TaxTMI 
TaxTMI 
TaxTMI 
2013 (5) TMI 123
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....ed as income from long term housing finance. The assessee replied by saying that the company has included the penal interest and pre-closure charges, for special reserve calculation which are collected from the housing loan borrowers who have availed housing loan for periods of 5 years and above. The penal interest is levied for delayed payment of interest and/or monthly instalments and the preclosure charges are levied for early closure of the loan as per the norms of the company. Hence, these incomes are in the nature of long term only and the company does not lend individual housing loans for a period of less than five years. 3. The Assessing Authority did not accept the said explanation. As per Section 36(1)(viii) of the Act, 40% of the profit derived from providing long term finance only is eligible for deduction. Profits derived from the loan, the terms of which stipulate repayment within a period of more than 5 years only are eligible for deduction. The income in respect of loans closed before 5 years does not come under income from long term finance. Processing fee is derived from the normal business activity, which is independent of terms and conditions of loan, quantum o....
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....computing the regular income but only to reduce the liability for MAT income the assessee failed to give the uniform treatment. Therefore, he removed the said defect by adding the said incomes for the computation of MAT income. Aggrieved by the said order, the assessee preferred an appeal. The Appellate Authority following the judgments of the Supreme Court, Mumbai and Delhi Tribunals deleted the addition of lease equalization reserve and provision of contingency to the book profit under Section 115JA(2) and 115JB(2) for assessment years 2000-01 and 2001-2002 respectively. Aggrieved by the said order, the Revenue preferred an appeal to the Tribunal. The Tribunal did not find any infirmity with the said order and therefore dismissed the appeal. Aggrieved by the said order, the Revenue is in appeal. Therefore two substantial questions of law which arise our consideration in these appeals are as under: 1. Whether the Tribunal is right in holding that the miscellaneous income of Rs.30,63,000/- derived from penal charges, processing fee and other income can also be treated as eligible profit for the purpose of deduction under Section 36(1)(viii) of the Act when deriving in....
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....ce where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years:]" 7. Section 36 of the Act deals with other deductions, which are not specifically provided under the Act. It deals with profit derived from long term finance. Long term finance has been defined to be any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years. Once this condition is fulfilled then the main provision provides an amount not exceeding 40% profit derived from such business of providing long term finance is already to such reserve account. In other words, that amount is not taxable. How the profits from the said long term finance is to be computed is also made clear. The said profit is to be computed under the head profits and gains of business or profession before making any deduction under this Clause. In the instant case, it is not in dispute that the assessee is in the business of long term finance. As it is clear from the agreement, the amount loaned has to be repaid within a period of 7 years. Now ....
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....ond the first degree. There cannot be any quarrel with the said propositions. 9. In the instant case, the assessee is in the business of long term finance. In order to carry on the said business, a debtor, who needs the assistance, has to make an application in writing. To consider the said application before granting loan, the assessee collects processing charges. After the debtor is found to be eligible to grant loan, agreements are entered into and thereafter loan is advanced. The amount has to be repaid with interest within 7 years period for repayment of the loan. The agreement also contains the stipulation that the amounts are not paid periodically as agreed to, the debtor has to pay penal interest. If the debtor chooses to repay the amount and fore close before the agreed period, then not only he has to pay the loan amount plus interest, he has also to pay additional interest, as he is not entitled to the benefit in respect of lower rate of interest, which was spread over the period of 7 years. All these amounts, which are paid by the debtor to the assessee, have a direct nexus with the business, which he is carrying on. All these incomes are derived from the business, whic....
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.... the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; [(g) the amount or amounts set aside as provision for diminution in the value of any asset," 11. This provision applies to only companies. If the total income of the company has computed under the provisions of this Act is less than 30% of book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to 30% of such book pro....