Ita/1139/2011 Of National Cooperative Development Corporation v. Assistant Commissioner Of Income Tax

,f IN THE HIGI{ COURT OF DELHI + ITA NOs . 5l3l20ll,8l0l20ll,8lLl20ll, [ll39l20ll,114012011' ][&]1r4ll20llReserved on : 16th November. [201 ][1.]oA Date of Decision : 28th November. [2011.]NATIONAL COOPERATIVE CORPORATION "" [APPellant]Through: Mr. Rajat Navet, [Adv.]VERSUSASSISTANT COMMISSIONER [TAX,]crRcLE 13(1).....Respondent: Ms. Suruchi [Aggarwal, Abv.]Through CORAM:HON'BLE MR. JUSTICE HON'BLE MR. JUSTICE [R.V. ] 1. Whether Reporters of local [papers ][may ][be ][allowed ][to ][see ][the ][judgment?]2. To be referred to the Reporter [or not ]? Yes'Yes.3. Whether the [judgment ][should ][be ][reported in ][the ][Digest? ]R.V. EASWAR. J.:For detailed order, see ITA No.5I2|20II.ll,lIt-\. -rt'l-t [.]G.v:EASwAR)JUDGE-4 tr,'HL /\(SANJIV KIIANNA)JUDGE NOVEMBER 28,2oll Signature Not Verified Digitally Signed By:AMULYACertify that the digital file andphysical file have been compared andthe digital data is as per the physicalfile and no page is missing. (|) ?K IN TIIE HNGII COURT OF DELFtrI AT [DtrLHI] + ITA NOs . 5121201.'1, NOs . 5121201.'1, . 5121201.'1, 5l3l20ll, Ll39 12011,, \1401201,L, & t1,41120fi, ITA NOs . 5121201.'1, NOs . 5121201.'1, . 5121201.'1, 5l3l20ll, [8tr ][0/2011', ][8l'1,1201'1,] Reserved on : l6tL November, [2011.]Date of Decision : 28tl'November, [2011.] % NATIONAL COOPERATIVE DEVELOPMENTCORPORATION .... APPellantThrough: Mr. RajatNavet, Adv. VERSITS ASSISTANT COMMISSIONEIT OF [TAX,]CIRCLE 13(1) .....ResPondent Through : Ms. Suruchi Aggarwal, [Adv.] CORAM:ItrON'BLE MR. JUSTICE SANJIV KHANNAHON'BLE MR. JUSTXCE R.V. EASWAR 1 . Whether Reporters of local [papels may be ][allowed ][to'see the ][judgment?]2. To be referred to the Reporter or not ? 1l-t2. To be referred to the Reporter or not ? 1l-t 3. Wrether the [judgrnent ]should be reported [in ][the ]Digest? ["l'-1] R"V' EASWAR' J': These are seven appeals filed by [the ][assessee ][under ][Sec.260A ][of]the Incotne Tax Act, 1961 [("the ]Act" for [short) ][against ][the ][orders ][of ][the] ITANos.512l20ll, 513/2011, Bl0/2011,.8ll/2011,1139/2011,114012011 & lI4ll201l Page 1 of 17 Income Tax [Appellate ][Tribunal ][("Tribunal" for ][short) ][passed ][on ][different]dates and for different [assessment ][years ][as ][shown in ][the ][table below:] In respect of [the ][assessment ][yeals Lggg-}}, ][2004-05 and ][2000-01]the assessee has [raised ][the ][following ][questions ][which ][are ][comlnon ][to ][all]the three [years:] (l)What is the [true ][meaning and ][real effect ][in ][law ][of ][the]provisions of sec.36(1)(viii) [of ][the ][Income ][Tax ][Act, ][1961]as it existed for [the ][relevant ][assessment ][year ][and ][what]items of income [can ][be considered ][as ][profits ][derived ][fiorn]business of [providing ][long term ][finance ][which would ][in]provisions of sec.36(1)(viii) [of ][the ][Income ][Tax ][Act, ][1961]as it existed for [the ][relevant ][assessment ][year ][and ][what]items of income [can ][be considered ][as ][profits ][derived ][fiorn]business of [providing ][long term ][finance ][which would ][in]" law be eligible [for ][deduction u/s ][36(1)(viii)?]are-the [principles ][to ][be ][applied ][for ][cletermining]are-the [principles ][to ][be ][applied ][for ][cletermining](2)What whether a partitular [item ][of ][income ][is ][derived ][from ][the]whether a partitular [item ][of ][income ][is ][derived ][from ][the]. busirr"r, of [providing ][long ][telm ][finance ][for ][being eligibie]for deduction [under section ][36(1)(viii) ][and ][whether ][the]busirr"r, of [providing ][long ][telm ][finance ][for ][being eligibie]for deduction [under section ][36(1)(viii) ][and ][whether ][the] I'fANos.512l20Il, [5I3120II, ][810/2011,]}lrlz}n, rBgl20ll, [174012071 ][& ][|l4r1201'|]l>age? of L7 o I'fANos.512l20Il, [5I3120II, ][810/2011,]}lrlz}n, rBgl20ll, [174012071 ][& ][|l4r1201'|]l>age? of L7 o issue as to [what ][is profits ][derived ][fiorn ][such business ][of]providing long [term ][fittutt.. ][is ][to ][be ][decided ][on ][the ][basis ][of]business [consideration ][rather ][than ][purely]pragmati; legalistic arguments? (3)Whether in the facts [and ][circutnstances ][of ][the ][case, the]Tribunal was [correct ][in ][law ][in ][relying ][and applying ][the]ratio of decisions [which ][do not ][deal ][or ][pertain ][to ][the]provisions contained in [sec.36(1)(viii) ][of ][the Income Tax]act, 196l? (4)Whether in the [facts and ][circumstances ][of ][the ][case, the]Tribunal was correct [in ][law ][in ][holding that income ][earned]of [dividend ][from ][redeemable shares ][was ][not]by way (5)Whether "iigibl" [for ]in [deduction under ]the facts [and ][circumstances ][Section ][36(1)(viii) ][of ][the ][of ][the ][case, the][Act?]Tribunal was [correct ][in ][law in ][holding that ][interest ][eatled]on short term [deposits made ][during ][the inten'egnum ][period]between disbursement [of ][funds ][was ][not ][profit ][derived ][from]the business of long [term finance ][and ][thus ][not eligible for']deduction under Section [36(lXviii) ][of ][the ][Act?] (6)Whether in the facts [and. ][circumstances ][of ][the ][case, the]Tribunal was [correct ][in ][law ][in ][holding that ][service ][charges]earnedbytheAppellantformonitoringandof sDF [Loans ][was ][not ][eligible ][for]implementation deductioh under Section [36(1)(viii) ][of ][the ][Act?] In respect of the [assessment ][years 2007-08 ][and ][200I-02 ][the] assessee has, in addition [to ][the ][above ][six ][questions, raised ][olle ][more]question which is [as ][under:] "Whether in the [facts and ][circumstances ][of ][the ][case, ][the]Tribunal was [correct ][in ][laW ][in ][holding ][that ][interest ][on]advances/deposits [and ][misc. ][receipts ][were ][not ][eligible ][for]deduction under [Section ][36(1)(viii) ][of ][the ][Act?"] ITANos.512l20II, [5l3l20ll, ]810/2011,Page 3 of178rr l20rl, l13g l2orr, [rl40l20ll ][&' ] [l4r ][/201 ][|] .O In respect [of ][the ][assessment ][yeat 2002-03, ][in ][addition to ][the ][above]seven questi.ons [the ][assessee ][has ][raised ][the ][following ][question ][as ][question]No'1t,,*"tn"r in the facts [and ]"ir"rr-rr*"", [of ][the ][case, ][the]Tribunal was [correct ][in ][law ][in ][upholding ][initiation ][of]. proceedings by [the ][Assessing ][officer ][under ][section ][148 ][of ][the]Income Tax Act, [196l?"] In respect [of ][the ][assessment ][yeat ][2003-04, ][the ][assessee ][has raised] the following [four ][questions:] in [the ][facts and ][circumstances ][of ][the ][case, ][the ][Tribunal](l)Whether was conect in [law ][in ][upholding ][initiation ][of ][proceedlngs ][under]Section 263 [as ][well ][as ][the ordeipassed ][by the ][cIT ][under ][Section]263 of the Act?was conect in [law ][in ][upholding ][initiation ][of ][proceedlngs ][under]Section 263 [as ][well ][as ][the ordeipassed ][by the ][cIT ][under ][Section]263 of the Act? is the [true meaning ][and ][real effect ][in ][law ][of ][the ][provisions ][of](2)what sec.36(1)(viii) [of ][the ][Income ][Tax ][Act, ][1961 ][as ][it ][existed ][for ][the]relevantassessmentyearandwhatitemsofincomecanbeconsidereJ u, [profrts ][ieri'ed ][from ][business ][of ][providing log ][tertn]finance which [would ][in ][law be ][eligible ][for ][deduction ][u/s]36(1)(viii)?sec.36(1)(viii) [of ][the ][Income ][Tax ][Act, ][1961 ][as ][it ][existed ][for ][the]relevantassessmentyearandwhatitemsofincomecanbeconsidereJ u, [profrts ][ieri'ed ][from ][business ][of ][providing log ][tertn]finance which [would ][in ][law be ][eligible ][for ][deduction ][u/s]36(1)(viii)? is the [true meaning ][and ][real effect ][in ][law ][of ][the ][provisions ][of](2)what sec.36(1)(viii) [of ][the ][Income ][Tax ][Act, ][1961 ][as ][it ][existed ][for ][the]relevantassessmentyearandwhatitemsofincomecanbeconsidereJ u, [profrts ][ieri'ed ][from ][business ][of ][providing log ][tertn]finance which [would ][in ][law be ][eligible ][for ][deduction ][u/s]36(1)(viii)?sec.36(1)(viii) [of ][the ][Income ][Tax ][Act, ][1961 ][as ][it ][existed ][for ][the]relevantassessmentyearandwhatitemsofincomecanbeconsidereJ u, [profrts ][ieri'ed ][from ][business ][of ][providing log ][tertn]finance which [would ][in ][law be ][eligible ][for ][deduction ][u/s]36(1)(viii)? are [the ][principles ][to ][be ][applied ][for ][determining whether ][a](3)What particular itern [of ][income ][is ][derived ][from ][the ][business ][of ][providing]finance [for ][being ][eligible ][for ][deduction ][under ][Section]particular itern [of ][income ][is ][derived ][from ][the ][business ][of ][providing]finance [for ][being ][eligible ][for ][deduction ][under ][Section]long term 36(rXviiiJ [una ][*n.,ner ][the ][ittu. ][ut to ][what is ][profits ][derived ][fi'o'r],,r"h brrrirress [of ][providing ][long term finance ][is ][to ][be decided on the]basis of pragmati" [Urrrln"tt ][consideration ][rather ][than ][purely]legalistic [arguments?]36(rXviiiJ [una ][*n.,ner ][the ][ittu. ][ut to ][what is ][profits ][derived ][fi'o'r],,r"h brrrirress [of ][providing ][long term finance ][is ][to ][be decided on the]basis of pragmati" [Urrrln"tt ][consideration ][rather ][than ][purely]legalistic [arguments?] in [the ][facts and ][circumstances ][of ][the ][caset ][the ][Tribunal](a)whether . was coffect in law [in ][relying ][and ][applying the ][ratio ][of ][decisions]was coffect in law [in ][relying ][and ][applying the ][ratio ][of ][decisions] ITANos.5l2l2}ll, [51312011, ][810/2011']Page 4 of sl ilzo r r, rr3g [120;1, ][rl40l20t ][| ][&' ][rr4rl2orr'] which do not deal [or ][pertain ][to ][the ][provisions ][contained in]of [the ][Income Tax ][Act, ][L96l?"]Sec.36(1)(viii) Z. It is contended [by the ][assessee ][that ][all ][the ][questions ][for ][all ][the ][years]in appeal are substantial [questions ][of ][law ][and ][therefore the ][appeals ][should]be adrnitted. The [revenue ][contests ][this ][position'] 3. The assessee is [a ][company ][set ][up ][under ][the ][National ][Cooperative]Development [corporation ][Act, ][1962 ][with ][the ][object ][of ][promoting ][the]cooperative movement [in the countty.] 4. we can take [up ] [No.5I3l20I1 ][as ][the lead ][case. ][In ][the ][return]filed for this Yeffi, [the ][assessee ][claimed ][that ][it ][was ][entitled ][to ][the]deducrion under sec.36(1)(viii) [of ][the ][Act ][in ][respect ][of ][the ][following]items of incorne: ") [Dividend ][received ][in ][respect ][of ][redeemable preference shares ][in]companies: Rs. [46,94,800] a) Interest on short-term [deposits ][with ][banlcs: Rs.3,76 ][,3!,144] c) Service charges [on SDF ][loans: ][Rs' ][85,09,703] The deductions [were claimed ][on ][the ][footing ][that the ][assessee ][was ][engaged]in the business [of ][providing ][long-tenn finance ][and ][the ][aforesaid items ][of]income were derived [from ][the ][said ][business ][as ][provided ][in ][Sec'36(1)(viii)']The Assessing Officer [did not ][accept ][the ][claim ][since according ][to ][him] ITANos.512l201l, [51312011, ][810/2011,]Page 5 of [17]81 1/201 I, [11391201r, 11401201r ][& rr4r/20rr] O these were not [items ][of ][income ]["derived ][from" ][the ][business ][of ][providing],long-tenn [finance ][within ][the ][rneaning of the Section'] a) Interest on short-term [deposits ][with ][banlcs: Rs.3,76 ][,3!,144] c) Service charges [on SDF ][loans: ][Rs' ][85,09,703] The deductions [were claimed ][on ][the ][footing ][that the ][assessee ][was ][engaged]in the business [of ][providing ][long-tenn finance ][and ][the ][aforesaid items ][of]income were derived [from ][the ][said ][business ][as ][provided ][in ][Sec'36(1)(viii)']The Assessing Officer [did not ][accept ][the ][claim ][since according ][to ][him] ITANos.512l201l, [51312011, ][810/2011,]Page 5 of [17]81 1/201 I, [11391201r, 11401201r ][& rr4r/20rr] O these were not [items ][of ][income ]["derived ][from" ][the ][business ][of ][providing],long-tenn [finance ][within ][the ][rneaning of the Section'] 5. on appeal, [the ] [(A) ][endorsed ][the ][view ][taken ][by ][the ][Assessing]officer. on [fui1her ][appeal ][by ][the ][assessee ][to ][the Tribunal, ][the Tribunal]held that [though ][the ][aforesaid ][items ][of ][income ][can ][be ][said ][to ][be]"attributable" [to ][the ][business ][of ][providing ][long-term ][ftnance' that ][was ][not]sufficient to [attract ][the ][provisions ][of ][Section ][36(1)(viii) ][and ][that ][the]condition in [the ][section that the income ][should ][be ]["derived ][from" ][the]business of [providing ][long-term ][finance was ][not ][satisfied' ][In ][this ][view ][of]the matter, it [proceeded ][to ][examine every ][item ][of ][income ][in ][respect ][of]which the deduction [was claimed ][and ][recorded.the ][following ][findings ][in]paragraph 13 of [its ][order:] a) That the [dividend ][from ][redeemable ][preference ][shares represents]return/dividend [on ][investment and ][it ][cannot ][be ][said ][to ][represent ][profit]from providing [long-tenn ][finance ][and ][that there was ][nothing ][to ][show ][that]the investment [in ][the ][shares ][was made ][with ][a ][view ][to ][providing ][long-term]finance; That the [interest frorn bank ][was ][received on deposits/FDs ][which]b) were for short [periods ][and even ][if ][they were ][for ][long ][periods they ][cannot]be considered [as ][profit ][derived ][from ][the ][provision ][of ][long-term ][finance ][to]banks as [essentially they ][are ][the ][assessee's ][investments;] ITANos.5l2l20I1, [5I3l2}l1, ][810/2011']Page 6 of [17]81 | 12011, Il3g [12011, ][| ][140 ][1201 ][1 ][& ][| ][| ][41 ][120 ][| ][1] c) The service [charges ][received ][by ][the ][assessee ][in ][respect ][of ] loans did not represent [any ][interest, ][that ][they ][were ][only ][service ][charges]received by the [assessee ][on ][loans ][given ][by ][the ][govelxment ][but ][routed]through [the ][assessee ][and ][therefore the service ][charges cannot be ][said ][to ][be]income or profit [derived ][from the ][business ][of ][providing ][long-tenn]finance. 