2010 (1) TMI 1186 - AT - Income Tax

Tribunal Prioritizes Deductions, Limits Income Eligibility, Partly Allows Bad Debts Claim

TOURISM FINANCE CORPORATION OF INDIA LTD. Versus JOINT COMMISSIONER OF INCOME-TAX

The Tribunal affirmed the priority of deductions under sections 36(1)(viii) over 36(1)(viia), restricted the eligibility of certain incomes for deduction ... - Issues Involved:1. Priority of deductions u/s 36(1)(viii) and 36(1)(viia).2. Eligibility of various incomes for deduction u/s 36(1)(viii).3. Disallowance of bad debts claim and its treatment as concealment.Summary:1. Priority of Deductions u/s 36(1)(viii) and 36(1)(viia):The assessee challenged the order of the Commissioner of Income-tax (Appeals) which held that deduction u/s 36(1)(viii) has priority over deduction u/s 36(1)(viia). The Tribunal referred to its previous decision for the assessment year 1997-98, confirming that the deduction u/s 36(1)(viii) should be allowed first, and the total income for deduction u/s 36(1)(viia) should be computed after allowing deduction u/s 36(1)(viii). The Tribunal found no merit in the assessee's claim that the sequence of sections in the Act should determine the priority of deductions.2. Eligibility of Various Incomes for Deduction u/s 36(1)(viii):The assessee contended that incomes such as interest on equipment credit scheme, lease rentals, dividends, and other miscellaneous incomes should qualify for deduction u/s 36(1)(viii). The Tribunal, referring to its earlier decision, held that only profits derived from long-term finance qualify for deduction u/s 36(1)(viii). It was determined that these other incomes do not fall within the ambit of long-term finance. However, the matter regarding interest on debentures was remanded to the Assessing Officer to verify if the debentures qualify as long-term finance.3. Disallowance of Bad Debts Claim and Its Treatment as Concealment:The assessee's claim of bad debts amounting to Rs. 2,76,74,370 was disallowed by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) on the grounds of concealment. The Tribunal, following its decision in the case of Oman International Bank SAOG, directed that the provision for bad debts for the current year should not be considered for quantifying the deduction u/s 36(1)(vii). The Tribunal allowed the deduction after reducing the credit balance in the provision for bad debts account up to the previous year, partially allowing the assessee's appeal.Conclusion:The appeal was partly allowed, affirming the priority of deductions u/s 36(1)(viii) over 36(1)(viia), limiting the scope of eligible incomes for deduction u/s 36(1)(viii), and partially allowing the bad debts claim. The decision was pronounced in the open court on January 6, 2010.