2026 (4) TMI 654

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....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 Act in respect of Liquidated Damages, Underwriting Commission and Structuring Fees? 2. Whether the Income Tax Appellate Tribunal ought to have held that Liquidated Damages, Underwriting Commission and Structuring Fees were entitled to the exemption under Section 10(23G) of the Act inter alia as such receipts fell within the definition of "interest" in Section 2(28A) of the Act? 4. The aforesaid questions of law relate to entitlement to exemption under Section 10(23G) of the Income Tax Act, 1961 (in short 'Act') in respect of Liquidated Damages, Underwriting Commission and Structuring Fees. 5. Both Mr.Niraj Sheth, learned counsel for the appellant and Mr.T.Ravikumar, learned Senior Standing Counsel for the revenue would accede to the position that the entitlement qua Liquidated Damages has been considered by this Court in T.C.(A)Nos.1288 and 1290 of 2007 by decision dated 08.09.2015 and hence that issue stands squarely covered by the said decision in favour of the appellant. 6. As far as Underwriting Commission and Structur....

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....stor was guaranteed minimum return of 1.5% per month. In brief, the question was, whether the return of 1.5% would constitute 'interest' as defined under Section 2(28A) of the Act, warranting deduction of tax under Section 194A of the Act. 12. After a detailed discussion on the scope of the term 'interest' under Section 2(28A), the Division Bench has stated as follows: 11. The definition of the expression "interest" has been construed by this Court in Viswapriya Financial Services and Securities v. Commissioner of Income Tax, 258 ITR 496 to be more exhaustive. The Court held in the said case as follows:- "The definition of interest, after referring to the interest payable in any manner in respect of any moneys borrowed or debt incurred proceeds to include in the terms money borrowed or debt incurred, deposits, claims and "other similar right or obligation" and further includes any service fee or other charge in respect of the moneys borrowed or debt incurred which would include deposit, claim or other similar right or obligation, as also in respect of any credit facility which has not been utilised. This statutory definition regards amounts which may not otherw....

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....he eligibility in relation to Underwriting Commission and Structuring fee will be squarely covered by the same. Substantial question of law Nos.1 and 2 are answered in favour of the assessee and against the revenue. 15. The third substantial question of law reads as follows: 3. Without prejudice to above and in the alternative whether on the facts and in the circumstances of the case, the Tribunal ought to have held that the Liquidated Damages (in its entirety), Underwriting Commission and Structuring Fees were eligible for deduction under Section 36(1)(viii) of Act since the above amounts were earned from long term finance provided to infrastructure enterprises and in the event the income derived from such long term finance was not treated as "interest" eligible for exemption under Section 10(23G), the same were "profit" derived from business of long term finance of infrastructure facility and hence eligible for deduction under Section 36(1)(viii)? 16. Since the appellant is successful as far as substantial question of law Nos.1 and 2 are concerned, learned counsel on record for the appellant makes an endorsement not pressing this substantial question of law, but se....

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....y decisions of two different Division Benches of this Court in the assessee's own case for assessment years 2000-01, 2001-02 and 2002-03 in T.C.(A) Nos.1288 and 1290 of 2009 dated 08.09.2015 and T.C.(A)No.939 of 2008 dated 01.03.2019 respectively. 5. Hence, it would suffice for us to extract the discussion and reasoning in order dated 08.09.2015, which is the first order on this issue, as we concur with the same. The operative portion as aforesaid, reads thus: 26. In short, the question that falls for consideration is as to whether the deduction should first be allowed in terms of Section 36(1)(viii) for the application of the deduction under Section 36(1)(viia) (c). 27. All the three authorities were of the unanimous 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). ....

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....erence to income from other activities or from sources other than business. It is, therefore, proposed to limit the deduction of 40 per cent only to the income derived from providing long-term finance for the activities specified in section 36(1)(viii). It will thus take outside the purview of deduction, income arising from other business activities or from sources other than business." 31. If each of the clauses under sub-section (1) of Section 36 is independent in its operation and if each one of them does not depend upon the other clause for the extension of the benefit, then the interpretation given by the respondent cannot be accepted. 32. Yet another distinction brought forth by the learned counsel for the appellant, also deserves consideration. While the benefit of deduction under clause (viia)(c) is available to any public financial institution or State financial corporation or State industrial investment corporation, in respect of a provision for bad and doubtful debts, the benefit of the deduction under clause (viii) is available only for the financial corporations engaged in providing long-term finance for industrial or agricultural development or devel....