2024 (7) TMI 795

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....he files of the respondent. During the assessment year 2012-13, the appellant had received dividend income of Rs.1,77,26,110/- from its investments in shares and bonds. Though during the year the dividend income received on such shares and bonds was tax free, the shares and bonds in question were held by the appellant as trading assets. The trading and current assets were valued at cost or market price, whichever was lower at the end of the financial year, and consequent depreciation in the value of the same was taken into account in the financial accounts of the Company. The profit on the sales of shares/bonds was also returned and assessed as business income of the Bank. In respect of the expenditure incurred by the appellant for buying and selling securities, the appellant claimed deduction while computing the profits and gains of business. The said claim for deduction was however disallowed by the assessing authority under Section 14A of the Act. 3. The assessing authority was of the view that in as much as the appellant-Bank had not maintained separate accounts to show that the investment in shares and bonds had been made from surplus funds available with it and not using the....

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....'. The reasoning of the Appellate Tribunal, while confirming the view of the assessing officer, was that after the amendment, and the deletion of the words 'construction or purchase of houses in India for residential purposes' from the definition of eligible business in relation to a Banking Company, the deduction envisaged for a Banking Company could not be availed in a situation where the bank was engaged in providing long term finance for construction or purchase of house for residential purposes, since that deduction was available only to Housing Finance Companies after the amendment. 6. In this connection, it is relevant to note that the explanatory notes to the provisions of the Finance (No.2) Act, 2009 state as follows with regard to the reasons for the amendment effected in Section 36(1)(viii) of the Act with effect from 01.04.2010: "17. Special deduction under Section 36(1)(viii) to National Housing Bank (NHB) 17.1 Clause (viii) of sub-section (1) of Section 36 [Section 36(1)(viii)] provides special deduction to financial corporations and banking companies of an amount not exceeding 20% of the profits subject to creation of a reserve. 17.2 National Hou....

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....onfine the benefit available to a Housing Finance Company only in relation to the provision by it of long term finance for the construction or purchases of houses in India for residential purpose. 9. We therefore, cannot agree with the finding of the Appellate Tribunal that in as much as the providing of long term finance for construction or purchases of houses in India for residential purpose was an activity that qualified for deduction under Section 36(1)(viii) only for Housing Finance Companies, the same activity would not qualify for deduction in relation to a Banking Company. The phrase 'Development of Housing in India' is wider in its scope and ambit and includes within its ambit the phrase 'construction or purchase of houses in India for residential purposes'. 10. We are therefore of the view that even after 01.04.2010, the appellant Bank would be entitled to the deduction envisaged under Section 36(1)(viii) of the Act in respect of the long term finance provided by it for construction and purchase of houses in India for residential purpose. 11. There is yet another aspect of matter. If the interpretation given to the provisions by the Appellate Tribunal i....

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....ee for the assessment year in question. the deduction under Section 36(1)(vii) of the Act would be available to the assessee. 15. We are inclined to allow the said request of the learned Senior Counsel in respect of the said issue and remit the matter to the Appellate Tribunal for a consideration as to whether the claim for deduction made under Section 36(1)(viia) of the Act could be considered in terms of Section 36(1)(vii) of the Act. 16. In the backdrop of the aforesaid discussion, we must proceed now to consider the questions of law raised in these I.T. Appeals. They read as follows : I.T.A.No.165 of 2019 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in confirming disallowance under Section 14A of the Income Tax Act? 2. Whether on the facts and in the circumstances of the case and when the shares and bonds from which tax free income by way of dividend is received is held by the Appellant as trading assets any amount can be disallowed under Section 14A with respect to such dividend income? 3. Whether on the facts and in the circumstances of the case and in the event it is held that Section 14A is applicable, the quantu....