6. We may first take [up ][question ][No.4. ][In ][our ][view, ][it ][is ][a substantial]question of law. The [point ][to ][be ][considered ][is ][whether ][the ][dividend]income received in [respect ][of ][the ][investment ][in ][redeemable ][preference]shares can be [treated ][as ][profits ][derived ][from ][the ][business ][of ][providing]long-term finance. "Long [term ][flnance" ][is ][defined ][in ][clause ][(h) ][of ][the]Explanation to S.36(1)(viii) [to ][mean ]["any ][loan ][or ][advance ][where ][the]terms under which.moneys [are ][loaned ][or ][advanced ][provide ][for ][repaytnent]along with interest [thereof during ][a ][period ][of ][not ][less ][than ][five ][years"']This takes us to the [question whether ][a ][preference ][share can be ][held ][to ][be]a loan or advance. 6. We may first take [up ][question ][No.4. ][In ][our ][view, ][it ][is ][a substantial]question of law. The [point ][to ][be ][considered ][is ][whether ][the ][dividend]income received in [respect ][of ][the ][investment ][in ][redeemable ][preference]shares can be [treated ][as ][profits ][derived ][from ][the ][business ][of ][providing]long-term finance. "Long [term ][flnance" ][is ][defined ][in ][clause ][(h) ][of ][the]Explanation to S.36(1)(viii) [to ][mean ]["any ][loan ][or ][advance ][where ][the]terms under which.moneys [are ][loaned ][or ][advanced ][provide ][for ][repaytnent]along with interest [thereof during ][a ][period ][of ][not ][less ][than ][five ][years"']This takes us to the [question whether ][a ][preference ][share can be ][held ][to ][be]a loan or advance. 7. Section 85 of [the Companies ][Act, ][1956 ][provides ][for two ][kinds ][of]share capital of a company: [preference share ][capital ][and ][equity ][share]capital. Section [80 makes detailed ][provisions ][for ][the ][issue ][by ][a company]of redeemable preference [shales. ][Clause ][(a) ][of ][the proviso ][to ][sub-section](1) thereof says that no such [share ][shall ][be redeemed ][except out ][of profits]of the company [which ][would ][otherwise ][be ][available ][for ][dividend ][or out ][of]the proceeds of a fresh [issue ][of ][share ][capital ][made ][for ][the ][purpose ][of] ITANos.512l20ll, [51312011, ][810/2011,]PageT oflT8rl l2ol r, rl39 l20lr, [1 ][| ][40/20 ][| ][1 ][& ][| ][l4l ][1201 ][|] redemption. [In ][Globe ][united ][Engineening ][and Foundry ][co" ][Ltd ][v]trndustrial [Finance ][corporation ][of ][India ][Ltd- ][(1974) ][44 Comp' cas']court [observed: ]["The ][preference ][shares ][are ][really ][pafi ][of ][the]347, this company's [share ][capital; ][they ][are ][not ][loans". ][In ][the ][light of ][the ][clear]statement of [this ][court, ][redeemable ][preference ][shares ][cannot be treated ][as]loans. 8. In the case [of ] [ulchand ][sursna ][& ][others ][v ][Hytlerabad vanaspatlti]Ltd. [(1gg0) ][6s ][contp.cas. ][475,the ][Andhra ][Pradesh ][High ][courl ][held that]since redeemable [preference ][shares ][can ][be ][redeemed ][by ][a company ][only]out of its [profits ][(which ][would ][otherwise ][be ][available ][for ][dividencl) or out]of proceeds [of ][an ][issue made ][for ][the ][purpose ][of ][redemption' the ][holder]thereof is not [a ][creditor ][as ][such ][limitations ][imposed ][by ][the ][Proviso ][(a) ][to]Section [80(1) ][of ][the ][cornpanies ][Act ][do ][not ][apply ][to ][an ][ordinary creditor']We must [however ][add ][that ][the Anclhra ][Pradesh ][High ][Court ][was concerned]with the [position ][of ][a ][redeemable ][preference shareholder after ][the failure]of the company [to ][redeem ][the ][share. ][In ][the ][case ][before ][us' ][we ][are]concerned with [the ][position ][of ][a ][redeemable ][preference ][share ][holder ][prior]to the due [date ][for ][redemption. ][If ][anything, such ][a ][case ][is ][on ][stronger]b*ch [shareholders can ][never ][be ][held to ][be ][a ][creditor ][of ][the]footing [urro ]company. g. The issue had alsoarisen under [the Interest ][Tax ][Act, ][|974 ][before]the Suprerne ['Court ]'inCIT, tr{anpur [vs ][Saharu ][Inttia ][Savings ][snd]Ltcl. [(2010) ][321 ] [371' ][The ][question ][before]Investment [CorPoration] ITANos.512l2}ll, [5l3l2OI1, ][810/2011']Page B of [17]irlTzor L, tt39lzlll, [rl4olzorl & ][rr4rtzlrr] c g. The issue had alsoarisen under [the Interest ][Tax ][Act, ][|974 ][before]the Suprerne ['Court ]'inCIT, tr{anpur [vs ][Saharu ][Inttia ][Savings ][snd]Ltcl. [(2010) ][321 ] [371' ][The ][question ][before]Investment [CorPoration] ITANos.512l2}ll, [5l3l2OI1, ][810/2011']Page B of [17]irlTzor L, tt39lzlll, [rl4olzorl & ][rr4rtzlrr] c the court was whether [interest ][earned ][on ][bonds ][and ][debentures ][was]chargeable to tax [under ][the ][aforesaid ][Act ][having ][regard ][to ][the definition]of the word "interest" in [sec.2(7) ][of ][the ][said ][Act. ][Undel ][this ][delinition,]interest means interest [on ][loans and ][advances ][made ][in ][India; ][it ][included]and excludecl [certain ][interest ][which is not ][relevant ][for ][our ][purpose. ][The]question was whether bonds [and ][debentures ][can ][be ][treated ][as ][loans ][and]'advances. It was observed by the Court that the interest on loans andadvances wiil not cover [interest ][on ][bonds and ][debentures ][bought ][by ][the]assessee by way of "investment", [within ][the meaning ][of ][Section ][2(7). ][In]this view it was [held that ][such interest ][was ][not ][chargeable ][under ][the]Interbst Tax Act. 10. We may [also ][refer ][to ][a ][judgment ][of ][the ][Gujarat ][High ][Court in]Ansrkali Sarabhai [v. ] [Gujarat ][1952J.138 [437. ][That ][case arose]under the Income Tax [Act ][and ][the ][cluestion was ][whether the ][assessee ][was]liable to pay capital [gains ][tax ][on receipt ][of ][an amount ][equal ][to ][the ][face]o uul,r" of the [preference ][shares ][when ][the ][company ][redeern;S1;, ][tn" ]an [amount ][which ][aeeeded ][the]assessee received [from ][the]company 'Arqamount which(had [paid ][for ][these ][shares.]In deciding this [question ][the]Court [had ][to ][examine ][the nature ][of ][redeemable ][preference]Gujarat High shares issued by [a ][company. ][The ][Court referred ][to ][Pahner's ][Cotnpany]Law (pag e 356,.paragraph [l, ][22:d ][Edition) wherein ][it ][was ][observed ][that],,fiom the financial point ,of view, redeemable preference shares are aW+',A : -y WLed form of shares and debentures, incotporating [features ][of ][both,] ITA Nos5 l2l20ll, [51312011, ][810/2011,]811/201 l,1139l201r, [rl40l20rr ][&' ][lr4ll20lr] Page 9 of 17 \l-' y o' and being [closer ][to ][the ][latter than ][other preference ][shares, ][but from ][the]legal point of [view ][they ][are ][shares ][and ][are ][treated ][as ][such"' ][The ][Coutl]fuither noted [the ][view ][of ][the ][leamed author ][in ][Pennington's ][Company]Law, 4'l' Edition, [page ][195 ][that ][if ][redemption ][of ][the petitioner's ][shares]would make [a company ][insolvent, ][it ][may ][not ][be ][allowed ][to ][redeetn those]shares because [repayment ][of ][preference ][capital ][would ][be ][a ][fraud upon ][the]company,s [creditors. ][According ][to ][the ][Gujarat ][High ][court ][this ][view ][cif]the author clearly [indicated that the holder ][of ][preference ][shares ][is ][not in]the same [position ][as ][that ][of ][a ][creditor. ]['The ][learned author ][had ][also]the [view ][in ][the ][aforesaid ][treatise, ][as ][noticed ][by ][the ][Gujarat]expressed High Court, [that ][if ][a ][company defaults ][in ][redeeming the preference ][shares]date [fixed ][for ][redemption, ][the ][holder ][thereof ][carurot cornpel ][it ][to ][do]by the so by suing in [debt ][for ][the. ][return ][of ][his ][capital ][or by filing for ][a]mandatory injunction. [This ][view of ][the ][author, according ][to ][the ][Gujarat]Court [also negatives ][the ][contention ][that ][once ][the ][company ][decides]High to redeem its [preference ][shares, ][the ][holder thereof ][would ][be ][in ][the]position of [a ][creditor.] 1 1. Having [regard ][to ][the ][legal position ][adumbrated ][in ][the ][above]judgments, we are of [the ][view ][that ][investment ][in ][redeemable ][preference]shares cannot [be considered ][as a ][loan ][or ][advance rnade ][by ][the ][assessee ][to]the company for [interest. ][The ][basic characteristic ][of ][a loan ][is ][that ][the]person advancing [the ][loan ][has ][the ][rigtrt ][to ][sue ][on ][the ][debt, ][whereas the]share [holders ][cannot sue ][for ][the ][money due ][on ][the ][shares]preference ITA Nos.5 [1 ][212011 ], 513/2011, [81 ][0/201 ][1 ]'Page 10 of [17]811/201 r, rr3glzolr, [114012011.& ][rl41/2011] undertaken toberedeemed and [as ][of ][right ][claim ][a return ][of ][the ][share]money. excePtina winding up [and ][that ][to ][after ][the ][redemption ][date.]Similarly, [a ][preference ][share ][holder ][stands ][on ][a ][different footing ][fiom ][a]person who has advanced [monies ][to ][another. ][An ]["advance" ][has ][been]defined in the Black's [Law Dictionary ][as ]["to ][pay money ][or ][render other]value before it is [due; ][to ][furnish ][something ][before ][an ][equivalent ][is]received or to furnish [money ][for ][a specific ][pu{pose understood ][between]the parties, the [money ][or ][some ][equivalent ][to ][be returned" ][etc. ][Thus ][an]advance is also [quite different from ]fl [prefetence shares ][in ][nature ][and]character. 