2015 (12) TMI 567 - HC - Income Tax

Entitlement for deduction u/s 36(1) (viii) - Tribunal was correct in its opinion that the Respondent company was in the business of providing long term finance for development of housing in India, thereby making it entitled for deduction u/s 36(1) (viii), when it had in fact stopped the business of providing housing loans from the financial year 2001-02 - Held that - We find that the impugned order of the Tribunal renders a finding of fact that the Respondent-Assessee during the subject Assessment Year was in the business of providing finance for construction of residential houses. This conclusion is drawn after noticing the fact that there is not only an increase in the loans advanced during the subject Assessment Year to individuals but also over 700 new housing loans were sanctioned during the subject Assessment Year as was evident from is statutory returns filed with the National Housing Bank. The aforesaid finding of facts would by itself establish that the Respondent-Assessee is entitled to the Section 36(1)(viii) of the Act. The finding rendered by the Tribunal in the impugned order is a finding of fact and the Revenue has not been able to show that the finding of fact is in any manner perverse or arbitrary. - Decided against revenue.

Summary

Issues:
1. Interpretation of Section 36(1)(viii) of the Income Tax Act, 1961 regarding eligibility for deduction.
2. Validity of the Commissioner of Income Tax's order under Section 263 of the Act.
3. Determination of whether the Respondent-Assessee was engaged in the business of providing long-term finance for housing development during the Assessment Year 2005-06.

Analysis:

Issue 1: Interpretation of Section 36(1)(viii) of the Income Tax Act
The primary issue in this case revolves around the interpretation of Section 36(1)(viii) of the Income Tax Act, 1961, concerning the eligibility of the Respondent-Assessee for deduction. The Respondent, a Housing Finance Company, claimed deduction under this section based on its activities related to providing finance for construction of residential houses. The Commissioner of Income Tax initially disallowed the deduction, citing that the Respondent had ceased giving fresh housing loans and was only servicing old loans. However, the Tribunal found that the Respondent was indeed engaged in providing long-term finance for housing development during the relevant assessment year, supported by an increase in housing loans and new loans sanctioned.

Issue 2: Validity of the Commissioner of Income Tax's order under Section 263
The Commissioner of Income Tax invoked his powers under Section 263 of the Act to revise the Assessing Officer's order, challenging the deduction claimed by the Respondent. The Commissioner held that the Respondent was not eligible for the deduction under Section 36(1)(viii) as it had stopped providing housing loans. This action led to the dispute and subsequent appeal by the Respondent to the Tribunal.

Issue 3: Determination of the Respondent-Assessee's Business Activities
The crux of the matter lies in determining whether the Respondent-Assessee was actively engaged in the business of providing long-term finance for housing development during the Assessment Year 2005-06. The Respondent's claim for deduction under Section 36(1)(viii) hinged on its continued involvement in financing residential construction projects. The Tribunal's decision favored the Respondent, emphasizing the increase in housing loans and new loans sanctioned during the assessment year, which indicated ongoing business activities related to housing finance.

In conclusion, the High Court Bombay upheld the Tribunal's decision, dismissing the appeal by the Revenue. The Court found that the Respondent was entitled to the deduction under Section 36(1)(viii) based on its business activities during the relevant assessment year, as supported by factual evidence presented. The judgment underscores the importance of factual findings in determining eligibility for tax deductions under the Income Tax Act.