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TMI Blog2013 (9) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... see company had earned interest on long term loan given to Gujarat State Energy Generation Ltd. which is notified as engaged in the business of infrastructure development within the meaning of sec. 80(i)(a) sub-section (4) clause (iv) sub clause (a) of the Act vide CBDT’s notification dt. 29/06/2006 - Assessee had provided long term finance to an eligible undertaking – Reliance has been placed upon the judgment in the case of Jammu & Kashmir Bank [2008 (2) TMI 533 - ITAT AMRITSAR], wherein it has been held that assessee is a banking company. The essential feature of the business of a banking company is to mobilize resources from the public and lend it on interest to various sectors. The Revenue has not denied that assessee had indeed made investment in shares and providing long term finance to enterprises engaged in infrastructural facility. Therefore, all the conditions laid down for claiming exemption u/s 10(23G) are fulfilled by the assessee. It is not proper to take a narrow view of the issue when the assessee had in fact made investments in shares and financed the enterprises engaged in providing infrastructure facilities on long term basis. It is not necessary that the ‘infra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N of Rs. 2,17,31,255/-. 3. Ld. CIT(A) partly allowed the assessee s appeal. 4. Being aggrieved with the order of ld. CIT(A), both assessee and department have filed appeals before us. 5. First we take up the assessee s appeal i.e. ITA No. 22/D/2011 The assessee has filed a petition no. HO/ACT/Income Tax/Asstt. Year 2006-07 dated 6th April, 2012, praying for admission and adjudication of following additional grounds: 1. The appellant is making this legal claim pursuant to the judgment of the Hon ble Supreme Court arising out of the interpretation of section 36(1)(viia) and section 36(1)(vii) of the Income Tax Act, 1961 in the case of Catholic Syrian Bank Ltd. vs. CIT reported in [2012] 248 CTR 1 (SC) wherein it has been held that the provisions of bad and doubtful debts u/s 36(1)(viia) applies only to rural advances and, therefore, the provisions of sec. 36(1)(vii) operate in their own field and are not restricted by the limitation of sec. 36(1)(viia) of the Act. 2. The appellant by this additional ground is claiming relief u/s 36(1)(vii) of Rs. 191,17,16,392/- being the bad debts in respect of non-rural advances which may kindly be allowed. 3. The above addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13,105,863,133 1,310,586,300 (as per auditor certificate qualifying the Deduction under Rule 6BA read with sec. 36(i)(viia) enclosed) b) Additional provision not exceeding 7.5% of the total Income before making any deduction under this clause And chapter VI-A: 7.5% of Rs. 8,937,284,388 670,296,329 (1,980,882,629) 8. Ld. Counsel referred to page 8 9 of the paper book, wherein the letter dated 10th October, 2007 requiring various details u/s 142(1) is contained in which AO had required the assessee to give complete working in order to justify its claim for provision u/s 36(1)(viia) read with section 36(1)(vii) and 36(1)(ii). Ld. Counsel referred to page 22 of the paper book, wherein the assessee s reply dated 18th October, 2007 is contained in which assessee had stated as under: The assessee bank has not debited to P L account directly any bad debts written-off as can be seen from the detailed P L account filed with the return. The deduction is made by the assessee in strict compliance with the provisions of section 36(1)(viia) of the Income Tax Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of sec. 36(1)(viia) applies only to rural advances and provisions of sec. 36(1)(vii) operate in their own field and are not restricted by the limitations u/s 36(1)(viia) of the Act. Therefore, the bad debts in respect of non-rural branches are to be allowed u/s 36(1)(vii). The relevant portion of the judgment are reproduced below: Indisputably, clause (viia) (a) applies only to rural advances . Mere provision for bad and doubtful debts may not be allowable, but in the case of a rural advance, the same, in terms of sec. 36(1)(viia) (a), may be allowable without insisting on an actual write off . It is useful to notice that in the proviso to sec. 36(1)(vii), the explanation to that Section, Section 36(1)(viia) and 36(2)(v), the words used are provision for bad and doubtful debts while in the main part of sec. 36(1)(vii), the Legislature has intentionally not used such language. The proviso to sec. 36(1)(vii) and Sections 36(1)(viia) and 36(2)(v) have to be read and construed together. They form a complete scheme for deductions and prescribe the extent to which such deductions are available to a scheduled bank in relation to rural loans etc., where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision u/s 36(i)(viia). In the same statement, assessee had claimed bad debts relating to rural branches amounting to Rs. 10,38,51,000/-. Considering the entirety of facts, we are of the opinion that the claim of assessee needs to be examined afresh in the light of decision of Hon ble Supreme Court in the case of Catholic Syrian Bank (supra). If on verification, the AO finds that no separate bad debts had been written off in respect of non rural branches, then the same is to be allowed after due verification. 16. In the result, this ground is allowed for statistical purposes. 17. The other grounds raised by assessee are as under: 1. The ld. CIT(A) has erred in law and on facts in upholding the disallowance u/s 14A and directing the AO to compute disallowance. The direction given by the ld. CIT(A) is ignoring the facts of the assessee s case, being that of a nationalized bank where investments are held as stock in trade and expenditure is incurred for the purpose of banking business. 