DCIT, CHENNAI V. Sundaram BNP Paribas Home Finance Ltd., CHENNAI

ITA 1981/CHNY/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7820 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2016
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 26-10-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 21-07-2014
• Court: TRIBUNAL
• Department Lawyers: DURAI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI , ! . ' #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.1895/MDS/2014 / ASSESSMENT YEAR : 2005-06 M/S.SUNDARAM BNP PARIBAS HOME FINANCE, SUNDARAM TOWERS, 46, WHITES ROAD, CHENNAI-600 014. VS. THE ASST. COMMSSR. OF INCOME TAX, COMPANY CIRCLE-VI(4), CHENNAI-600 034. [PAN:AADCS 4826 J] ( %& / APPELLANT) ( '(%& /RESPONDENT) ./ I.T.A.NO.1981/MDS/2014 / ASSESSMENT YEAR : 2005-06 THE ASST. COMMSSR. OF INCOME TAX, COMPANY CIRCLE-VI(4), CHENNAI - 600 03 4. VS. M/S.SUNDARAM BNP PARIBAS HOME FINANCE, SUNDARAM TOWERS, 46, WHITES ROAD, CHENNAI-600 014. [PAN:AADCS4826J] ( %& / APPELLANT) ( '(%& /RESPONDENT) ASSESSEE BY : MR.R. VIJAYARAGHAVAN, ADVOCATE REVENUE BY : MR. DURAIPANDIAN / DATE OF HEARING : 2 6 .10.2016 / DATE OF PRONOUNCEMENT : 19 .12.2016 ITA NO.1895 /MDS./2014 :- 2 -: ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS OF THE ASSESSEE AND THE REV ENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI, CHENNAI, DATED 31.03.2014 PERTAINING TO ASSESSMENT YEAR 2005-06. FIRST WE TAKE UP ASSESSEES APPEAL 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL IS WITH REGARD TO CONFIRMING THE DISALLOWANCE U/S.36(1)(VII I) OF THE ACT IN RESPECT OF THE INTEREST ON MORTGAGED BACK SECURITY OF ` 41,72,737/- AND INTEREST FROM LOANS ADVANCED TO DEPOSITS HOLDERS OF ` 1,22,963/-. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE CL AIMED DEDUCTION U/S.36(1)(VIII) OF THE ACT IN RESPECT OF INTEREST ON MORTGAGED BACK SECURITY OF ` 41,72,737/- AND INTEREST FROM LOANS ADVANCED TO DEPOSIT HOLDERS OF ` 1,22,963/- WAS REJECTED BY THE LOWER AUTHORITIES ON THE REASON THAT IT WAS NOT MANDATORY INVESTMENT AS REQUIRED BY ANY STATUTORY REQUIREMENTS BY CARRYING ON BUSINESS BY PROVIDING LOANS AND HOUSING FINANCES. ACCORDING TO AO, THESE INCOM ES FROM INTEREST ON THESE ACTIVITIES CANNOT BE TERMED AS DERIVED INC OME FROM LONG TERM FINANCE. THE INCOME RECEIVED AS NO DIRECT NEXUS OR IS NOT INCIDENTAL TO THE LONG TERM HOUSING FINANCE. ACCORDINGLY, THE AO DISMISSED THE CLAIM OF THE ASSESSEE U/S.36(1)(VIII) OF THE ACT IN RESP ECT OF INTEREST ON ITA NO.1895 /MDS./2014 :- 3 -: MORTGAGED BACK SECURITY AND INTEREST FROM LOANS ADV ANCED TO DEPOSIT HOLDERS. THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) CONFIRMED THE ACTION OF THE A O ON THIS ISSUE. