IT : On prepayment of loans, income of financial corporation by way of penal interest and pre-closure charges on prepayment of loan are to be treated as eligible profit for purpose of deduction under section 36(1)(viii)
IT : For purpose of computation of book profit under section 115JB, assessee should add back lease equalization reserve and provision for contingencies
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[2014] 45 taxmann.com 279 (Karnataka)
HIGH COURT OF KARNATAKA
Commissioner of Income-tax, Central Circle
v.
Weizmann Homes Ltd.*
DILIP B. BHOSALE AND B. MANOHAR, JJ.
IT APPEAL NO. 538 OF 2007†
OCTOBER 9, 2013
I. Section 36(1)(viii) of the Income-tax Act, 1961 - Financial corporation, reserve created by (Computation of deduction) - Assessment year 2002-03 - Whether where assessee was receiving income from providing long term finance being eligible business, miscellaneous income derived from penal interest and pre-closure charges on prepayment of loan are to be treated as eligible profit for purpose of deduction under section 36(1)(vii) - Held, yes [Para 5] [In favour of assessee]
II. Section 115JB of the Income-tax Act, 1961 - Minimum alternate tax (Lease equalization reserve) - Assessment year 2002-03 - Whether while computing book profit under section 115JB, assessee should add back lease equalization reserve (reserve for doubtful income) and provisions of contingencies (unascertained liability) - Held, yes [Para 5] [In favour of revenue]
CASE REVIEW
CIT v. Weismann Homes Ltd. [2013] 215 Taxman 264/33 taxmann.com 171 (Kar.) (para 5) followed.
CASES REFERRED TO
CIT v. Weizmann homes Ltd. [2013] 215 Taxman 264/33 taxmann.com 171 (Kar.) (para 3).
K.V. Aravind for the Appellant. Ganesh R. Ghale for the Respondent.
JUDGMENT
Dilip B. Bhosale, J. - This appeal is directed against the order dated 6-12-2006 rendered by the Income Tax Appellate Tribunal, Bangalore Bench "B" in ITA No.275/Bang/2005 whereby, the revenue's appeal came to be dismissed.
2. This appeal was admitted to consider the following substantial questions of law:
| "(i) | Whether the Appellate Authorities were correct in holding that the miscellaneous income derived from penal interest and pre-closure charges can also be treated as eligible profit for the purpose of deduction under section 36(1)(vii) of the Act when receiving income from providing long term finance being the eligible business. | |
| (ii) | Whether the Appellate Authorities were correct in holding that when computing the Book Profit u/s.115JB of the Act the assessee need not add back lease equalization reserve (reserve for doubtful income) and provisions for contingencies (unascertained liability)?" |
3. Mr. K.V. Aravind, learned counsel for the revenue invited our attention to the judgment and order dated 4th March 2013 rendered by the Division Bench of this Court in CIT v. Weizmann Homes Ltd. [2013] 215 Taxman 264/33 taxmann.com 171 submitted that by this judgment both the questions raised in the present appeal stand answered. In other words, he submitted that in view of the said judgment the first question of law will have to be answered in favour of assessee and against the respondent- revenue and the second question will have to be answered in favour of the revenue and against the assessee in terms of the said judgment.
4. The learned counsel for the respondent-assessee, does not dispute the submissions made by Mr. Aravind and consented for disposal of the instant appeal in terms of the judgment dated 4.3.2013.
5. In the circumstances, we dispose of this appeal, by the following order:
| (i) | The first substantial question of law is answered in favour of the assessee and against the revenue in terms of the judgment dated 4th March 2013 passed by this Court in Weizmann Homes Ltd.case (supra) and the connected appeals. | |
| (ii) | The second question is answered in favour of the revenue and against the assessee in terms of the very same judgment dated 4th March 2013 of this Court. |
The appeal is accordingly disposed of. No costs.
SB*Partly in favour of assessee.
†Arising out of order of High Court in IT Appeal No. 275 (Bang.) of 2005, dated 6-12-2006.
thanks.
Moderators.
.
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