TaxTMI 
TaxTMI 
2013 (8) TMI 1107
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....ssee was not liable for any tax, the assessee was also not obliged to file its return of income. 4. With the omission of section 37 of Export Import Bank of India Act, 1981, by the Finance (No. 2) Act, 1998, the assessee became liable to tax regimen w.e.f. 01.04.1999. As a result thereof, the first financial year for the assessee was 01.04.1999 to 31.03.2000, being assessment year 2000-01, being the impugned assessment year. 5. Being a corporation, the assessee was in any case maintaining regular books of accounts from its inception, but since the assessee was not liable for any statutory levies, it was not filing its returns anywhere. 6. Since section 37 of Export Import Bank of India Act, was omitted the assessee, on the basis of an opinion, filed its return of income for assessment year 1999-2000 with a note that, as per law, the exemption under section 37 remains in force upto 31.03.1999 and it gets its life from financial year starting from 01.04.1999. This was denied and the AO proceeded to frame assessment under section 143(3) for assessment year 1999-2000. That appeal was separately perused by the assessee, which came upto the ITAT, and, in ITA no. 7360/Mum/2005, t....
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....ranted at gross interest income. (ii) without prejudice to the above and in the alternate, in any view of the matter, held that if the exemption under Section 10(230) of the Act is to be granted at net of interest cost , then, the deduction for the interest cost incurred is to be taken only in relation to earmarked borrowings utilized by the appellant for the purpose of granting loans to the enterprises , interest income whereof is exempt under Section 10(230) of the Act. (b) (i) held that exemption under Section 10(33) of the Act is to be granted on gross dividend income; (c) held that interest and penal interest received during the year of Rs. 50,89,66,421 on Non-Performing Asset (NPA) pertaining to the financial years ended upto 315t March, 1998 , being the relevant financial years upto which the income of the appellant is not subject to income tax as well as for the year ended 3 March, 1999 the chargeability of income whereof is subject to acceptance by the Hon. Appellate Tribunal, cannot be assessed for the year. 3. It is humbly prayed that the reliefs as prayed and such other and further reliefs as may be justified by the facts and circumst....
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....n by the assessee is interest income. The, expenditure attributable to the investment under section 10(23G) would be allowable against the interest income. 5.23 If the Department does not do this exercise, then an anomalous situation would arise, when expenditure of this venture would have to be allowed against the income from different ventures. Such expenditure cannot be allowed because such expenditure would not be incurred for other ventures. The claim of any expenditure can be allowed only against some income for which such expenditure is incurred. "5.24 In our ease, the income from such activity is tax-free income. No other income is produced from that venture that should qualify for allowability of expenditure. It is not permissible to set off an item of receipt from out of an item of expenditure unrelated to former or incurred in a different connection. The ratio of decision of Supreme Court in the case of Garden Silk Weaving Mills (supra) that income from each source should be determined would be applicable. Even the Supreme Court in Rajasthan State Warehousing Corporation held that principle of apportionment Of expenditure will apply if all ventures do n....
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....hich arises from letting of godowns for facilitating the marketing of commodities. The High Court held that the income which was independent of letting of godowns / warehouses could not be considered to be exempt. 5.28 The Supreme Court (237 ITR 906) held (Page 603): "that the questions of exemption would arise pertaining to that part of the income only which arises or is derived from the letting of godowns. The statute has been rather categorical and restrictive in the matter of grant of exemption : storage, processing or facilitating the marketing of the commodities are definitely regarded as three different forms of activities which are entitled to exemption in the event of there being any income therefrom. We do not lend our consequence to the view expressed by the Madhya Pradesh High Court (133 ITP 158) and record that in the event the letting of godowns or warehouses is for any other purpose or if the income is derived fron7 any other source, then in that event such an income cannot possibly come within the ambit of section 10(2) of the Act and is thus not exempt from tax. The facts in issue pertaining to the interest income on fixed assets or ascribing the ....
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.... case. 5.31 In view of the above discussion, it is held that the assessee is eligible for exemption under section. 10(23G) of its 'income' (net interest) on infrastructure financing. This view has been re-affirmed by the CBDT vide Circular No. 730 dated 4.10.1999 clarifying that what is exempt under section. 10(23G) is the net income after reducing expenditure and not the gross receipts. This view was further reiterated by the amendment to Income Tax Act by the Finance Act 2001 with the insertion of section 14A. Considering this and based on the discussion above, it is clear that exemption available to the assessee will be for net income earned from infrastructural financing. 5.32 Coming to the quantum of expenses, the assessee has furnished the interest expenses at Rs. 9,14,24,110/- on the foreign currency loans which were directly used for financing infrastructure projects. The same was reduced by the assessee on its own from the interest income of infrastructure companies which is eligible for deduction under section 10(23G). Over and above, the assessee has also used rupee-funds., which were raised domestically for the said purpose. Since the average rate of i....