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, LD.A.R SUBMITTED THAT ONLY THE NET I NTEREST TO BE CONSIDERED FOR DISALLOWANCE U/S.36(1)(VIII) OF THE ACT AND NOT THE GROSS INTEREST. THE LD.A.R RELIED ON THE ORDER OF LOWER AUTHORITIES. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AS RIGHTLY POINTED OUT BY THE LD.D.R, PROVI SIONS OF SEC. 36(1)(VIII) ARE APPLICABLE ONLY IN RESPECT OF LOANS GRANTED FOR CONSTRUCTION OR PURCHASE OF HOUSE IN INDIA FOR RESI DENTIAL PURPOSE, AS SUCH LD.CIT(A) RIGHTLY CONFIRMED THE DISALLOWANCE. HOWEVER, WHILE COMPUTING THE DISALLOWANCE U/S.36(1)(VIII) OF THE A CT, ONLY NET INTEREST INCOME TO BE CONSIDERED FROM THE ACTIVITIES OF MORT GAGED BACK SECURITY AND INTEREST FROM LOANS ADVANCED TO DEPOSIT HOLDERS . THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. THE SECOND ISSUE IN ITS APPEAL IS WITH REGARD T O CONFIRMING THE DISALLOWANCE U/S.36(1)(VIII) OF THE ACT IN RESP ECT OF THE INTEREST OF THE SUM OF ` 61,79,045/- BEING THE REFERRAL FEE FROM INSURANCE COMPANIES AND OTHER INCOME. ITA NO.1895 /MDS./2014 :- 4 -: 7. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THT THIS WAS ALREADY DECIDED BY THIS TRIBUNAL IN THE CASE OF M/S.SUNDARAM HOME FINANCE LTD., VS. ACIT IN ITA NOS.27 &28/MDS./ 2008 FOR ASSESSMENT YEARS 2003-04 & 2004-05 VIDE ORDER DATED 14.08.2008 WHEREIN HELD IN PARA -11 AS FOLLOWS: GETTING PROPERTIES AND PERSONS INSURED IS NOT A MAN DATORY REQUIREMENT FOR CARRYING ON THE BUSINESS OF PROVIDI NG LONG TERM HOUSING FINANCE. THEREFORE, THE INCOME RECEIV ED BY WAY OF COMMISSION HAS NO DIRECT NEXUS OR ITS NOT IN CIDENTAL TO THE LONG TERM HOUSING FINANCE. ACCORDINGLY, THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE . 7.1 IN VIEW OF THE ORDER OF ABOVE TRIBUNAL CITED S UPRA, WE UPHELD THE ORDER OF LD.CIT(A) ON THIS ISSUE. HENCE, THIS GROUND OF THE APPEAL OF THE ASSESSEE STANDS DISMISSED. 8. THE THIRD ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL IS THAT LD.CIT(A) HAD NOT ADMITTED THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE BEFORE LD.CIT(A) WITH REGARD TO EXCLUSION OF INCOME EARNED ON THE LAND LOANS OF ` 3,95,71,793/- WHICH WERE EXTENDED BY THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS, AND EXCL USION OF THE ENTIRE ITA NO.1895 /MDS./2014 :- 5 -: INTEREST INCOME OF ` 1,02,85,893/- FROM THE COMPUTATION OF ELIGIBLE PROFITS FOR THE PURPOSE OF DEDUCTION U/S.36(1)(VIII ) OF THE ACT. 8.1 THE FACTS OF THE ISSUE ARE THAT ASSESSEE COMPA NY CLAIMS THAT THE INTEREST INCOME EARNED FROM LAND LOAN IS