TaxTMI 
TaxTMI 
2010 (1) TMI 1186
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....)(viii) will first be allowed and after computing total income before allowing deduction under Chapter VI-A and under section 36(1)(viia), deduction under section 36(1)(viia) will be allowed as the base for deduction under section 36(1)(viia) and 36(1)(viii) is not the same. 3. On the facts and in law the Commissioner of Income-tax (Appeals) ought to have held that the assessee was entitled to deduc tion under section 36(1)(viia) and under section 36(1)(viii) on the same income before making deduction under Chapter VI-A." 3. In the course of hearing of this appeal, it was pointed out by learned counsel for the assessee that an identical issue had come for consideration in the assessment year 1997-98 before the Income-tax Appellate Tribunal, Delhi Bench 'I', New Delhi, where these issues were decided against the assessee. A copy of the Tribunal's order dated April 30, 2009, was placed before us. A copy of the said decision was also provided to the learned Departmental representative. 4. In the light of the statement of the assessee, these issues shall stand decided in the light of the order of the Tribunal passed in the assessment year 1997-98 which reads ....
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....s). By following the earlier assessment orders, in this year also, it was held by the Asses sing Officer that deduction under section 36(1)(viii) shall be allowed on the remainder after allowance has been made under section 36(1)(viia) of the Income-tax Act, 1961 from the gross total income. Being aggrieved, the assessee carried the matter in appeal before the learned Commissioner of Income-tax (Appeals). 11. It was held by the learned Commissioner of Income-tax (Appeals) that the Assessing Officer had not correctly computed deduction under section 36(1)(viii) and 36(1)(viia). It is also held by the learned Commissioner of Income-tax (Appeals) that deduction under section 36(1)(viii) should be allowed at the rate of 40 per cent. of tax able income out of interest on rupee term loan amounting to Rs. 83,64,34,381. He has directed the Assessing Officer that on this amount, the Assessing Officer will determine the profit from business of providing long-term finance as computed under the head "Profits and gains of business or profession" before allowing deduction under section 36(1)(viii) of the Income-tax Act, 1961, and on the profits so determined, the assessee will be eligib....
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....(viia) or Chapter VI-A. From the wording of the provisions of this section, it is apparent that the total income to be considered for this purpose is to be computed before making any deduction under this clause, i.e., clause (viia) of section 36(1) of the Act and deductions allowable under Chapter VI-A and hence, all other deductions are to be consi dered and hence we find no merit in this claim of the assessee that the deduction allowable to the assessee under section 36(1)(viii) should not be reduced from total income for the purpose of comput ing deduction allowable under section 36(1)(viia). The claim of the assessee is merely on this basis that section 36(1)(viii) comes after section 36(1)(viia) and for this reason, this deduction should not be reduced from the total income. If we go on that basis, then any other deduction which is allowable under any section of the Income-tax Act, 1961, which is coming after section 36(1)(viia) cannot be reduced from the total income such as section 37(1), section 43B, etc. This is an absurd proposition. Regarding the judgment of the hon'ble Patna High Court rendered in the case of Bihar State Financial Corporation [1983] 142 ITR 518, we ....
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....al issue passed in the assessment year 1997-98, we decide the ground Nos. 4 and 5 accordingly. The Tribunal's order dated April 30, 2009 in the assessment year 1997-98 on these issues involved in ground Nos. 4 and 5 are as under : "16. Ground Nos. 4 and 5 are inter-connected, which read as under : 4. The Commissioner of Income-tax (Appeals) has erred in hold ing that except interest on rupee term loan, interest on equipment credit scheme, lease rental and financial change, dividends, profits on sale of investment, miscellaneous income, interest on deposits, other fees and charges do not fall within the ambit of income derived from the long-term finance and as such no deduction allowable under sec tion 36(1)(viii) of the Income-tax Act, 1961. 5. On the facts and in law the Commissioner of Income-tax (Appeals) ought to have held that interest on equipment credit scheme, lease rental and financial changes, dividends profit on sale of invest ments, miscellaneous income, interest on deposits, other fees and char ges should be considered as income from long-term finance business. 17. Briefly stated, the facts are that while deciding this issue rega....
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.... 40 per cent. of such income under section 36(1)(viii) of the Income-tax Act, 1961. Now, the asses see is in further appeal before us. 18. It is the submission of the learned authorised representative for the assessee that interest on deposits, interest on debentures, lease rentals, consultancy and other professional charges, legal fees, gua rantee commission, appraisal fee, financial charges, legal fees, interest on guarantee commission and miscellaneous income consisting of interest of staff housing loan, interest on vehicle advance to staff and interest on computer advance to staff, etc., are in fact income from business of the long-term finance and hence for the purpose of allow ing deduction under section 36(1)viii), these incomes should also be considered. 19. Regarding interest on deposits, it is submitted that this is only incidental to the business of long-term finance being carried on by the assessee and hence this should not be excluded. Regarding inter est on debentures, it is submitted that the debenture loan is also a loan coupled with the security of debenture certificates issued by the borrower company and hence it is also a loan only. When it was ....
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....s or profession'. The long-term finance is defined under clause (h) of the Explanation to section 36(1)(viii) as per which, the long-term finance means any loan or advance where the terms under which moneys are loaned or advanced provided for repayment along with interest there on during the period of not less than five years. From the above, it is clear that profits derived from long-term finance only can be considered for the purpose of allowing deduction under section 36(1)(viii) and hence these receipts as inter est on deposits, lease rentals, consultancy and other professional charges, legal fees, guarantee commission, appraisal fees, financial changes, interest on guarantee commission and miscellaneous income, etc., are not in the nature of income from long-term finance and hence these receipts cannot be included in total income for the purpose of computing deduction allowable to the assessee under section 36(1)(viii) of the Act. These receipts can be attributed to the income of business of providing long-term finance but it cannot be said that these are income derived from the business of providing long-term finance because the business of providing long-term finances, c....
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....that identical issue has been decided by the Tribunal vide its order dated April 30, 2009, in the assessment year 1997-98, we decide these issues in the light of the decision of the Tribunal in the assessment year 1997-98 which read as under : "27. Ground Nos. 8 and 9 of the appeal are inter-connected which read as under : 6. The order of the Commissioner of Income-tax (Appeals) confir ming the disallowance of claim of Rs. 2,76,74,270 for bad debts made by the Additional Commissioner of Income-tax arising on account of difference in interpretation of section 36(1)(viii) and 36(1)(viia) as concealment which is contrary to law and the facts of the case. 7. On the facts brought on record, the Commissioner of Income- tax (Appeals) should not have treated Rs. 2,76,74,370 as concealment. 28. Briefly stated, the facts are that as per the assessment order, the Assessing Officer has allowed deduction of Rs. 13,64,25,630 on account of bad debts. It is noted by the learned Commissioner of Income-tax (Appeals) in paragraph 76 of his order that in the inti mation under section 143(1)(a), the Assessing Officer has worked out excess deduction claimed by the ass....