Tribunal denies deductions under section 36(1)(viii) for assessment years 2003-04 to 2009-10

The Tribunal dismissed the appeals for the assessment years 2003-04 to 2009-10, holding that the assessee is not entitled to deductions under section 36(1)(viii) for these years. Regarding the loss on securities transactions, the Tribunal directed the Assessing Officer to re-examine whether the loss was incurred during the course of business and whether it should be allowed as a revenue loss in the year it was incurred.

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Issues Involved:
1. Disallowance of claim under section 36(1)(viii) of the Income Tax Act.
2. Allowability of loss on securities transactions.

Issue-wise Detailed Analysis:

1. Disallowance of Claim under Section 36(1)(viii) of the Income Tax Act:

Facts:
The assessee, a financial institution set up under the National Housing Bank Act, 1987, claimed deductions under section 36(1)(viii) of the Income Tax Act for various assessment years. The assessee's primary business involves providing refinance to banks and housing finance companies.

Arguments by the Assessee:
- The assessee contended that its business of providing long-term finance for the purchase of houses in India qualifies as "eligible business" under section 36(1)(viii).
- The amendment in Finance Act 2009, which explicitly included refinancing activities, should be considered clarificatory and hence retrospective.

Arguments by the Revenue:
- The Revenue argued that the assessee's role is to promote housing finance institutions and not to provide long-term finance for the construction or purchase of houses directly.
- The amendment in Finance Act 2009 is prospective and not retrospective.

Tribunal’s Findings:
- The Tribunal noted that the assessee provides refinance to housing finance companies and not direct finance for the purchase of houses, which is a primary condition for eligibility under section 36(1)(viii).
- The amendment in Finance Act 2009, which included refinancing activities, is prospective and applicable from AY 2010-11 onwards.
- The Tribunal upheld the disallowance of the claim for deduction under section 36(1)(viii) for the assessment years prior to AY 2010-11.

Conclusion:
The Tribunal dismissed the appeals for the assessment years 2003-04 to 2009-10, holding that the assessee is not entitled to deductions under section 36(1)(viii) for these years.

2. Allowability of Loss on Securities Transactions:

Facts:
The assessee claimed a loss of Rs. 150,45,32,696/- on securities transactions related to the year 1991-92. The loss arose due to a fraudulent transaction involving the stockbroker Harshad Mehta.

Arguments by the Assessee:
- The loss should be allowed as a business loss since it arose from the normal course of business activities.
- The loss was crystallized during the year under consideration due to a Supreme Court order.

Arguments by the Revenue:
- The Revenue contended that the loss is capital in nature as it pertains to the purchase of securities, which are capital assets.
- The loss does not relate to the previous year under consideration.

Tribunal’s Findings:
- The Tribunal observed that the loss is related to the purchase of securities and is capital in nature.
- The Tribunal noted that the assessee failed to provide concrete evidence to establish that the loss was a business loss and not a capital loss.
- The Tribunal directed the Assessing Officer to re-examine whether the loss was incurred during the course of business and whether it should be allowed as a revenue loss in the year it was incurred.

Conclusion:
The Tribunal set aside the issue of the allowability of the loss on securities transactions to the Assessing Officer for re-examination.

Final Order:
- Appeals related to the disallowance under section 36(1)(viii) were dismissed.
- The issue of the allowability of the loss on securities transactions was remanded back to the Assessing Officer for re-examination.

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