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TMI Blog2010 (11) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... essment under section 148, which were supplied. The assessee raised primary objections against re-opening of assessment under section 148, the Assessing Officer decided the same vide a separate order dated 29.11.2007. 2.1. Subsequently, the Assessing Officer framed the assessment under section 143(3) read with section 147 on 07.12.2007, wherein he assessed the total income of the assessee at a loss of Rs.4,03,65,895/-. While computing this loss, the Assessing Officer disallowed the exemptions claimed under section 10(23G) of the Income Tax Act amounting to Rs.1,08,87,675/-. In order itself, the Assessing Officer computed the book profit under section 115JB of the Act. Against the assessment framed under section 143(3) read with section 147, the Assessing Officer filed an appeal before the Learned Commissioner of Income Tax (Appeals) challenging reopening of assessment under section 148 as well as disallowance of claim made under section 10(23G) amounting to Rs.1,08,87,675/-. In the impugned order, the Learned Commissioner of Income Tax (Appeals) rejected the plea challenging for reopening of assessment under section 148 on the ground that the return was processed under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arized as follows:- (i) The appellant has granted long term finance to the two companies in form of "bonds" and issue of bonds is a process in which a company borrows the face amount of bonds from its buyer, pays interest on that debt while it is outstanding and then redeems the bonds by paying back the debt Hence bond fits into the definition of long term finance and is a loan which requires repayment of Loan with interest. (ii) The bonds in question are repayable after seven years and hence the limit of more than five years will fall within the provisions of section 36(1)(viiii) of the Act. (iii) The bonds were purchased as follows: (a) Sardar Sarovar Narmada Nigam Ltd. on 25/4/95 and 18/4/96; (b) GIPCL Bonds on 20/9/96 and 11/12/96. (iv) Hence, the appellant had given long term finance prior to amendment of section 10(23G) in 1998 and hence the income would be covered by the provisions of that Act as they stood prior to 1998. Although the section at that time did not require approval of the Central Government for the companies to whom finance was given, yet GIPCL and SSNL are both approved by the Central Government as per the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t can be stated that the investment in bonds was also more than five years and hence it fulfills the condition laid down in section 36(1)(viii). The reply dated 22nd October 1997 of Director (TPS), CBDT to M/s. SSNNL is very general in nature, reiterating the fact that, subject to fulfilling the conditions both by the investor and the investee, exemption u/s. 10(23G) will be available. 3.7. As stated earlier, the section as it stands, has given a cut off date for investment i.e. 1st June 1998. Investment made prior to that obviously did not qualify for this section. There is no such provision in the section as it existed even in 1997 that the income by way of interest or dividend from such long term investment will be exempt for the entire tenure of such investment. It is an admitted fact here that investment has been made prior to the cut off date i.e. between 1995 to 1996. 3.8. Coming to the third limb, the appellant has filed photocopies of the exemptions issued by the CBDT u/s. 10(23G) r.w.s. 2(e) for SSNNL and GIPCL. However, these do not serve assessee's purpose because the exemptions are for the financial year 2002-03 to 2004-05 to both the cases in the copie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NNL, and GIPCL, the exemption u/s. 10 (23G) is not applicable to the year under consideration- In the facts and circumstances of the case it is submitted that no approval of central government was inquired u/s. 10(23G) for income from the investments made prior to amendment in year 1998, hence the exemption u/s. 10(23G) ought to have, been granted according to earlier section irrespective of CBDT's notification for financial year 2002-03 to 2004-05. It is submitted that it be so held now. 4. The Commissioner of Income Tax (Appeals) failed to appreciate that investments made in the bonds of GIPCL and Sardar Sarovar Narmada Nigam Limited is in the nature of long term finance. It is submitted that the investments in the Debentures and bonds satisfies the definition of long term finance as given in section 36(1)(viii) of the Act. It be so held now. 4.1. The Commissioner of Income Tax (Appeals) ought to have held that the treatment of the Debentures and bonds in the books of account would not determine the eligibility of the exemption. It is submitted it be so held now. 5. The Commissioner of Income Tax (Appeals) erred in holding that the clarification of the CBD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to believe that any income had escaped the assessment. It was further submitted that AO had given reasons for reopening the assessment as "as per the provisions of section 10(23G) of the Act, interest earned by an infrastructure company on investments made by way of acquiring shares or providing long term finance to an approved enterprise are exempt. But the records reveal that the appellant had earned interest on investment made out of surplus money in bond and no loan or advance had earned interest on investment made out of surplus money in bond and no loan or advance is given and interest is not derived from long term finance as defined in section 10(23G) r.w.s. 36(1) (vii) of the Act." 6. The Counsel of the assessee submitted that above could not have been the reason to believe for reopening because the fact that interest income had been claimed exempt u/s. 10(23G) was mentioned on the face of the Return of Income by way of Note. Accordingly, it was contended that there were no valid reasons for the AO to re-open the assessment and therefore, assessment now framed be quashed. In support of this reliance is