ALSO E LIGIBLE FOR DEDUCTION U/S.36(1)(VIII) OF THE ACT. ACCORDING TO AO, LOANS GIVEN FOR PURCHASE OF LAND ARE NOT SAME AS LOANS GIVEN FOR PURCHASE OF HO USE OR FOR CONSTRUCTION OF HOUSE AND HENCE THE ASSESSEE CANNOT CLAIM DEDUCTION U/S.36(1)(VIII). WHEN THE AUTHORISED REPRESENTATIVE OF ASSESSEE IS CONFRONTED WITH THIS FACT, HE REPLIED WITHOUT LAND HOW CAN A HOUSE BE CONSTRUCTED? YES, IT IS TRUE THT WITHOUT LAND, NO H OUSE CAN BE CONSTRUCTED. INDEED A HOUSE CAN BE CONSTRUCTED ONL Y ON LAND. BUT THEN DEDUCTION U/S.36(1)(VIII) IS ELIGIBLE ONLY FOR CONSTRUCTION OR PURCHASE OF A HOUSE BUT NOT FOR PURCHASE OF A LAND. ASSESSEE COMPANY IS AT ITS OWN LIBERTY TO LEND FOR PURCHASE OF LANDS ALSO BUT IT CANNOT CLAIM DEDUCTION U/S.36(1)(VIII) FOR THE INTEREST AR ISING FROM THE LAND LOAN PORTFOLIO. ACCORDINGLY, AO WAS OF THE OPINION THAT DEDUCTION OF INTEREST INCOME ON LOANS ATTRIBUTABLE FOR THE PURCH ASE OF UNDIVIDED SHARE OF LAND WHILE PURCHASING A HOUSE BECAUSE S.36 (1)(VIII) ITSELF MAKES A MENTION OF PURCHASE OF A HOUSE. PURCHASE OF A HOUSE IS NOT COMPLETE WITHOUT THE PURCHASE OF UNDIVIDED SHARE OF LAND. HENCE, THE ASSESSEE COMPANY IS ALLOWED DEDUCTION U/S.36(1)(VII I) IN RESPECT OF HOME LOANS. HOWEVER, LOAN GIVEN FOR THE PURCHASE OF LAND CANNOT BE ITA NO.1895 /MDS./2014 :- 6 -: EQUATED WITH THE LOAN GIVEN FOR PURCHASE OF A HOUSE OR CONSTRUCTION OF A HOUSE. THEREFORE, THE AO DISALLOWED THE INCOME EA RNED ON LOANS GIVEN FOR THE PURCHASE OF LANDS U/S.36(1)(VIII) OF THE ACT. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ORDER OF AO. AGGRIEVED BY THE ORDER OF LOWER AUTHORITIES, THE ASSESSEE IS IN APPEAL BEFORE US. 9. AT THE OUTSET, LD.A.R SUBMITTED THAT ON SIMILAR FACTS FOR ASSESSMENT YEAR 2006-07, THE AO HIMSELF RE-WORKED T HE DEDUCTION U/S.36(1)(VIII) OF THE ACT BY REVISING WORKING OF T OTAL INCOME, EXPENSES ALLOCATION AND PROFIT DERIVED FROM THE HOME LOAN, H OME EXTENSION, HOME IMPROVEMENT AND LAND LOAN. HE SUBMITTED THAT IN THE SAME MANNER FOR THIS ASSESSMENT YEAR ALSO DEDUCTION U/S. 36(1)(VIII) OF THE ACT BE REWORKED. THE LD.D.R RELIED ON THE ORDER OF LD.CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE GONE THROUGH THE ASSESSMENT ORDER F OR ASSESSMENT YEAR 2006-07 WHEREIN THE AO REWORKED THE DEDUCTION U/S.36(1)(VIII) OF THE ACT BY SEGREGATING THE PROFIT ON THE BASIS OF V ARIOUS ACTIVITIES CARRIED ON BY THE COMPANY. ON THE SAME MANNER WE DI RECT THE AO TO COMPUTE U/S.36(1)(VIII) OF THE ACT FOR THIS ASSESSM ENT YEAR ALSO. 11. THE LEVY OF INTEREST U/S.234B OF THE ACT WHICH IS MANDATORY IN NATURE TO BE COMPUTED ACCORDINGLY. ITA NO.1895 /MDS./2014 :- 7 -: 11.1. