Deduction for long-term finance entities under Section 36(1)(viii) applied to a bank treated as a financial corporation

For assessment year 2007-08, the assessee bank was entitled to deduction under Section 36(1)(viii) of the Income-tax Act because the relevant provision covered a financial corporation engaged in long-term finance, and the Explanation included a public company and a Government company within that expression. The bank satisfied the definition of a public company under the Companies Act, 1956 and also qualified as a Government company because the Government of India held 51% of its shares. The later amendment to Section 36(1)(viii) with effect from 01.04.2008 did not affect eligibility for the earlier year, so the deduction was available.

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Issues: Whether the assessee bank was entitled to deduction under Section 36(1)(viii) of the Income-tax Act, 1961 for the assessment year 2007-08, notwithstanding that the provision was later amended with effect from 01.04.2008.

Analysis: The relevant version of Section 36(1)(viii) extended the deduction to a financial corporation engaged in long-term finance and the Explanation expressly included a public company and a Government company within that expression. The assessee bank satisfied the definition of a public company under Section 3 of the Companies Act, 1956 and was also a Government company within Section 617 of the Companies Act, 1956 since the Government of India held 51% of its shares. On that basis, the assessee fell within the statutory expression 'financial corporation' for the relevant assessment year.

Conclusion: The assessee was eligible for deduction under Section 36(1)(viii) of the Income-tax Act, 1961 and the issue was decided in favour of the assessee.

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