1988 (4) TMI 102 - AT - Income Tax

Summary

Issues:
1. Acceptance of loss return filed out of time.
2. Claim of interest payable to State and Central Government.

Analysis:

Issue 1: Acceptance of loss return filed out of time
The appeal pertains to the acceptance of a loss return by a statutory Corporation for the assessment year 1979-80, filed beyond the prescribed period. The CIT contended that the acceptance of the loss return was prejudicial to revenue as it was not filed within the time limit under section 139(3). However, the ITAT Cochin referred to the CBDT instructions issued in 1985, allowing consideration of loss returns filed out of time but within two years for assessment purposes. As the Corporation's return fell within this period, the Board's circular deemed the Corporation entitled to have the loss return accepted. Consequently, the ITAT Cochin held that the CIT's objection was not valid based on the CBDT instructions.

Issue 2: Claim of interest payable to State and Central Government
The second issue revolved around the claim of interest payable to the State and Central Government by the Corporation under the Road Transport Corporation Act. The CIT contended that the deduction allowed for interest payment was erroneous and prejudicial to revenue, citing a previous judgment by the Punjab & Haryana High Court. The High Court had ruled that the interest payable under section 28 of the Act could not be considered as interest under section 36(1)(iii). However, the ITAT Cochin disagreed with the CIT's interpretation, emphasizing that the Corporation, being a statutory entity, was obligated to pay interest on the capital contributions received. The ITAT Cochin differentiated the case from the High Court's decision by highlighting that the interest payment was to third parties who contributed capital, making it a legitimate expenditure for the Corporation. Additionally, the ITAT Cochin noted that the Corporation's exemption under section 11 for subsequent years meant no revenue loss would occur despite the interest deduction, ultimately ruling in favor of the assessee.

In conclusion, the ITAT Cochin allowed the assessee's appeal, upholding the acceptance of the loss return filed out of time based on CBDT instructions and validating the deduction for interest payable to the State and Central Government under the Road Transport Corporation Act.