the first financial year for the assessee was 01.04.1999 to 31.03.2000, being assessment year 2000-01, being the impugned assessment year. 5. Being a corporation, the assessee was in any case maintaining regular books of accounts from its inception, but since the assessee was not liable for any statutory levies, it was not filing its returns anywhere. 6. Since section 37 of Export Import Bank of India Act, was omitted the assessee, on the basis of an opinion, filed its return of income for assessment year 1999-2000 with a note that, as per law, the exemption under section 37 remains in force upto 31.03.1999 and it gets its life from financial year starting from 01.04.1999. This was denied and the AO proceeded to frame assessment under section 143(3) for assessment year 1999-2000. That appeal was separately perused by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome for the year. 2. The Learned Commissioner of Income Tax (Appeals) ought to have - ( a) (i) held that exemption under Section 10(23G) of the Act is to be granted at gross interest income. ( ii) without prejudice to the above and in the alternate, in any view of the matter, held that if the exemption under Section 10(230) of the Act is to be granted at net of interest cost , then, the deduction for the interest cost incurred is to be taken only in relation to earmarked borrowings utilized by the appellant for the purpose of granting loans to the enterprises , interest income whereof is exempt under Section 10(230) of the Act. ( b) (i) held that exemption under Section 10(33) of the Act is to be granted on gross dividend income; ( c) held that interest and penal interest received during the year of ₹ 50,89,66,421 on Non-Performing Asset (NPA) pertaining to the financial years ended upto 315t March, 1998 , being the relevant financial years upto which the income of the appellant is not subject to income tax as well as for the year ended 3 March, 1999 the chargeability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt bond is taxable in business income where the Supreme Court held whether these securities produce some tax-free interest would not make any difference. The proportionate interest cannot be disallowed because the assessee would be otherwise eligible to claim interest against profit from trading in securities, In our case, the only income shown by the assessee is interest income. The, expenditure attributable to the investment under section 10(23G) would be allowable against the interest income. 5.23 If the Department does not do this exercise, then an anomalous situation would arise, when expenditure of this venture would have to be allowed against the income from different ventures. Such expenditure cannot be allowed because such expenditure would not be incurred for other ventures. The claim of any expenditure can be allowed only against some income for which such expenditure is incurred. 5.24 In our ease, the income from such activity is tax-free income. No other income is produced from that venture that should qualify for allowability of expenditure. It is not permissible to set off an item of receipt from out of an item of expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the activity of Rajasthan State Warehousing is single, indivisible and integrated and that all the activities are aimed at facilitating the marketing of the goods. The matter went to Rajasthan High Court who held (210 ITR 906) that the assessee may have different sources of income, but the exemption is not given to the assessee on its entire Income, but only that part of the income which arises from letting of godowns for facilitating the marketing of commodities. The High Court held that the income which was independent of letting of godowns / warehouses could not be considered to be exempt. 5.28 The Supreme Court (237 ITR 906) held (Page 603): that the questions of exemption would arise pertaining to that part of the income only which arises or is derived from the letting of godowns. The statute has been rather categorical and restrictive in the matter of grant of exemption : storage, processing or facilitating the marketing of the commodities are definitely regarded as three different forms of activities which are entitled to exemption in the event of there being any income therefrom. We do not lend our consequence to the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under infrastructure financing, for accounting for income under various heads for the services rendered to each of the borrowers. All this would not have been possible but for treating the infrastructure financing as a separate, distinct and divisible venture/business by the assessee. As the business/venture is divisible, the decision of Hon ble Supreme Court in the case of Rajasthan State Warehousing Corporation relied upon by the assessee is not applicable to the facts of the case. 5.31 In view of the above discussion, it is held that the assessee is eligible for exemption under section. 10(23G) of its income (net interest) on infrastructure financing. This view has been re-affirmed by the CBDT vide Circular No. 730 dated 4.10.1999 clarifying that what is exempt under section. 10(23G) is the net income after reducing expenditure and not the gross receipts. This view was further reiterated by the amendment to Income Tax Act by the Finance Act 2001 with the insertion of section 14A. Considering this and based on the discussion above, it is clear that exemption available to the assessee will be for net income earned from infrastructural financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Days upto 31.03.2000 Interest @ 8.30% (Rs.) 1. 140,000,000 01.04.99- 09.08.99 131 4,170,466 2. 