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.1895/MDS./14 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. NEXT WE TAKE UP REVENUES APPEAL IN 1981/MDS./2014 12. THE REVENUES MAIN GRIEVANCE IS THAT LD.CIT(A ) ERRED IN ALLOWING THAT THE INTEREST INCOME ON SLR INVESTMENT OF 59,90,193/- IS ELIGIBLE FOR DEDUCTION U/S.36(1)(VIII) OF THE ACT. 12. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE SAME ISSUE CAME UP FOR CONSIDERATION IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2003-04 & 2004-05 IN ITA NOS.27 & 28/MDS./2008 CITED SUPRA WHEREIN HELD THAT:- 4. AS REGARDS THE FIRST POINT REGARDING INVESTMENT FOR MAINTAINING SLR, THE LD.A.R HAS CONTENDED BEFORE US THAT THE IN TEREST RECEIVED ON SECURITIES HELD BY THE ASSESSEE AS STATUTORY LIQ UIDITY RESERVE (SLR) WAS EARNED IN THE COURSE OF CARRYING ON THE B USINESS OF LONG TERM FINANCE AS REFERRED IN SEC. 36(1)(VIII) OF THE ACT. HE HAS FURTHER SUBMITTED THAT NHB THE REGULATORY AUTHORITY GOVERNING THE ASSESSEE REQUIRES THAT THE ASSESSEE HAS TO MAINTAIN THE STATUTORY LIQUIDITY RESERVE IN SPECIFIED SECURITIES AND ITS N ON-COMPLIANCE WOULD DEBAR THE ASSESSEE FROM CARRYING ON BUSINESS OF HOUSING ITA NO.1895 /MDS./2014 :- 8 -: FINANCE. THUS, HE HAS CONTENDED THAT THE INCOME DER IVED FROM THE INVESTMENT TO MAINTAIN THE SLR IS PART OF ITS BUSINESS FOR PROVID ING TONG TERM FINANCE, AS INVESTMENT IN SEC.36(1 )(VIII) OF L.T.ACT. IT IS FURTHER CONTENDED THAT THE STATUTORY LIQUIDITY RESERVE IS R EQUIRED TO BE MAINTAINED IN ACCORDANCE WITH THE NATIONAL HOUSING BANK ACT 1987. AS SUCH THE INCOME HAS DIRECT NEXUS TO THE BUSINESS OF THE ASSESSEE BEING MANDATORY IN NATURE. THUS THE INCOME DERIVED FROM T HESE INVESTMENTS FOR MAINTAINING SLR SHOULD HE TREATED AS PROFIT DER IVED FROM THE BUSINESS OF PROVIDING LONG TERM HOUSING FINANCE. HE HAS FURT HER RELIED UPON THE FOLLOWING CASES: I) CANFIN HOMES.LTD. VS.JCIT (20O6) 103 TTJ 108; II) MEHSANA DISTRICT CENTRAL CO-OPERATIVE BANK LTD. VS. ITO (2001) 251 ITR 522 (SC); III) CIT VS. KARNATAKA STATE COOPERATIVE APEX BANK (2001) 251 ITR 194 (SC). ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE HAS CONTENDED THAT THE INTEREST EARNED ON THE INVESTMEN T CANNOT BE REGARDED AS THE INCOME DERIVED FROM THE BUSINESS OF PROVIDING LONG TERM FINANCE AS REQUIRED UNDER SEC.36(1 )VILL). THEREFOR E THE INTEREST INCOME FROM BANK DEPOSITS AND OTHER INVESTMENTS FOR MAINTA INING THE SLR CANNOT BE CONSIDERED AS FROM THE BUSINESS FOR PROVI DING LONG TERM FINANCE. HE. HAS RELIED ON THE ORDERS OF:THE LOWER AUTHORITIES AND THE ORDER OF THIS TRIBUNAL IN THE CASE OF TAMIL NAD UR BAN FINANCE & INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. IN ITA NO.1667/MDS/04 & 1928/MDS/04. 