2024 (7) TMI 728 - HC - Income Tax

Applicability of section 43B - LIC Mutual Fund can be regarded as Public Financial Institutions as specified or not? - Whether an amount being interest provision as at the year end made in the accounts is allowable considering the fact that the said payment relates to LIC Mutual Fund and hence does not attract the provisions of Section 43B? HELD THAT - The language of Section 4A of the Companies Act, 1956 and Section 43B of the Act, 1961 being plain and unambiguous, no interpretation can be given, other than what is clearly expressed by the plain language of the aforesaid provisions. The list of public financial institutions given in Subsection (1) of Section 4A of the Companies Act, 1956 being exhaustive and not illustrative, nothing can be added to it. It is not the case of the respondent that there is any notification under Section 4A of the Companies Act, specifying LIC Mutual Fund as a public financial institution . That apart, it is also not the case of the respondent/Revenue that LIC Mutual Fund Trust qualifies the two conditions mentioned in Sub-section (2) of Section 4A of the Companies Act, 1956. Since LIC Mutual Fund is not Public Financial Institution under Section 43B of the Act, 1961 read with Section 4A of the Companies Act, therefore, the interest on unsecured debentures payable by the appellant-assessee to the LIC Mutual Fund is not covered by Section 43B of the Act, 1961. Consequently, it could not be disallowed in the hands of the appellant-assessee on the ground of non-compliance of conditions of Section 43B. The above discussion leads to an irresistible conclusion that the Income Tax Appellate Tribunal has committed a manifest error of law to hold that LIC Mutual Fund is a public financial institution u/s 43B. Therefore, the disallowance invoking the provisions of Section 43B cannot be sustained and consequently, the impugned order to that extent deserves to be set aside - Substantial questions of law are answered in favour of the assessee

Summary

Issues Involved:
1. Whether LIC Mutual Fund can be regarded as Public Financial Institutions as specified in Clause (a) of Explanation 4 to Section 43B of the Act?
2. Whether an amount of Rs. 9,75,16,996/- being "interest provision" as at the year end made in the accounts is allowable considering the fact that the said payment relates to LIC Mutual Fund and hence does not attract the provisions of Section 43B of the Act?

Issue-wise Detailed Analysis:

1. Whether LIC Mutual Fund can be regarded as Public Financial Institutions as specified in Clause (a) of Explanation 4 to Section 43B of the Act?

The appellant/assessee, a company registered under the Companies Act, 1956, had debentures purchased by LIC Mutual Fund, accruing an interest of Rs. 9,75,16,996/- during the assessment year 2009-10. The assessing officer disallowed this interest deduction, stating it was not paid within the stipulated period. The CIT(A) allowed the deduction, ruling that Section 43B of the Income Tax Act, 1961, covers only financial institutions and not mutual funds. The ITAT reversed this decision, holding that LIC Mutual Fund, being an arm of Life Insurance Corporation of India, should be considered a public financial institution under Section 43B.

The High Court examined the definitions and regulations under the SEBI Mutual Funds Regulations, 1996, and the Indian Trust Act, 1882. It found that LIC Mutual Fund is a trust, not a public financial institution as per Section 4A of the Companies Act, 1956. The Court noted that the list of public financial institutions in Section 4A is exhaustive and does not include LIC Mutual Fund. Furthermore, LIC Mutual Fund has not been established or constituted by any Central Act, nor specified by the Central Government as a public financial institution under Section 4A.

2. Whether an amount of Rs. 9,75,16,996/- being "interest provision" as at the year end made in the accounts is allowable considering the fact that the said payment relates to LIC Mutual Fund and hence does not attract the provisions of Section 43B of the Act?

The High Court concluded that since LIC Mutual Fund is not a public financial institution under Section 43B of the Income Tax Act, 1961, the interest of Rs. 9,75,16,996/- on unsecured debentures payable to LIC Mutual Fund is not covered by Section 43B. Consequently, the interest could not be disallowed on the grounds of non-compliance with Section 43B.

Conclusion:

The High Court held that the Income Tax Appellate Tribunal erred in treating LIC Mutual Fund as a public financial institution under Section 43B of the Act, 1961. Therefore, the disallowance of Rs. 9,75,16,996/- invoking the provisions of Section 43B was set aside. The substantial questions of law were answered in favor of the assessee and against the Revenue. The appeal was allowed, and the impugned order of the ITAT was set aside to the extent it related to the disallowance under Section 43B.