2015 (11) TMI 1305 - AT - Income Tax

Tribunal grants exemptions for interest, dividend income; upholds higher depreciation claim

Export Import Bank of India Versus ACIT, (OSD) Range-3 (1), Mumbai

Export Import Bank of India Versus ACIT, (OSD) Range-3 (1), Mumbai - TMI Issues Involved:1. Exemption of interest income under section 10(23G) of the Income Tax Act, 1961.2. Exemption of dividend income under section 10(34) of the Income Tax Act, 1961.3. Taxability of penal interest and interest received on non-performing assets (NPA) for periods before 31st March 1999.4. Depreciation allowance and the adoption of written down value (WDV) for assessment year 1999-00.Detailed Analysis:1. Exemption of Interest Income under Section 10(23G):- Ground No.1(a)(ii) & 2(a)(ii): The assessee contended that if exemption under section 10(23G) was to be granted at net interest income, then the deduction for interest cost should only relate to earmarked borrowings utilized for loans to enterprises whose interest income is exempt under section 10(23G). The AO argued that exemption should be on net interest income (gross interest income less interest cost). The Tribunal, referencing its own previous decisions and judgments from the Bombay High Court (CIT vs. HDFC Bank Ltd. and CIT vs. Reliance Utilities & Power Ltd.), held that the deduction for interest cost should only be for earmarked borrowings. Thus, the Tribunal allowed the assessee's grounds.2. Exemption of Dividend Income under Section 10(34):- Ground No.1(b) & 2(b): The assessee argued that exemption under section 10(34) should be on the gross amount of dividend income. The AO and CIT(A) had previously deducted notional interest and managerial costs. The Tribunal, referencing its own prior decisions and the Bombay High Court judgments, noted that the assessee had substantial own funds exceeding investments made. Therefore, no disallowance was warranted. The Tribunal allowed these grounds in favor of the assessee.3. Taxability of Penal Interest and Interest on NPAs:- Ground No.1(c) & 2(c): The assessee contended that interest and penal interest received on NPAs for periods before 31st March 1999 should not be taxed, as the income was exempt under section 37 of the Export-Import Bank of India Act, 1981. The AO included these amounts in taxable income, and the CIT(A) upheld this. The Tribunal, referencing its own previous decisions and the specific exemption under section 37, held that such income up to 31st March 1999 was exempt. Therefore, the Tribunal ruled in favor of the assessee, excluding the interest and penal interest from taxable income.4. Depreciation Allowance and WDV for Assessment Year 1999-00:- Revenue's Appeal: The AO computed depreciation at a lower amount by adopting WDV for the assessment year 1999-00, arguing that the income was chargeable to tax for that year. The CIT(A) allowed the assessee's higher depreciation claim, stating that WDV should be based on actual cost less depreciation actually allowed. The Tribunal upheld the CIT(A)'s decision, noting that the revenue had not contested this in earlier years, and thus, consistency was required. The Tribunal dismissed the revenue's appeal.Conclusion:The Tribunal ruled partly in favor of the assessee, allowing exemptions for interest and dividend income without deducting notional costs and excluding penal interest and interest on NPAs for periods before 31st March 1999 from taxable income. The Tribunal also upheld the higher depreciation claim by the assessee, dismissing the revenue's appeal.