5. AFTER CONSIDERING THE RIVAL CONTENTIONS AND MAT ERIAL ON RECORD, WE NOTE THAT THE ASSESSEE HAS MADE CERTAIN INVESTMENT IN GO VT. SECURITIES, FIXED ITA NO.1895 /MDS./2014 :- 9 -: DEPOSITS AND NHB BONDS TO MAINTAIN THE STATUTORY LI QUIDITY RESERVE AS REQUIRED BY THE NATIONAL HOUSING BANK ACT, 1987 AND CONSEQUENTLY THE ASSESEE HAS EARNED INCOME O THESE INVESTMENTS. THE ASSESEE CLAIMED SAID INTEREST INCOME ON THESE INVESTMENTS UNDER SEC TION 36(1)(VIII) INCOME DERIVED FROM BUSINESS FOR PROVIDING LONG TER M HOUSING FINANCE. THE INCOME-TAX AUTHORITIES DISALLOWED THE SAID DEDU CTION ON THE GROUND THAT THE INTEREST INCOME EARNED BY THE ASSESSEE IS NOT DIRECTLY DERIVED FROM LOAN FROM HOUSING FINANCE. IT IS UNDISPUTED FA CT THAT THE INVESTMENT MADE, BY THE ASSESSEE IS STRICTLY AS PER THE STATUT ORY REQUIREMENT OF NHB ACT AND WITHOUT COMPLIANCE OF THIS REQUIREMENT THE ASSESSEE CANNOT CARRY ON ITS BUSINESS OF PROVIDING LONG TERM FINANCE. THU S THE INVESTMENT MADE IN THE NOTIFIED SECURITY AS PER THE STATUTORY REQUI REMENT IN OUR VIEW HAS DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE BECA USE IF THERE IS ANY VIOLATION OF SAID STATUTORY REQUIREMENT THE ASSESSE E CANNOT CARRY ON THE BUSINESS OF LONG TERM FINANCE. ACCORDINGLY, THE INC OME FROM SUCH SLR INVESTMENTS ARE INCIDENTAL TO THE BUSINESS ACTIVITY OF THE ASSESSEE AND IS TO BE TREATED AS BUSINESS INCOME UNDER THE HEAD PRO FITS AND GAIN OF THE BUSINESS OR PROFESSION. 6. & 7--- 8. IN THE ORDER OF THIS TRIBUNAL IN THE CASE OF TA MIL NADU URBAN FINANCE & INFRASTRUCTURE DEVELOPMENT CORPORATION LTD.(SUPRA ) IT WAS HELD THAT THE INTEREST FROM SHORT TERM DEPOSIT DOES NOT FALL UNDE R THE AMBIT OF EXPLANATION E TO U/S.36(1)(VIII) AND ACCORDINGLY THE DEDUCTION WAS DISALLOWED. THUS, WE ARE OF THE OPINION THAT THE IS SUE DECIDED IN THE SAID CASE IS NOT IDENTICAL WITH THE ISSUE IN TH IS CASE. THEREFORE, THE SAID CASE IS NOT APPLICABLE IN THE FACTS AND CI RCUMSTANCES OF THE ITA NO.1895 /MDS./2014 :- 10 - : PRESENT CASE. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO DECIDE THE ISSUE AGAINST THE DEPARTMENT AND IN FAVOUR OF T HE ASSESSEE. HENCE, THE APPEAL OF REVENUE STANDS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DECEMBER, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) ' / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER / CHENNAI ! / DATED: 19 TH DECEMBER, 2016 K S SUNDARAM !' $%& '& / COPY TO: 1 . () / APPELLANT 3. * ( ) / CIT(A) 5. &-. $/ / DR 2. $0 () / RESPONDENT 4. * / CIT 6. .1 2 / GF