TaxTMI 
TaxTMI 
2016 (3) TMI 372
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.... As a consequence, questions 1 to 3 in T.C.(A) No.1288 of 2007 and questions 1 to 5 in the other appeal alone survive for consideration. 4. Questions 1 & 2 in both the appeals relate to the exemption claimed by the assessee under Section 10(23G) of the Income Tax Act in respect of liquidated damages payable by a borrower to the assessee in the event of a borrower committing default in repayment of the loan advanced by the assessee. Therefore, we will group questions 1 & 2 in T.C.(A) No.1288 of 2007 and questions 1 & 2 in T.C.(A) No.1290 of 2007 together for easy appreciation. These questions read as follows:- "(1) Whether the Income Tax Appellate Tribunal erred in holding that the appellant was not entitled to the exemption under Section 10(23G) of the Income Tax Act in respect of liquidated damages? (2) Whether the Income Tax Appellate Tribunal ought to have held that liquidated damages were entitled to the exemption under Section 10(23G) of the Act inter alia as such liquidated damages fell within the definition of "interest" in Section 2(28A) of the Act?" 5. The assessing officer, by his order dated 30.3.2004 in relation to the assessment years 2000-2001 ....
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....mages would qualify for deduction under Section 10(23G), it is seen that Section 10 stipulated that any income falling within any of the clauses contained therein should not be included while computing the total income of a previous year of any person. Under clause (23G), any income by way of dividends (other than dividends referred to in section 115-O), interest or long term capital gains of an infrastructure capital fund or an infrastructure capital company or a co-operative bank from investments made on or after the first day of June, 1998 by way of shares etc., should not be included in the total income. Clause (23G) of Section 10 as it stood before it was omitted by the Finance Act, 2006 reads as follows:- "(23G) any income by way of dividends, other than dividends referred to in section 115-O, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company or a cooperative bank from investments made on or after the 1st day of June, 1998 by way of shares or longterm finance in any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (3) of section 80-IAB or....
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....iness of developing, maintaining and operating any infrastructure facility shall not be included and the provisions of this clause as it stood immediately before its amendment by the Finance (No.2) Act, 1998 (21 of 1998) shall apply to such income;" 10. The liquidated damages earned by the assessee to the extent of Rs. 2,98,617/- was admittedly on account of a default committed by a borrower. It will not fall under the category "income by way of dividends" under clause (23G) of Section 10. It may not even fall under the category of long-term capital gains etc. But the question is as to whether such income by way of liquidated damages would at least fall under the category of interest, as stipulated in Section 10(23G) or not. For finding an answer to this question, we may have to refer to the definition of the expression "interest" under Section 2(28A). The definition of the expression "interest" reads as follows:- "(28A) "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt i....
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.... cases, the lenders impose an obligation on the borrowers to pay the commitment charges, if after the sanction of the loan, the borrower could not make use of the funds upto a particular point of time. The definition of the word "interest" under Section 2(28A) includes even such commitment charges. Therefore we are of the considered view that all the three authorities committed a mistake in understanding the scope of the expression "liquidated damages" and in coming to a conclusion that the same would not come within the purview of the word "interest" under Section 2(28A). Hence the questions of law 1 & 2 in T.C.(A) Nos.1288 & 1290 of 2007 are answered in favour of the assessee. 14. Question No.3 in T.C.(A) No.1290 of 2007: The third question in T.C.(A) No.1290 of 2007 relates to what is known as Debt Syndication Fee. Insofar as this issue is concerned, the assessing officer held that the debt syndication fee is a fee charged by the assessee from the borrower, when the assessee funded the project not only from out of their own monies, but also by arranging finance from others. Therefore, in his order, the assessing officer held that though what is charged as debt syndication fee....
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.... loans organised from other financial institutions. In the absence of any indication either in Section 2(28A) or in 10(23G), we do not think that the distinction made out by the respondent could be approved. Hence the third question of law in T.C.(A) No.1290 of 2007 is also answered in favour of the assessee. 20. Debenture Trusteeship Fees: The fourth question in T.C.(A) No.1290 of 2007 relates to the question whether debenture trusteeship fees charged by the assessee/appellant would come within the meaning of the expression "interest" under Section 2(28A) or not. 21. The assessing officer construed debenture trusteeship fee as an income derived by the assessee, not from the primary business of lending carried on by them, but from an ancillary service rendered by them. The CIT(Appeals) approved of the same with a caveat that may be from the assessment year 2002-03, the assessee may be entitled to the benefit of Explanation 1(f) of Section 10(23G). In other words, the CIT(Appeals) was of the view that after the introduction of Explanation 1(f), debenture trusteeship fees would come within the purview of Section 10(23G) and not before. 22. The Tribunal simply affirmed the fi....
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....imous view that there is a distinction between the two types of deduction. The deduction allowable under Section 36(1)(viii), after its amendment under the Finance Act, 1995, is on the profits derived from business. The deduction allowable under Section 36(1)(viia)(c) is on the total income. Therefore the authorities held that the deduction under clause (viii) will have to be computed first before applying the deduction under clause (viia)(c). 28. But keeping aside the amendment introduced in 1995 for a moment, if we have a look at the import of Section 36(1) by itself, it is clear that sub-section (1) of Section 36 lists out the matters in respect of which deductions can be allowed while computing the income referred to in Section 28. Clauses (i) to (xi) of sub-section (1) of Section 36 did not make any of those matters dependent upon one another. If an assessee is entitled to the benefit under one clause of sub-section (1) of Section 36, the assessee was not deprived of the benefit of the other clause. This is how several clauses in sub-section (1) have been arranged. 29. It is true that before the amendment introduced under the Finance Act, 1995, the deduction to be allowe....