9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (7) TMI 795 - HC - Income TaxDisallowance u/s 14A - denial of deduction of expenses related to tax-free dividend income from shares and bonds held as trading assets - as per revenue as much as the appellant-Bank had not maintained separate accounts to show that the investment in shares and bonds had been made from surplus funds available with it and not using the borrowed funds, the expenses incurred by way of interest paid to the lending institution could not be allowed as deduction - HELD THAT - Issue as ultimately resolved in favour of the assessee by Supreme Court in an appeal pertaining to an earlier year as evident from the decision reported in South Indian Bank Ltd. v. Commissioner of Income Tax 2021 (9) TMI 566 - SUPREME COURT where the Supreme Court found that there was no necessity for maintaining separate accounts to show that the assessee had made the investments only from surplus funds and that, so long as it was evident that interest free funds were available with the assessee which exceeded their investments, the provisions of Section 14A could not be relied on by the revenue to disallow the claim for expenses made by the assessee. We are also informed that the assessing officer has since, taking note of the Supreme Court judgment, passed rectification orders rectifying the assessments in the instant cases, in line with the Supreme Court judgment. Disallowance u/s 36(1)(viii) - disallowance arose consequent to an amendment that was effected to the provisions of Sections 36(1)(viii) with effect from 01.04.2010 through the Finance (No.2) Act, 2009 - change in the definition of eligible business via. amendment - HELD THAT - A view had been expressed that National Housing Bank was not entitled to the benefits of the unamended Section 36(1) (viii) of the Act, on the ground that it was not engaged directly in the long term financing for construction or purchase of houses in India for residential purpose. The amendment was therefore deemed necessary to extend the said benefit even to the National Housing Bank. It follows therefore that the amendment was intended to widen the scope of the deduction in relation to Financial Corporations specified in Section 4A of the Companies Act, Financial Corporations that were Public Sectors Companies, Banking Companies and Corporative Banks other than Primary Agricultural Credit Society or Primary Corporative Agricultural and Rural Development Banks and to confine the benefit available to a Housing Finance Company only in relation to the provision by it of long term finance for the construction or purchases of houses in India for residential purpose. We therefore, cannot agree with the finding of the Appellate Tribunal that in as much as the providing of long term finance for construction or purchases of houses in India for residential purpose was an activity that qualified for deduction under Section 36(1)(viii) only for Housing Finance Companies, the same activity would not qualify for deduction in relation to a Banking Company. The phrase 'Development of Housing in India' is wider in its scope and ambit and includes within its ambit the phrase 'construction or purchase of houses in India for residential purposes'. We are therefore of the view that even after 01.04.2010, the appellant Bank would be entitled to the deduction envisaged under Section 36(1)(viii) of the Act in respect of the long term finance provided by it for construction and purchase of houses in India for residential purpose. Deduction u/s 36(1)(viia) - deduction in relation to the provisions made in its accounts for bad debts, particularly, in relation to the branches that were situated in rural areas - as submitted that the issue as to whether or not the area in question merits classification as rural area or urban area, is currently pending resolution before the Supreme Court - HELD THAT - We are inclined to allow the request of the Senior Counsel in respect of the said issue and remit the matter to the Appellate Tribunal for a consideration as to whether the claim for deduction made under Section 36(1)(viia) of the Act could be considered in terms of Section 36(1)(vii) of the Act.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance under Section 36(1)(viii) of the Income Tax Act. 3. Claim for deduction under Section 36(1)(viia) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The appellant, a banking institution, received tax-free dividend income from shares and bonds held as trading assets. The assessing authority disallowed the deduction of expenses related to these investments under Section 14A of the Act, citing the appellant's failure to maintain separate accounts to prove that the investments were made from surplus funds rather than borrowed funds. This issue was resolved in favor of the appellant by the Supreme Court in South Indian Bank Ltd. v. Commissioner of Income Tax [(2021) 438 ITR 1 (SC)], which held that separate accounts were not necessary if interest-free funds exceeded the investments. Consequently, the assessing officer rectified the assessments in line with the Supreme Court judgment. 2. Disallowance under Section 36(1)(viii) of the Income Tax Act: The appellant claimed deductions under Section 36(1)(viii) for providing long-term finance for housing construction or purchase. An amendment effective from 01.04.2010 limited this deduction to Housing Finance Companies, excluding banking companies from claiming it for residential housing finance. The Tribunal upheld this view. However, the court found that the amendment aimed to extend benefits to the National Housing Bank and similar institutions, not to restrict banking companies. The court concluded that the phrase "Development of Housing in India" includes residential housing finance, thus allowing the appellant to claim the deduction even after the amendment. 3. Claim for Deduction under Section 36(1)(viia) of the Income Tax Act: The appellant claimed deductions for provisions made for bad debts in rural branches. The authorities disallowed claims for branches not classified as rural. The appellant requested a remand to the Appellate Tribunal to consider whether deductions under Section 36(1)(vii) could be maintained if claims under Section 36(1)(viia) failed. The court agreed to remit the matter to the Tribunal for further examination, referencing a similar judgment in the Federal Bank case. Judgment Summary: - I.T.A.No.165 of 2019: All questions were answered in favor of the assessee. - I.T.A No.26 of 2020: Questions 1 and 2 were answered in favor of the assessee; Questions 3 and 4 were answered against the assessee. Question 5 was not answered due to the remand to the Appellate Tribunal. - I.T.A. No.28 of 2020: All questions were answered in favor of the assessee. The I.T. Appeals were disposed of accordingly.
|
