2012 (2) TMI 687 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility and computation of deduction u/s 36(1)(viii) of the Income-tax Act.
2. Interpretation of the terms "Paid up Capital" and "General Reserves" in the context of the proviso to Section 36(1)(viii).

Summary:

Issue 1: Eligibility and Computation of Deduction u/s 36(1)(viii)
The assessee, a housing finance company, claimed a deduction of Rs. 14,79,41,734/- u/s 36(1)(viii) of the Income-tax Act. The Assessing Officer (AO) reduced this claim to Rs. 2,36,50,900/-, citing that the aggregate of amounts carried to the Special Reserve exceeded twice the amount of the paid-up share capital and general reserves. The AO's decision was based on the interpretation that only the paid-up capital and general reserves should be considered, excluding share premium and profit and loss account balance.

Issue 2: Interpretation of "Paid up Capital" and "General Reserves"
The assessee argued that the terms "Paid up Capital" and "General Reserves" should be interpreted as a single coined term, akin to "Net Worth" under other laws. They included share premium and profit and loss account balance in the computation of general reserves. The Commissioner of Income-tax (Appeals) and the Tribunal both rejected this interpretation, holding that share premium and profit and loss account balance do not qualify as general reserves. The Tribunal upheld the AO's decision, emphasizing that "General Reserves" should be free reserves capable of being distributed through the profit and loss account, which share premium and profit and loss account balance are not.

Detailed Judgment:
1. AO's Analysis: The AO examined the balance sheet and concluded that share premium and profit and loss account balance should not be included in the definition of general reserves. The AO relied on judicial precedents and the Finance Minister's budget speech to support this interpretation.

2. CIT(A)'s Decision: The Commissioner of Income-tax (Appeals) confirmed the AO's decision, stating that general reserves should be revenue reserves and free reserves, capable of being distributed as dividends. The CIT(A) excluded share premium and profit and loss account balance from general reserves.

3. Tribunal's Judgment: The Tribunal agreed with the CIT(A)'s detailed order, stating that the term "General Reserves" does not include share premium, profit and loss account balance, or special reserves. The Tribunal emphasized that the interpretation should be based on the specific context of the Income-tax Act and not on definitions from other laws or budget speeches.

4. Conclusion: The Tribunal dismissed the assessee's appeal, confirming the lower authorities' interpretation and computation of the deduction u/s 36(1)(viii).

Order:
The appeal was dismissed, and the order was pronounced in open court on 24.02.2012.