12. Having regard [to ][the][ aforesaid discussion, ][we ][are ][of ][the ][view ][that]there is no merit in [the ][assessee's ][claim that the ][dividend ][received ][in] interest of the [redeemable]preference shares [amounts ][to ][profits ][derived]fi'om providing long [term]finance within [the ][meaning ][of ][Section ][36(1)](viii) of the Act read ryithclause (h) of the [Explanation ][to ][the ][Section']We, accordingly, [answer ][the substantial question ][of ][law in ][the ][affirmative]and in favour of [the Revenue.] 13. Question No.5 [is ][directed ][against ][the ][finding ][of ][the'Tribunal ][that]interest eamed on short-term [deposits made ][during the interregnum period]between disbursement [of ][funds ][was ][not ][profit ][derived ][from ][the ][business]of providing long-term [finance. ][As ][held ][by ][the Tribunal, ][this is ][also ][an] ITA Nos.5 2l20ll, [5l3l20ll ], B 10/201 1,Page 11 of [17]8lr l20rl, rl3g l20rl, [1 ][l40l20lr ][& ][ll41 ][1201 ][1] of [the ][funds ][of ][the ][assessee ][for ][making ][use ][of ][the ][idle ][funds]inveqtment remaining with it [during the ilterregnum period. The ][ilterest ][cannot ][be]considered as [pro,fit derived ][from the ][business ][of ][providing ][long-terrn]finance within [the ][meaning ][of ][the ][Section. ][No ][question ][of ][law ][arises ][out]of the factual finding [of ][the ][Tribgnal, ][which ][is ][not ][challenged ][as ][perverse']The question cannot [be ][admitted.] 14. Question No.6 [is ][directed ][against ][the ][finding ][of ][the Tribunal ][that]the service charges [on SDF ][loans do ][not ][qualify for ][the deduction ][because]the loans are not [provided ][by ][the ][assessee ][but ][are ][given ][by ][the]Government [through ][the ][assessee ][for ][which ][service ][charges ][are ][paicl' ][This]factual finding is [not ][challenged ][by ][the ][assessee' ][The ][funds ][of ][the]assessee are not involved. [The Government's funds ][are ][routed through ][the]assessee. The [assessee ][cannot therefore ][be ][considered ][to ][be ][cariying ][on]the business of [providing ][long-term ][finance. ][It ][is ][in ][receipt ][of ][only ][service]charges and not interest, [obviously ][because ][its funds ][are ][not involved' ][It ][is]also not the [case ][that the ][assessee ][borrows monies ][from ][the Governrtent]for interest [and ][advances ][loans ][for ][higher ][interest. ][In view of ][the ][factual]position, no substantihl [question ][of ][law ][arises. ][We ][decline ][to ][admit ][the]question. 15. We now [turn ][to the ][first ][three questions ][which ][are ][general ][in ][nature']to [the ][findings ][recorded ][by ][the ][Tribunal, ][which ][are ][not]Having regard disputed, these [questions are ][of ][academic ][nature' ][They do not ][raise ][any]substantial questions [of law. ][We ][declile ][to ][admit ][them.] lTANos.5l2l20II, [5I3l20Il, ]810/2011,Page 12 of [17]8lIl}Oll, 113912011, [114012011 ][& ][1l4ll20r1]Page 12 of [17]8lIl}Oll, 113912011, [114012011 ][& ][1l4ll20r1] 16. The [questions ][raised ][by ][the ][assessee ][in ITA ][NO.5I2|20II ][are]identical. For [the ][above ][reasons ][we ][decline ][to ][admit ][them.] t7 . euestion [Nos.1 ][to ][5 ][raised ][in ] [No. ][t ][13912011 are ][identical to ][the']first five questions [raised ][in ][the ][appeals ][in ] [Nos.5 ][t3 ][&' ][51212011' ][For]the same reasons [given ][above, ][we decline ][to ][admit ][them' ][Question ][No'6 ][is]directed against [the ][finding ][of ][the ][Tribunal ].that [interest ][on]advances/deposits [or ][loans ][to ][ernployees ][amounting ][to ][Rs'9,95,152 ][does]not qualifu for [the ][deduction ][because ][it ][does ][not.represent ][profit ][derived]from the business [of ][providing long-term finance. ][In ][substance ][and]qrlalitatively, there [is no ][difference ][between ][the ][other items ][of ][income]claimed to be [eligible ][for ][deduction ][under Sec.36(1)(viii) ][and ][the ][interest]received on [advances/deposits ][or ][loans ][to ][employees' ][The Tribunal ][has]therefore applied [the ][same ][reasoning ][to ][this ][interest also' ][We ][do ][not ][see]any substantial [question ][of ][law ][arising fi'om ][the ][finding of ][the Tribunal']Our reasoning in [respect ][of ][the ][other ][questions ][applies ][to ][this ][question]also. we therefore [decline ][to ][admit the ][question ][No.6 ][in ][this ][appeal']first five questions [raised ][in ][the ][appeals ][in ] [Nos.5 ][t3 ][&' ][51212011' ][For]the same reasons [given ][above, ][we