150,000,000 10.08.99- 31.03.00 235 8,015,753 B 12,186,219 A + B = ₹ 1,87,05,881/- Thus, the total interest expenses are worked out as under: ( a) Interest on foreign currency loans (as per assessee) ₹ 9,14,24,110 ( b) Interest on rupee-advances (as worked out above) ₹ 1,87,05,881^^ Total ₹ 11,01,29,991 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banking means the accepting, for the purpose of lending or investment, of deposits of money from its public, repayable on demand or otherwise, and withdrawal by cheques, draft, order or otherwise and c banking Company means any company which transacts the business of banking in India. Both these classifications does not embrace the assessee within itself. Therefore, the assessee is a lender for loans only and to earn interest thereon. At times, it has to procure foreign currency loans itself, for making further advances. When we go through the impugned orders and the submissions made we find that there is no denial by the revenue authorities on the fact that the business of the assessee was of undivisible nature and assessee being the creation of the Parliament, is not a banking company and certainly not a company registered under the Companies Act, 1956. The department cannot take the view of proposing the cost of interest to be separately induced on the assessee, as the entire costs have already got embedded in the costs/total expenses. In any case, circular no. 780 dated 07.10.1999, as relied upon by the department cannot be made applicable on the assessee, as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Import Bank of India Act, 1981; ( c) What is required to be exempt under section 10(33) of the Act is the dividend as referred to in Section 115-0 of the Act. The dividend received is the gross dividend and accordingly exemption is to be granted at gross dividend; ( d) The investments in shares of Cipla Limited on which dividend of ₹ 5,47,605 received represents the shares devolved on the assessee in the capacity as Underwriter of the public issue of the shares/Units of UTI/Mutual Funds of the said company, being one of the indivisible business activity of the assessee.; ( e) The assessee has at its disposal ,substantial amount of interest free funds and sources as compared to the investments made in the shares /units of UTI/Mutual Funds on which dividend received is claimed as exempt at gross; ( f) The interest free funds available with the assessee from the year ended 31st March, 1991 to 31st March, 2000 were as good as ₹ 377 crores to ₹ 1508 crores, as against the total amount invested in shares/units/Mutual Funds at ₹ 246 crores. Hence, there is no need or warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was allowed to the assessee on net dividend. 6.7 Coming to the quantum of expenses, the assessee submitted vide Annexure-B the total expenses attributable for earning such dividend at ₹ 14,38,55,041/-. While arriving at the same the assessee has taken average rate of interest @ 5.91%. The working of the assessee has been examined and the same is not acceptable and the working has been recomputed as under: 6.8 Thus, the total expenses for earning dividend income has been worked at ₹ 4814.09 lakhs. Since the dividend expenses are more than thr dividend received, the assessee is not entitled for any exemption under section 10(33). Thus, the deduction under section 10(33) is taken at Rs. NIL as against the assessee s claim of ₹ 22,96,96,605/- . 27. On the basis of the computation, as made by him, he, restricted the exemption to the expenses attributable towards the earning, which he had computed more than the dividend income. He, therefore, denied the entire exemption claimed at 10(33). 28. The CIT(A) sustained the order of the AO. 29. The assessee is now before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g penal interest and interest on Non Performing Asset (NPA) upto 31.03.1998, for which there was no liability of tax on the assessee. 37. It is seen from the orders of the revenue authorities that they have virtually followed the line adopted by the revenue authorities in the preceding year. It has to be mentioned that in the preceding year, the orders of the revenue authorities were quashed by the coordinate Bench, as there was no exigibility of tax upto 31.03.1999. In this circumstance, the idea of reliance on the preceding year has to be put in oblivion. We have to examine the taxability of income in the current year, when section 37 of Export Import Bank of India, 1981 was repealed. 38. It is a fact that the assessee was maintaining books of accounts in the form, as applicable. This is also a fact that any income/loss shown in its accounts were just figure work, because, the assessee was neither eligible nor liable nor obliged to file any return under any legislations, for the time being in force. We do find relevancy in the arguments of the DR that since mercantile system is being adopted for maintaining the books, the assessee would be aware as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, during the course of appeal before us. We have considered the decisions, in the light of our observations, in each of the grounds of the appeal taken, we do not find it necessary to get into the decisions and details/merits/ratios as decided in the cited cases, as filed in the paper books. ITA No. 7362/Mum/2005, AY 2001-02 : ITA No. 7363/Mum/2005, AY 2002-03 : 43. Since the issues involved in these two assessment years are identical as that in assessment year 2000-01, in ITA No. 7361/Mum/2005. Following the decisions taken by us in the respective grounds in ITA No. 7361/Mum/2005, we follow the decisions taken in each of the grounds on the grounds of appeal, taken in these two appeals, i.e. assessment years 2001-02 and 2002-03. 44. The appeals, as filed in assessment years 2001-02 and 2002-03 are allowed. In the result ITA No. 7361/Mum/2005 for assessment year 2000-01 is allowed ITA No. 7362/Mum/2005 for assessment year 2001-02 is allowed ITA No. 7363/Mum/2005 for assessment year 2002-03 is allowed Order pronounced i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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