2012 (9) TMI 1266 - HC - Income Tax

Tax exemption under SIDBI Act applied to income before repeal; tax liability arises only after the repeal.

Section 50 of the Small Industries Development Bank of India Act, 1989 exempted the Bank's income from income tax; that exemption remained effective for ... Exemption under Section 50 of the Small Industries Development Bank of India Act, 1989 - effect of deletion with effect from 1 April 2002Exemption under Section 50 of the Small Industries Development Bank of India Act, 1989 - effect of deletion with effect from 1 April 2002 - Whether the assessee was liable to pay income tax for assessment year 2002-03 in view of the omission of Section 50 of the SIDBI Act with effect from 1 April 2002 - HELD THAT: - The Court held that Section 50 of the SIDBI Act, 1989 conferred exemption from income tax on income, profits and gains received by SIDBI and that the exemption was omitted with effect from 1 April 2002. Applying the reasoning in Mc Dermott International (173 ITR 155) and having regard to this Court's decision in the related matter for subsequent years, the Court concluded that income derived by SIDBI for the period ending 31/3/2002 remained covered by the exemption and therefore was not chargeable to income tax. The questions raised by the revenue were treated as infructuous in light of the Court's earlier decision, and no error was found in the ITAT's approach in following that precedent. [Paras 3, 4]The assessee is not liable to pay income tax in respect of income derived for the period ending 31/3/2002 as Section 50's exemption applied until its omission with effect from 1 April 2002.Final Conclusion: The appeal is dismissed; no substantial question of law arises and the ITAT's judgment is upheld insofar as it held that income for the period ending 31/3/2002 was not chargeable to tax due to the operation of Section 50 of the SIDBI Act until its omission effective 1 April 2002. Issues: (i) Whether Section 50 of the Small Industries Development Bank of India Act, 1989 was applicable so as to exempt the assessee from income tax for the period ending 31/3/2002 (assessment year 2002-03), notwithstanding the omission of Section 50 by the Finance Act, 2001 with effect from 1/4/2002.Analysis: The Court noted that Section 50 of the SIDBI Act, 1989 provided an exemption of income, profits and gains of the Bank from income tax. The Finance Act, 2001 effected deletion of Section 50 with effect from 1/4/2002. The ITAT's order under challenge followed the Court's earlier decision in Mc Dermott International (173 ITR 155) and applied the legal consequence that the exemption under Section 50 remained effective for income derived up to 31/3/2002, and that the omission with effect from 1/4/2002 made the Bank liable to tax only for periods commencing on or after that date. The Court further observed that the questions raised by the revenue were rendered infructuous by the Court's decision in the companion matter relating to assessment year 2003-04 and that no substantial question of law survived.Conclusion: The exemption under Section 50 of the Small Industries Development Bank of India Act, 1989 applied to income derived up to 31/3/2002; the omission of Section 50 with effect from 1/4/2002 means the assessee was not liable to pay income tax in respect of income derived for the period ending 31/3/2002, and the revenue's appeal is dismissed.