placed on the decision of Hon'ble Mumbai High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been approved by the Central Government on an application made by it in accordance with the rules made in this behalf and which satisfies the prescribed conditions. Provided that the income, by way of dividends, other than dividends referred to in section 115-O, interest or long-term capital gains of an infrastructure capital company, shall be taken into account in computing the book profit and incometax payable under section 115JB: Explanation 1: For the purposes of the clause, - (a) "infrastructure capital company" means such company as has made investments by way of acquiring shares or providing long term finance to an enterprise wholly engaged in the business referred to in this clause. (b) "infrastructure capital fund" means such fund operating under a trust deed, registered under the provisions of the Registration Act,1908(16 of 1908) established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to an enterprise wholly engaged" in the business referred to in this clause. (c) Omitted w.e.f. 1-4-2002. (d) "long-term finance" shall have the meaning assigned to it in clause (vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he terms under which moneys are loaned or advanced provided for repayment along with interest thereof during a period of not less than five years." Appellant has granted long-term finance to the two companies in form of bonds. The Oxford Dictionary defines Bonds as "a certificate issued by a government or a public company promising to relay money lent to it at a fixed rate of interest at a specific time. Thus a company "borrows" the face amount of bonds from its buyer, pays interest on that debt while it is outstanding and then "redeems" the bonds by paying back the debt. Thus a bond fits the definition of long term finance as reproduced above as it is loan given and its terms requires along with interest. Accordingly bonds are long term finance as per section 36(1)(viii) of the Act. Section 36(1)(viii) further requires that the loan should be given for a period which is not less than five years. In this respect it is submitted that the repayment in respect of these bonds is after seven years and we accordingly give below the date of giving the long term finance in shape of bonds a under: Sardar Sarovar Narmada Nigam Limited on 25-4-95 and 18-4-96. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the need for adequate infrastructure facility which is vital for accelerating the economic development of the country, the existing provisions of the Income tax Act provide a five-year tax holiday to an enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. However, in order to attract further investment to this section, an urgent need has been felt for providing more tax incentives to investors. Thus section 10(23G) of the Act was brought on the statute book to accelerate develop the infrastructure facilities and the economic development of the country and hence was a section which provided incentive for making investment. Therefore, the provisions thereof should be considered liberally. 9. As submitted at point No.4 above the appellant had invested money in these bonds in 1995/1996. The appellant had claimed exempt of this income in all the preceding years and in all those years it has been granted the said exemption. 10. Further Ld. Assessing Officer, while passing the order, has ignored the clarification letter received by Sardar Sarovar from CBDT and which was filed before him in the reassessment proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the I.T. Act, 1961. Therefore, the view taken by the Ld. C.I.T. (A) be upheld. 9. Having heard both the sides we have carefully gone through the orders of the authorities below. It is pertinent to note that in the Note forming part of the Return of Income the assessee has clearly stated that it has claimed the interest income exempt u/s. 10(23G) of the Act, 1961.The reasons recorded by Assessing Officer before issuing notice u/s. 148 as intimated to the assessee vide letter dated 13-11-2007 reads as under:- "From the records, it is seen that the assessee Corporation has earned interest of Rs.1,08,87,675/- on investment in bonds of Gujarat Industrial Power Corporation Ltd., and Sardar Sarovar Narmada Nigam Ltd. and the same interest has been claimed exempt u/s. 10(23G) of the I.T. Act,1961.As per provisions of section 10(23G) of the I.T. Act, 1961, interest earned by an Infrastructure Capital Company on investments made by way of acquiring shares or providing long term finance to an approved enterprise is exempt. The records reveal that the interest is earned on investment made out of surplus money in bonds and no loan or advance is given by the assessee Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 107 ITD 367 (Hyd.), wherein it was held that Explanation 2 to section 10(23G), as introduced by the Finance Act, 1999 is declaratory and has to be construed as retrospective as it is retroactive in nature. Therefore, the assessee is entitled to exemption u/s. 10(23G) in respect of the investments made prior to 1-6-1998. Te Head-notes of the said decision reads as under:- "Section 10(23G) of the Income-tax Act,1961 - Infrastructure capital fund or infrastructure capital company -Assessment Year 2001-02. Whether Explanation 2 to section 10(23G),as introduced by Finance Act, 1999,is declaratory or explanatory and has to be constructed as retrospective as it is retroactive in nature - Held, yes - Assessee-company purchased some equity shares of a company on 4-12-1996, which was recognized as an industrial undertaking with infrastructure facility for power generation having commenced same after 31-3-1997 and was notified as such under section 10(23G) by Central Government -Assessee sold said shares on 3-11-2000 and claimed that long-term capital gain arising thereon was exempt under section 10(23G)- Assessing Officer disallowed claim, inter-alia, on ground that in view of Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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