2. The appellant contends that no expenditure is incurred for earning tax free income. Neither the Assessing Officer nor the CIT(A) has any material to support any expenditure incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine the entire issue in the light of decision of Hon ble Delhi High Court in the case of Maxopp Investment Ltd. Ors. vs. CIT (Del.), 247 CTR 162, wherein it has been held as under: 41. Sub-s. (2) of s. 14A, as we have seen, stipulates that the AO shall determine the amount of expenditure incurred in relation to income which does not form part of the total income in accordance with such method as may be prescribed . Of course, this determination can only be undertaken if the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of s. 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in s.14A(1) (as it now stands) as also in its initial Avatar as s. 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, s. 14A, even prior to the introduction of sub-ss. (2) and (3) would require the AO to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment. 23. Having heard both the parties, we restore this issue to the file of AO to examine the issue afresh in the light of aforementioned observations of Hon ble Delhi High Court. 24. In the result, all these grounds are allowed for statistical purposes. 25. Now we take up the Department s appeal vide ITA No. 173/Del/2011. The Department has taken following grounds of appeal: 1. That on the facts and circumstances of the case as well as in law the ld. CIT(A) erred in deleting the disallowance of Rs. 5,69,65,390/- made by the AO on account of exemption claimed by the assessee u/s 10(23G) of the I.T. Act, 1961. 2. On the facts and circumstances of the case, the ld. CIT(A) has erred in ignoring the fact that the CBDT vide Circular No. 762 dt. 18.02.1998 had made it clear that exemption u/s 10(23G) of the I.T. Act, 1961 would be available only to such infrastructure capital funds or infrastructure capital comanier which are established for the purposes of mobilizing resources for financing infrastructure facili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is providing long term finance, which is for a period of more than five years and is covered u/s 36(1)(vii) of the I.T. Act. The AO did not accept the assessee s contention and observed that following conditions should have been satisfied by the assessee to avail exemption: 1. There is an infrastructure capital fund or infrastructure capital company or a Cooperative Bank , 2. It has earned income by way of dividend (not being covered u/s 115O of the I.T. Act,1961), interest or long capital gains; 3. The aforesaid income is derived from investments made on or after June, 1998 by way of shares or long term finance in any infrastructure enterprise 4. The infrastructure enterprise is approved by the Central Govt. on an application made by it in accordance with the prescribed rules. 28. He disallowed the assessee s claim, inter-alia, observing as under: Therefore, in accordance with the principles of statutory interpretation of legal statute, the provisions of sec. 10(23G) of the I.T. Act, 1961 cannot be interpreted to mean anything else than what has been concluded above. The phrase infrastructure capital company as discussed above has been used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the banking business, the same should be sufficient to entitle the assessee to claim exemption of its income u/s 10(23G). This view also finds support from the fact that subsequently this benefit of sec. 10(23G) has been extended to co-operative banks, though such banks have also not been set up for the purpose of mobilizing resources for financing the infrastructure facilities. Therefore, the assessee falls in the category of infrastructure capital company entitled to exemption u/s 10(23G). The view that banks are entitled to exemption of its income falling in the nature mentioned u/s 10(23G) is reinforced by the recent news item which appeared in The Economic Times dt. 19.01.2008. From the said news item, it is clear that the banking sector was enjoying exemption u/s 10(23G) which has been deleted by the Finance Act, 2006. If it were not so, there was no need for the banks to make such representation. 32. In view of above mentioned decision, the view taken by AO is not correct. Further, we are in agreement with the finding of ld. CIT(A) that Explanation 1A to sec. 10(23G) of the Act, defining infrastructure capital company does not exclude banking companies so long as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twork equipment which is part of the computer hardware which enables for a group of computers and associated computer devises to share the data through this devise. In other words the data is stored at single computer processor or server and all the other computers are connected through local area network equipment and the single processor can be accessed by the other computers and the data stored is used by the other computers. Therefore, this is part of the computer hardware and the rate of 60% has been rightly applied by the assessee. Similarly, WAN equipment is called Wide Area Network, to put it simply, two or more LAN would form a WAN i.e., to cover larger geographical area the computer networking is done by use of Wide Area Network equipment (WAN). This is also integral part of computer hardware and the rate of 60% has been rightly claimed and allowed. In this connection, reference is invited to the Information Technology Act, 2000 wherein, section 2(i) defines the term computers which also includes computer network . Section 2(j) defines the term Computer Network means the interconnection of one or more computers through - (i) the use of satellite, m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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