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TaxTMI 
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TaxTMI 
2013 (11) TMI 1328
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....nadu Government, had in its returns for the impugned years, claimed deduction under section 36(1)(viii) on its lease income, hire charges as well as interest received on deposits. These were in addition to its claim for similar deduction on interest on long term finance given by it to various concerns. Assessing Officer had declined to consider the former claim taking a view these were not income derived from Long term finance. Assessee had moved in appeal against the denial of deduction under section 36(1)(viii) of the Act, first before the CIT(A) and then before this Tribunal. This Tribunal had remitted the issue with regard to the claim of assessee for deduction under section 36(1)(viii) of the Act, on items other than interest on direct long term finance, back to the file of the Assessing Officer for consideration afresh. Such directions were given by the Tribunal for a reason that lower authorities had not gone into the aspect whether such deductions claimed assessee fell within the scope of Explanation (e) of the said section. This Tribunal noted that deduction under section 36(1)(viii) was available only to profits derived from a business of long term finance and since term ....
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....there was no lending of money when goods were given on hire or lease. Assessing Officer also noted that assessee has claimed depreciation on leased assets, thereby showing that there was no element of financing in such leasing. Further as per the Assessing Officer, assessee had claimed exemption from Interest Tax Act on hiring income received for a reason that such income was not interest. Assessee had claimed depreciation on assets given on hire as well. Effectively, he denied the deduction claimed under section 36(1)(viii) to the assessee on its earnings from leasing, earnings from hiring and interest on deposits with bank. Its claim was allowed only in respect of interest on long term fiancé. 7. Assessee moved in appeal before the CIT(A) once again. Argument of the assessee was that its entire income was derived from long term finance, provided to Tamilnadu Electricity Board, whatever the classifications were. According to the assessee, long term finance included not only direct loans, but also indirect loans in the form of hire purchase, leasing and other advances. Argument of the assessee was that the agreements of hire purchase and lease were effectively only for fina....
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....Explanation (e) to the said section and neither hire purchase income nor the lease income fell under the definition. Further, according to him, what could be allowed was only income derived from a business of providing long term finance and nothing more. A direct nexus with the business of providing long term finance was to be shown and if such nexus was not there, the income will not be eligible for claiming deduction under section 36(1)(viii). According to him, Ld. CIT(A) fell in error when he attempted a distinction between hire finance income and lease rental income. Neither hire purchase income nor lease income had any direct connection with the business of providing long term finance. Reliance was placed on the decision of Co-ordinate Bench in ITA No.530 & 531/03, 1497/04, 1561 & 1562/06 dated 20th July, 2007 in assessee's own case in which it was held that word 'derive' used in Section 36(1)(viii) would not bring under its sweep, items of income which were not having immediate nexus with long term financing business. D.R. also placed reliance on the decision of Delhi bench of this Tribunal in the case of Tourism Finance Corpn. of India Ltd. v. Jt. CIT [2010] 2 ITR (Trib) 1 a....
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....nd heard rival contentions. We find that the matter was earlier considered by this Tribunal for very same Assessment Year and remitted back to the Assessing Officer for consideration afresh with following directions:- "The learned counsel of the assessee has submitted that the assessee is solely a long term lending institution and its resources and applications have nexus with long term finance. It has been submitted that deduction u/s 36(1)(viii) contemplates benefit of deduction to be given to approved financial corporations on the profits derived from business of providing long term finance and the benefits is not limited to "profit from providing long term finance" but from profit derived there from. Finance can be in many ways viz., loans, equities, hire purchase, lease, investments and deposit. These all can be and are in fact for long term. Hence, the entire income is from business of providing long term finance and the assessee has no other business. The learned departmental representative in rebuttal of the aforesaid claim placed reliance upon the sanguine provisions of section 36(1)(viii) and the explanation thereto which reads as under: ....
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....mpels the Court to adopt an approach different from that dictated by any rule of logic, the Court may think of adopting it. It further transpires that the circular explaining the rationale for amendment in section 36(1)(viii) reads as under.: "It was noted that many of these approved financial corporations/approved public companies had diversified their activities and were claiming deduction under this section even in respect of their income derived from activities other than those specified in this section. As there was no justification for allowing the deduction with reference to income from other activities or from sources other than business the Finance Act, 1995, has amended section 36(1) (viii) to limit the deduction to 40 per cent only in respect of income derived from providing long term finance for the activities specified in section 36(1)(viii). Now, income arising from other business activities or from sources other than business will not be taken into account for computing deduction under section 36(1)(viii)." Considering the present case, particularly in the light of the CBDT circular clarifying the rationale behind ....
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.... long term finance whether income from such activities could be considered as derived from business of providing long term finance. For deciding these issues, primary requirement, in our opinion, is to see the agreements based on which assessee had provided such facilities to M/s. Tamilnadu Electricity Board or to any other customer, for that matter. Without going through terms of the hire agreement and terms of the lease agreement, if one was to come to a conclusion that it was a simple case of financing, it will be terra figmenta and not terra firma. The terms entered in between the parties will decide the nature of the transactions. Substance of such agreement will show whether the intention was only financing or the intention was leasing or hiring. We also find some contradictions between the findings of the CIT(A) and the findings of the Assessing Officer. Assessing Officer states in his order that assessee had claimed depreciation both for leased assets as well as hired assets, whereas the CIT(A) in his order says that assessee had not claimed depreciation on assets hired out. Further, Assessing Officer mentions in his order that hire purchase income was claimed by the assess....
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.... purchase income, back to the file of Assessing Officer for consideration afresh in accordance with law. 14. The finding of the Assessing Officer that interest on short term deposits was not eligible for the deduction under section 36(1)(viii), which were confirmed by the CIT(A), in our opinion, is in accordance with law. Deposits can never be treated on par with loans or advances. Therefore, interest on deposits will never fall within the definition of long term finance given in Explanation (e) to section 36(1)(viii) of the Act. We do not find any merit in this ground taken by the assessee in its appeal for A.Y. 2007-08. 15. Revenue has taken a ground regarding levy of interest Under section 234D in their appeals for Assessment Years 1997-98, 1999-00, 2000-01, 2001-02, 2002-03, 2003-04 & 2006-07. Ld. CIT(A) held that such levy was applicable only from Assessment Year 2004-05 relying on the decision of Delhi Special Bench of Tribunal in the case of ITO v. Ekta Promoters (P.) Ltd. [2008] 113 ITD 719. However, we find that Hon'ble jurisdictional High Court in the case of CIT v. Infrastructure Development Finance Co. Ltd. 340 ITR 580 has held that where regular assessment was comple....