High Court affirms Tribunal decision on Section 36(1)(viii). Approval not mandatory post-2000. Assessee entitled to deduction.

The High Court upheld the Tribunal's decision, ruling in favor of the assessee. It held that the requirement of Central Government approval under Section 36(1)(viii) of the Act was procedural and not mandatory, especially since the provision was deleted from 01.04.2000 onwards. As the CBDT had not rejected the application for approval and considering the public interest in infrastructure development, the assessee was entitled to the deduction for interest income as capital in nature for the assessment year 1999-2000. The appeal was dismissed.

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Issues Involved: Interpretation of Section 36(1)(viii) of the Act regarding the requirement of prior approval of the Central Government for claiming deduction and the effect of deletion of this requirement.

Summary:

Issue 1: Requirement of Central Government Approval under Section 36(1)(viii) of the Act

The assessee, a company engaged in finance and development projects, claimed exemption for interest income as capital in nature for the assessment year 1999-2000. The Assessing Officer treated the amount as revenue receipt and brought it to tax, noting that the prior approval of the Central Government had not been obtained by the assessee to claim the benefit under Section 36(1)(viii) of the Act.

Issue 2: Interpretation of the Requirement of Central Government Approval

Section 36(1)(viii) of the Act deals with special reserve created by financial corporations engaged in providing long-term finance for development projects. The provision required prior approval from the Central Government before 01.04.2000. The assessee had applied for approval on 28.03.2000, but approval was not granted. However, the provision was deleted from 01.04.2000 onwards, making Central Government approval unnecessary. The Tribunal held that the requirement of approval was procedural and not mandatory, especially since the CBDT had not rejected the application. The Tribunal extended the benefit of deduction to the assessee, considering the public interest in infrastructure development.

Conclusion

The High Court upheld the Tribunal's decision, stating that the provision was enacted to benefit public corporations involved in infrastructure development. As the requirement of Central Government approval was deleted and the CBDT had not rejected the application, the assessee was entitled to the deduction. The substantial question of law was answered in favor of the assessee, and the appeal was dismissed.

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