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....ities. But the issue is with regard to restriction of the exemption at a lower figure, which is basically the interest expenses on rupee advances. 17. On the basis of these arguments, the AR pleaded that the assessee was eligible for exemption under section 10(23G) and also on the amount on which it has been claimed, which the assessee took as an alternative plea. 18. The DR on the other hand submitted that the revenue authorities were very reasonable in their orders, wherein, they have allowed the exemption, but have taken only the net qualifying amount, instead of the gross figures, which the assessee has taken. 19. We have heard the rival contentions and the short issue before us is whether the exemption is to be allowed at Rs. 8,58,00,484/- or Rs. 6,70,94,603/-, as restricted by the AO. 20. From the details reproduced by the AO, we find that the impugned figures are expense of interest on loan given to Gujarat Pipavo Port Ltd. at Rs. 1,21,86,219/- and to Information Tech. Part at Rs. 65,19,660/-, being other then foreign currency borrowings. 21. Assessee is neither a company registered under the Companies Act nor is it a Banking Company as per the Banking Regulat....
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.... What is exempt under section 10(33) of the I.T. Act is any income and not gross receipts. To clarify the issue section 10(33) is quoted below: - "Any income by way of' (i) Dividend referred to section 115-0, or From the above it is very clear that what is exempt is the dividend minus expenses incurred for earning the dividend. 6.3 In view of the above, the assessee was asked to explain as to why deduction under section 10(33) shall riot be re-computed taking the expenses incurred for earning such dividend income into consideration. The assessee vide its letter dated 23.1.2002 submitted the explanation which are summarized as below: (a) There is no specific borrowings made at interest for the purpose of making investments in shares/units of UTI/Mutual Funds on which dividend is received; (b) Investment made and held in shares/units of UTI/Mutual Funds and on which dividend income is received, represents one of the activity of the indivisible business of the assessee. For the purpose, my attention is drawn to Chapter IV, Clause 10(2) of the Export Import Bank of India Act, 1981; (c) What is required to be exempt under section 10(33) of t....
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....r No. 780 dated 7.10.1999 is also valid for deduction under section 10(33). Through this Circular the Board clarified what is exempt is net income after reducing expenditure and not the gross receipt. Section 14A was introduced by the Finance Act 2001 w.e.f. 1.4.1962. The said section says no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of total income. The dividend being exempted income under section 10(33), accordingly as per the provisions of section 14A, the dividend is allowed as exempt only after deduction of expenses for earning such dividend. Various judicial pronouncements which supported this view were discussed above in the context of exemption under section 10(23G). Accordingly, the same were not discussed again. 6.6 In view of the various decisions, Circular No. 780 dated 4.10.1999, section 14A, the deduction was allowed to the assessee on net dividend. 6.7 Coming to the quantum of expenses, the assessee submitted vide Annexure-B the total expenses attributable for earning such dividend at Rs. 14,38,55,041/-. While arriving at the same the assessee has taken average rate o....
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...., as in the earlier ground of appeal and decision taken therein, this ground, also deserves to be allowed in favour of the assessee. 35. The ground of appeal, is therefore, allowed. 36. Effective ground no. 3 is with regard to taxing penal interest and interest on Non Performing Asset (NPA) upto 31.03.1998, for which there was no liability of tax on the assessee. 37. It is seen from the orders of the revenue authorities that they have virtually followed the line adopted by the revenue authorities in the preceding year. It has to be mentioned that in the preceding year, the orders of the revenue authorities were quashed by the coordinate Bench, as there was no exigibility of tax upto 31.03.1999. In this circumstance, the idea of reliance on the preceding year has to be put in oblivion. We have to examine the taxability of income in the current year, when section 37 of Export Import Bank of India, 1981 was repealed. 38. It is a fact that the assessee was maintaining books of accounts in the form, as applicable. This is also a fact that any income/loss shown in its accounts were just figure work, because, the assessee was neither eligible nor liable nor obliged to file any....
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....he assessee is allowed for statistical purposes. 42. Before parting, we acknowledge that plethora of decisions have been cited and submitted by the assessee, during the course of appeal before us. We have considered the decisions, in the light of our observations, in each of the grounds of the appeal taken, we do not find it necessary to get into the decisions and details/merits/ratios as decided in the cited cases, as filed in the paper books. ITA No. 7362/Mum/2005, AY 2001-02 : ITA No. 7363/Mum/2005, AY 2002-03 : 43. Since the issues involved in these two assessment years are identical as that in assessment year 2000-01, in ITA No. 7361/Mum/2005. Following the decisions taken by us in the respective grounds in ITA No. 7361/Mum/2005, we follow the decisions taken in each of the grounds on the grounds of appeal, taken in these two appeals, i.e. assessment years 2001-02 and 2002-03. 44. The appeals, as filed in assessment years 2001-02 and 2002-03 are allowed. In the result ITA No. 7361/Mum/2005 for assessment year 2000-01 is allowed ITA No. 7362/Mum/2005 for assessment year 2001-02 is allowed ITA No. 7363/Mum/2005 for assessment year 2002-03 is allowed ....