decline ][to ][admit ][them' ][Question ][No'6 ][is]directed against [the ][finding ][of ][the ][Tribunal ].that [interest ][on]advances/deposits [or ][loans ][to ][ernployees ][amounting ][to ][Rs'9,95,152 ][does]not qualifu for [the ][deduction ][because ][it ][does ][not.represent ][profit ][derived]from the business [of ][providing long-term finance. ][In ][substance ][and]qrlalitatively, there [is no ][difference ][between ][the ][other items ][of ][income]claimed to be [eligible ][for ][deduction ][under Sec.36(1)(viii) ][and ][the ][interest]received on [advances/deposits ][or ][loans ][to ][employees' ][The Tribunal ][has]therefore applied [the ][same ][reasoning ][to ][this ][interest also' ][We ][do ][not ][see]any substantial [question ][of ][law ][arising fi'om ][the ][finding of ][the Tribunal']Our reasoning in [respect ][of ][the ][other ][questions ][applies ][to ][this ][question]also. we therefore [decline ][to ][admit the ][question ][No.6 ][in ][this ][appeal'] 18. we now [take ][up ] [Nos. 810 ][&' ][8II120I1 ][relating ][to ][the,]assessment years [2007-OB ][and ][20Ol-02 respectively' ][The ][first ][six]questions raised [by the ][assessee ][are ][identical ][with ][the ][six ][questions. ][raised]by it in ITA Nos. [5I2 ][& ][51312011. ][For ][the ][satne reasons ][given ][by ][us ][in ]those appeals, we [decline ][to ][admit ][these questions. ][Question ][No'7 ][in ][these]two appeals [(i.e., ] [Nos.810 ][& ][8LI12011) ][are identical ][to ][Question]No.6 raised in [No.l ][I3gl20I1, ][i.e., ][against ][the ][finding ][of ][the ][Tribunal] " ITA Nos.5 l2l2}l7, [5l3l20ll, ]810/201 l,I'>age 13 of [17]81 1/201 r, rl3gl20ll,1l40l20ll [& ll4rl20r1] 18. we now [take ][up ] [Nos. 810 ][&' ][8II120I1 ][relating ][to ][the,]assessment years [2007-OB ][and ][20Ol-02 respectively' ][The ][first ][six]questions raised [by the ][assessee ][are ][identical ][with ][the ][six ][questions. ][raised]by it in ITA Nos. [5I2 ][& ][51312011. ][For ][the ][satne reasons ][given ][by ][us ][in ]those appeals, we [decline ][to ][admit ][these questions. ][Question ][No'7 ][in ][these]two appeals [(i.e., ] [Nos.810 ][& ][8LI12011) ][are identical ][to ][Question]No.6 raised in [No.l ][I3gl20I1, ][i.e., ][against ][the ][finding ][of ][the ][Tribunal] " ITA Nos.5 l2l2}l7, [5l3l20ll, ]810/201 l,I'>age 13 of [17]81 1/201 r, rl3gl20ll,1l40l20ll [& ll4rl20r1] that interest [on ][advances ][or ][loans ][to ][employees does ][not ][qualiff ][for ][the]deduction. Following [our ][reasoning ][given ][in ][the preceding paragraph' we]decline to admit [this ][question ][for ][this ][year. ][The ][question also refers ][to]"miscellaneous [.receipts". ][The Tribunal ][has ][not ][dealt ][with this ][itern ][of]receipt separately [and has ][applied ][the ][earlier ][orders ][passed ][by ][it ][for ][the]assessment [years ][tggg-2000 ][and ][2004-05 ][to ][the ][miscellaneous ][receipts]and held that [they ][do ][not ][also ][qualify ][for ][the'deduction' ][In ][our ][view' ][the]same reasoning [given ][by ][us ][in ][respect ][of ][the other items ][of ][income ][would]apply to miscellaneous [incorne also, ][the ][details ][of ][which ][have ][not ][been]fui-nished to [us. ][We ][accordingly ][decline ][to ][admit ][the ][questions raised ][by]the assessee [in ] [Nos. ][810 ][& ][8II|20II'] Lg.wenowtakeupITANo.lIAOlzIIl'(asst'year:2002-03)forconsideration. [In ][this ][year ][the ][assessee ][has ][raised eight ][questions, ][stated ][to]be substantial [questions ][of ][law. ]Question [Nos. ][2 ][to ][8 ][are ][identical ][with]Question [Nos. ] [to ][7 ][raised ][by ][the ][assessee ][in ] [Nos'810 ][& BIll20lI](asst. years: 2007-08 [and ][2001 ][-02). ][For the ][reasons ][given ][by ][us ][in ][those]we [decline ][to ][admit ][question ][Nos. ][2 ][to ][8 ][for this ][year' ][In ][question]appeals, No.1, the [assessee ][has ][challenged ][the decision ][of ][the ][Tribunal holding ][that]the reassessment [proceedings were ][validly ][initiated under ][Sec'l47lI4B ][of]the Act. The [decision ][of ][the ][Tribunal ][is in ][paragraph ][5 ][of ][its ][order' ][The]on [the basis ][of which ][the ][reassessrnent ][proceedings were held to]findings be in order [are:] ITA Nos.512l20lI, [573/2011, ][810/201 ][1']8111201l, r|3glz}fi, [|14012011 ][& ][r14l120|r] Page 14 oF [17] Y Q: '" a) There is no discussion [in ][the ][original ][assessment ][order ][about the]various claims made [by ][tire ][assessee ][under Sec.36(1)(viii), ][except a ][bare]reference to the [assessee's ][letter ][clated ][3-12-2004' ], b) A perursal of [the letter ][dated 3-12-2004 ][shows ][that ][it ][is ][just ][a]general letter and did not [contain any ][working ][for ][the ][purpose ][of ][the]section. c) The assessment [was reopened ][within ][4 ][yeats ][from ][the ][end ][of ][the]assessment [year ][and ][therefore the ][benefit ][of ][the ][proviso ][to ][Sec.147 ][is not]available to the assessee. : a) The reassessment proceedings were not prompted by a changeof opinion If that is so, it [is obvious ][that ][the conclusion ][of ][the ][Tribunal ][that ][the]reassessment [proceedings ][wele ][validly ][initiated ][cannot ][give rise ][to ][any]question of law, much less [a ][substantial ][question ][of ][law' ][We ][therefore]decline to admit Question [No.1 ][also ][for ][this year'] b) A perursal of [the letter ][dated 3-12-2004 ][shows ][that ][it ][is ][just ][a]general letter and did not [contain any ][working ][for ][the ][purpose ][of ][the]section. c) The assessment [was reopened ][within ][4 ][yeats ][from ][the ][end ][of ][the]assessment [year ][and ][therefore the ][benefit ][of ][the ][proviso ][to ][Sec.147 ][is not]available to the assessee. : a) The reassessment proceedings were not prompted by a changeof opinion If that is so, it [is obvious ][that ][the conclusion ][of ][the ][Tribunal ][that ][the]reassessment [proceedings ][wele ][validly ][initiated ][cannot ][give rise ][to ][any]question of law, much less [a ][substantial ][question ][of ][law' ][We ][therefore]decline to admit Question [No.1 ][also ][for ][this year'] 20. In ITA No.1 I4I:20I1, [the ][assessee ][has ][raised ][four ][questions, ][stated]to be substantial [questions ][of ][law. ]Question [Nos. ][2 ][to 4 ][are ][identical ][with]Question [Nos.l ][to ][3 ][raised ][in ITA ][Nos. ][512 ][&. ][5I3l20Il ][and ][for ][the]reasons [given ]by [us ][in ][respect ][tf ][thor" ][questions ][in ][those ][appeals, ][we]decline to admit Question [Nos.2 ][to ][4 for ][this ][year. ][As ][regards ][the ][first]question, it is directed [against ][the ][finding ][of ][the ][Tribunal ][that the ] [had]initiated [revision ][proceedings ][under ][Sec'263 ][of ][the ][Act ][and ][set]validly ITANos.512l20I7, [5l3l20ll, ]810/2011'Page 15 of [17]81ll20ll, II3g l20lr, [lr40l20ll & ][ll41 ][12011] aside the assessrnent [order ][for ][de ][novo ][consideration ][and passing ][of ][fresh]assesslnent order in [respect ][of ][the various claims made ][by ][the ][assessee]under Sec.36(1)(viii). [These ][clairns ][are ][the ][same as ][have ][been rnade ][in]respect of the [other ][years, ][viz., ][dividend ][on redeemable ][preference ][shares']interest on bank [deposits/FDs, ][service ][charges ][on ] [loans,]miscellaneous [receipts, ][interest ][on ][loans/advances ][to ][employees ][etc' ][The]Tribunal has [taken ][the ][view ][in ][paragraph 5 ][of ][its ][order that the ][assesstnent]order was erroneous [in ][as ][much ][as ][it ][failed ][to ][take ][into ][account ][the]amendment in section [36(1)(viii) ][made ][by ][the ][Finance ][Act, ][1985' ][It ][has]also been held [that ][the ] [has ][failed ][to ][examine ][the claims ][made ][by ][the]assessee for deduction [under Sec.36(1)(viii). ][It ][is ][seen ][from the ][order ][of]the CIT that in [taking ][proceedings ][under ][Sec.263 ][he ][has refenecl ][to ][and]relied upon [the ][judgment ][of this ][Court ][in ][Gee ][Vee ][Enterprises ][Agf ][, ][gg]ITR 375 wherein [it ][was ][held that ][failure to ][make relevant enquiries ][would]invite action [under ][the ][Section ][on ][the ground that ][the ]['assessrnent ][order ][is]effoneous and [prejudicial ][to ][the ][interest ][of ][the ][revenue' ][In ][our ][opinion']this [judgment ]was [rightly ][invoked by the ] [in ][the ][present ][case ][and his]action was rightly [upheld ][by ][the ][Tribunal. ][No ][substantial question ][of ][law]arises in respect [of ][this ][issue. ][We, ][therefore, decline ][to ][admit ][Question]No.1 also for [this ]Year. 2t. In the result, [question ][No.4 ][raised ][in ] [No'51312011 is ][answered]in affir-mative [and ][against ][the ][assessee. ][The ][identical ][question raised ][in]other appeals is [also ][answered ][against ][the ][assessee' ][All ][other ][questions] ITANos.512l20l1, [51312011, ][810/2011,]8|llz0l1, 113912017, [174012011 ][& ][1141 ][l20rr] Page 16 of [17] ; +-t raised in all the [appeals ][are ][not ][admitted as ][they ][are ][not ][substaqtial]questions of law. The [appeals ][are ][disposed ][of accordingly' No ][costs'] (ltV\\,-e,--r'(R.V.EASWAR)JUDGE ../ '/ Y -aI | | .-llt*-lI .'/ Y -aI -llt*-(. lI(SANJIV IGIANNA).TUDGE NOVEMBER [28,201tr']vld/mm ITA Nos.51212011, [' ][51312011, ][81012011,]811/2|ll,1139/2011,l!40l20li. [& ][114112011 ] Page Ll of t7