THE COMMISSIONER OF INCOME TAX V. M/S CANFIN HOMES LTD

ITA/948/2007

AI Insights

This case involves an Income Tax Appeal filed by the Commissioner of Income Tax and the Joint Commissioner of Income Tax against M/s. Canfin Homes Ltd. The appeal was directed against the order of the Income Tax Appellate Tribunal, Bangalore, which had partly allowed the appeal of the respondent-assessee. The main legal issues pertained to the classification of dividend income, the allowability of expenses for inviting shares, and the taxation of interest earned on non-performing assets. The court referenced two prior judgments involving the same parties, which influenced the decision on the first and third questions, while the second question was remanded for fresh consideration.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 736306 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 25-04-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax & another vs. M/s.Canfin Homes Ltd., M/s.Canfin Homes Limited vs. The Asst.Commissioner of Income Tax, Book Bond India vs. Commercial Tax Officer, Brook Bond India Ltd. vs. Commissioner of Income Tax
• Laws Referred To: I.T.Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: S PARTHASARATHI
• Assessee Lawyers: K V ARAVIND
• Keywords: Dividend income; Income from Business; Income from other sources; Income tax appeal; Interest on Non-Performing Assets; Expenses Allowable; Mixed Systems of Accounting
• Section: 56(2); 145; 37; 35D; 260-A

Judgement Text

" - 1 - IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 25th DAY OF APRIL 2014 PRESENT THE HON’BLE MR.JUSTICE DILIP B.BHOSALE AND THE HON’BLE MR.JUSTICE B.MANOHAR I.T.A.NO.948/2007 BETWEEN: 1. The Commissioner of Income Tax Central circle, C.R.Building, Queens Road, Bangalore. 2. The Joint Commissioner of Income Tax(Asst), Special Range-6, C.R.Building, Queens Road, Bangalore. …APPELLANTS (By Sri.K.V.Aravind, Adv.) AND: M/s. Canfin Homes Ltd., No.29/1, M.N.Krishna Rao Road, Basavanagudi, Bangalore-04. ...RESPONDENT (By Sri.S.Parthasarathi, Adv.) - 2 - This ITA is filed under Section 260-A of the I.T.Act, 1961, arising out of order dated 10.08.2007 passed in ITA No.1225/BANG/2005 for the Assessment Year 1998-1999, praying to formulate the substantial questions of law stated therein and allow the appeal and set aside the order passed by the ITAT, Bangalore, in ITA No. 1225/BANG/2005 dated 10.08.2007 & confirm the order of the Appellate Commissioner confirming the order passed by the Joint Commissioner of Income Tax(Asst), Special Range-6, Bangalore, in the interest of justice and equity. This ITA is coming on for hearing this day, DILIP B.BHOSALE J, delivered the following:- PC: This Income Tax Appeal is directed against the order dated 10.08.2007 passed by the Income Tax Appellate Tribunal, Bangalore Bench-‘A’ (for short ‘the Tribunal’), in ITA No.1225/2005, pertaining to the Assessment year 1998-99, whereby, Tribunal partly allowed the appeal filed by the respondent-assessee. The appeal before the Tribunal was directed against the - 3 - order dated 16.03.2005 passed by the Commissioner of Income Tax (Appeals)-1, Bangalore, whereby, the appeal filed by the respondent-assessee before the said authority, against the order of the Assessing Officer dated 28.03.2000, was partly allowed. 2. In this appeal, the Revenue has formulated the following substantial questions of law:- (1) Whether the Tribunal was correct in holding that dividend income earned by the assessee during the current assessment year should be brought to tax under the head “income from business” and not under the specific provisions of Section 56(2) of the Act i.e., under the head “income from other sources”? (2) Whether the Tribunal was correct in holding that the expenses incurred towards inviting shares is allowable under Section 37 of the Act. Contrary to the law declared by the Apex Court in 225 ITR 798 and 225 ITR 802 by ignoring the allowing of these expenses under Section 35D of the Act as - 4 - held by the Assessing Officer and confirmed by the Appellate Commissioner? (3) Whether the Tribunal was correct in holding that interest earned on non- performing assets should not be brought to tax by permitting assessee to adopt mixed systems of accounting for this purpose contrary to Section 145 of the Act which has been amended and made applicable to the current assessment year where only two systems of accounting are permissible? 3. Learned counsel for the parties, state that all the three questions are covered by two judgments of this Court. The first judgment is dated 01.08.2011 passed by the Division Bench in ITA No.801/2006 [Commissioner of Income Tax & another vs. M/s.Canfin Homes Ltd.] and the other is dated 26.09.2012 passed by the Division Bench in ITA No.1126/2006 [M/s.Canfin Homes Limited vs. The Asst.Commissioner of Income Tax]. - 5 - 4. In both these mattes and in the instant appeal, the assessee is one and the same. In view of the first judgment (M/s.Canfin Homes Ltd.,), it was submitted that the 1st and 3rd substantial questions of law will have to be answered in favour of the assessee and against the Revenue. We accordingly answer the 1st and 3rd substantial questions of law in favour of the assessee and against the Revenue in terms of the judgment dated 01.08.2011 in ITA No.801/2006 (M/s.Canfin Homes Ltd.,). Insofar as the second substantial question of law is concerned, i.e., covered by the judgment dated 26.09.2012 in ITA No.1126/2006. 5. Mr.Aravind, learned counsel for the Revenue, however, submitted that by this judgment, the matter was remanded to the Assessing Officer for fresh consideration and while doing so, certain observations were made which are likely to influence the Assessing Officer while deciding the matter after remand. He - 6 - therefore submits that as far as the second substantial question of law is concerned, the matter may be remanded to the Assessing Officer for fresh consideration on merits, in accordance with law without being influenced by the observations made in the said order. 6. Mr.Parthasarathi, learned counsel for the respondent-assessee, submitted that he has no objection for making such observations, but it may also be observed that the Assessing Officer shall take into consideration the judgments of the Supreme Court in Book Bond India vs. Commercial Tax Officer (162 ITR 373) and Brook Bond India Ltd. vs. Commissioner of Income Tax [(1997) 225 ITR 798]. 7. In the circumstances, the matter is remanded to the Assessing Officer to consider the second substantial question of law afresh, on merits, in accordance with law, without being influenced by the - 7 - observations made in the order dated 26.09.2012 in ITA No.1126/2006. However, it is open to the parties to rely on the aforementioned judgments of the Supreme Court and other judgments, if any. Appeal is disposed of accordingly. No costs. Sd/- JUDGE Sd/- JUDGE Srl. "