Ita/810/2011 Of National Cooperative Development Corporation v. Assistant Commissioner Of Income Tax

,f IN THE HIGH COT]RT OF DELHI AT NEW DELHI+ ITA NOs. 5l3l20ll,8l0l20ll,8lll20ll, [113912011,11401201L, ][&]tt4U20rtReserved on : 16th November. [201 ][1.]%Date of Decision : 28th November. [2011.]NATIONAL COOPERATIVE DEVELOPMENTCORPORATION .... AppellantThrough: Mr. Rajat Navet, Adv.\rERSUSASSISTANT COMMISSIONER OF [TAX,]CIRCLE .....ResPondent13(1) CIRCLE .....ResPondent13(1) Through : Ms. Suruchi Aggarwal, Adv.CORAM:HON'BLE MR. JUSTICE SANJIV 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.3. Whether the [judgment ]should [be ][reported in ][the ][Digest? ]YeS.- R.V. EASWAR, J.:For detailed order, see ITA No.5I2|20II.I. ftdt\ l.^-t "(R.V.EASWAR)JTIDGE4-.,1 rl|-) (sANJrv KHANNA)Jt]DGE NOVEMBER 28,20L1 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. t-t" 'T IN TIIE IINGII COT]RT [DEI,TII ] + ITA NOs .51212011, [. ][5\312011., 810/20tr"1, ][8tr ][1/201"X.']' 113912011,1L40120l1, [& ][LX'41'120r1'] Reserved on : 16tl'November' [2011.]%Date of Decision [: ][28tl'November. ][2011.] J NATIONAL COOPERATIVE CORPORATION "" [APPellant] Through: 1\4r. RajatNavet, [Adv'] VEI{SUS ASS{STANT COMMISSIONER [TAX,]CIRCLE13(1).....Respondent Through : Ms. Suruchi [Aggarwal, Adv.] CORAM:I{ON'BLE MR. JUSTXC]D [KI{ANNA]HON'BLE MTd. JUST]ICE [R.V. ] 1. Whetirer Repofters [of local ][papers ][may be ][allowed to ][see the ][judgment?]' \-2.Tobe referred to the Reporter or not ? J*.,, 3. Whether the [judgrnent ][should ][be ][reported ][in ][the ][Digest? ]["f*-1] f,T.V. EASWAR, J.: TheseareseVenappea1sfiledbyt1reassesSeeunderSec.260Aofthe Income Tax Ait, 1961 [("the ][Acf'for ][shor-t) ][against ][the ][orders ][of ][the] ITANos.5l2l20lI, [51312011, ][Bl0l201I,]ulnotr, tr3g/2011,lr4o/2olr [& ][ll4ll201l ] Page 1 of 17 Income Tax [Appellate ][Tribunal ][("Tribunal" for ][short) ][passed ][on ][different]dates and for [different ][assessment ][years ][as ][shown in ][the ][tabl.e ][below:] In respect [of ][the ][assessment ][years 1999-00, 2004-05 ][and ][2000-01]the assessee [has ][raised ][the ][following ][questions ][which ][are common ][to ][all']the three [years:] (l)Whatisthetruemeaningandrealeffectinlawoftheof [Sec.36(1)(viii) ][of ][the ][Income ][Tax ][Abt, ][1961]of [Sec.36(1)(viii) ][of ][the ][Income ][Tax ][Abt, ][1961]provisions as it existed [for ][the ][relevant ][assessment ][year ][and ][what]items of income [can ][be considered ][as ][profits ][derived ][fiom]businessofprovidinglongtermfinancewhichwouldinlaw be eligible [for ][deduction u/s ][36(1)(viii)?]as it existed [for ][the ][relevant ][assessment ][year ][and ][what]items of income [can ][be considered ][as ][profits ][derived ][fiom]businessofprovidinglongtermfinancewhichwouldinlaw be eligible [for ][deduction u/s ][36(1)(viii)?] are"th" [principles ][to ][be ][applied ][for ][cletermining](2)What whether a [partilula' ][ltem ][of ][income ][is ][derived ][from ][the]business [of ][providing ][long ][ter-m ][finance ][for ][being eligible]for,deductionunderSection36(1)(viii)andwhetherthewhether a [partilula' ][ltem ][of ][income ][is ][derived ][from ][the]business [of ][providing ][long ][ter-m ][finance ][for ][being eligible]for,deductionunderSection36(1)(viii)andwhetherthe ITANos.5 l2l20ll, [513/2011, ][810/2011']Pdge2 oflT811/201 r, ll39lz0ll,1l40l20ll [& ][l14rl20rr] -)- issue as to what [is profits ][derived ][from ][such ][business ][of]providing long term [finance ][is ][to ][be ][decided ][on the basis ][of]pragmatic business [consideration ][rather ][than ][purely]legalistic argurnents? are"th" [principles ][to ][be ][applied ][for ][cletermining](2)What whether a [partilula' ][ltem ][of ][income ][is ][derived ][from ][the]business [of ][providing ][long ][ter-m ][finance ][for ][being eligible]for,deductionunderSection36(1)(viii)andwhetherthewhether a [partilula' ][ltem ][of ][income ][is ][derived ][from ][the]business [of ][providing ][long ][ter-m ][finance ][for ][being eligible]for,deductionunderSection36(1)(viii)andwhetherthe ITANos.5 l2l20ll, [513/2011, ][810/2011']Pdge2 oflT811/201 r, ll39lz0ll,1l40l20ll [& ][l14rl20rr] -)- issue as to what [is profits ][derived ][from ][such ][business ][of]providing long term [finance ][is ][to ][be ][decided ][on the basis ][of]pragmatic business [consideration ][rather ][than ][purely]legalistic argurnents? 1:;WnAtfrer [in ][the ][facts and ][circumstances ][of ][the ][case, ][tfue]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? (a)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 notby way (5)Whether "iigiUl" [for ]in [deduction under ]the facts [and ][circumstances ][Section ][36(1)(viii) ][of ][the ][of the Act?][case, ][the]Tribunal was [correct ][in ][law ][in ][holding that ][interest ][earned]on short telm deposits [made ][during ][the ][intenegnum ][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(1)(viii) of [the ][Act?] (6)Whether in the facts [and ][circumstances ][of ][the ][case, the]Tribunal was coll'ect [in ][law ][in ][holding that ][service ][charges]earned by the Appellant [for ][monitoring ][and]of SDF [Loans ][was ][not ][eligible ][for]irnplernentation deduction under Section [36(1)(viii) ][of the ][Act?] In respect of the [assessulent ][years 2007-08 ][and ][200I-02 ][the]assessee has, in addition [to ][the ][above ][six ][questions, ][raised one ][more]question which is [as ][under:] "Whethbr in the facts [and ][circumstances ][of ][the ][case, ][the]Tribunal was correct [in ][law ][in ][holding ][that ][interest ][on]and [misc. ][receipts ][were ][not ][eligible ][for]advances/deposits deduction under Section [36(1)(viii) ][of the ][Act?"] ITA Nos.5 [1 ]2l2OIl, [513/2011 ], 8 10/201 I '8rr /20rr, l l39 [/201 ][1, ][1 1 ][40/201 ][1 ][& ][1 ][l4l ][/201 ][1] Page 3 of 17 In respect [of ][the ][assessment ][year ][2002-03, ][in ][addition to the ][above]seven [questions the ][assessee ][has ][raised ][the ][following ][question ][as ][question] No.1 [:] ,.'whether in the facts and circumstances'of the [case, ][the]Tribunalwascorrectinlawinupholdinginitiationof;;;;."ii"gr [by ][the ][Assessing ][Officer ][under Section ][148 ][of ][the]Income Tax [Act, ][196I?"]Tribunalwascorrectinlawinupholdinginitiationof;;;;."ii"gr [by ][the ][Assessing ][Officer ][under Section ][148 ][of ][the]Income Tax [Act, ][196I?"] . In lesfect [of ][the ][assessment ][year ][2003-04, ][the ][assessee ][has raised] the following [four ][questions:] in [the ][facts and ][circurnstances ][of ][the ][case' ][the ][Tribunal](l)Whether was correct [in ][law ][in ][upholding ][initiation ][of ][proceedings ][under]Section [263 ][aswell ][as ][the ][ordeipassed ][by ][the ] [under ][Section]263 of the [Act?]was correct [in ][law ][in ][upholding ][initiation ][of ][proceedings ][under]Section [263 ][aswell ][as ][the ][ordeipassed ][by ][the ] [under ][Section]263 of the [Act?] . (2)what is [the true meaning ][and ][real ][effect ][in law of ][the ][provisions ][of] . In lesfect [of ][the ][assessment ][year ][2003-04, ][the ][assessee ][has raised] the following [four ][questions:] in [the ][facts and ][circurnstances ][of ][the ][case' ][the ][Tribunal](l)Whether was correct [in ][law ][in ][upholding ][initiation ][of ][proceedings ][under]Section [263 ][aswell ][as ][the ][ordeipassed ][by ][the ] [under ][Section]263 of the [Act?]was correct [in ][law ][in ][upholding ][initiation ][of ][proceedings ][under]Section [263 ][aswell ][as ][the ][ordeipassed ][by ][the ] [under ][Section]263 of the [Act?] . (2)what is [the true meaning ][and ][real ][effect ][in law of ][the ][provisions ][of] Sec.36(1)(viii)ofthelncomeTaxAct,lg6lasitexistedfortherelevantassessmentyealandwhatitemsofincomecanbeconsidereJ-u, [p-fits ][ierived ][from ][business ][of ][providing log ][term]finance which [would ][in ][law ][be ][eligible ][for ][deduction ][u/s]36(lXviiD?relevantassessmentyealandwhatitemsofincomecanbeconsidereJ-u, [p-fits ][ierived ][from ][business ][of ][providing log ][term]finance which [would ][in ][law ][be ][eligible ][for ][deduction ][u/s]36(lXviiD?. are [the principles ][to ][be ][applied ][for ][determining whether ][a](3)what particular itern-of [income ][is ][derived ][from ][the ][business ][of ][providing]term [finance ][for ][being ][eligible ][for ][deduction ][undel ][Section]particular itern-of [income ][is ][derived ][from ][the ][business ][of ][providing]term [finance ][for ][being ][eligible ][for ][deduction ][undel ][Section]Iong *J [*ft"ttter ][the ][ltt.t" ][ut ][to ][what is ][profits ][derived ][fiom]*J [*ft"ttter ][the ][ltt.t" ][ut ][to ][what is ][profits ][derived ][fiom]:O(f Xviii) such b.rrin.r, [of ][providing ][long term finance ][is ][to ][be decided on the]basis of [prugmuti" ][u.rrlrr"r, ][consideration ][rather ][than ][purely]legatistic [arguments?]such b.rrin.r, [of ][providing ][long term finance ][is ][to ][be decided on the]basis of [prugmuti" ][u.rrlrr"r, ][consideration ][rather ][than ][purely]legatistic [arguments?] in [the ][facts ][and ][circumstances ][of ][the ][case, ][the ][Tribunal](a)Whether was corect in [law ][in ][relying ][and ][applying the ][ratio ][of ][decisions]was corect 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, ][196I?"] 2. 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 admitted. The [revenue ][contests ][this position'] 3. The assessee [is ][a company ][set ][up under the ][National ][Cooperative]Dev6lopment [Corporation ][Act, ][1962 ][with ][the ][object ][of ][promoting ][the]cooperative movement [in the ][countty'] 4. we can take [up ] [No.5I312011 ][as ][the lead ][case. ][In ][the ][return]filed for this [yeaf, ][the ][assessee ][claimed ][that ][it ][was ][entitled ][to ][the]deduction under [Sec.36(1)(viii) ][of ][the ][Act ][in ][respect ][of ][the ][following]items of income: Dividend [received ][in ][respect ][of ][redeemable ][preference ][shares in]a) companies: Rs. 46,94,800 : Interest on [short-term ][deposits ][with ][banks: ][Rs.3,76,31,144]a) 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 4ccording ][to ][him] ITANos.512l2OlI, [5l3l20ll, ]810/2011'Page 5 of Jl7811 l20l 1, l13g [1201 ][l, ][rl40 ][l20r ][| & ][| ][| ][41 ][1201 ][|] , these were not [items ][of ][income ]["derived ][from" ][the ][business ][of ][providilg]finance [within ][the ][meaning of the ][Section.]long-tenn : Interest on [short-term ][deposits ][with ][banks: ][Rs.3,76,31,144]a) 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 4ccording ][to ][him] ITANos.512l2OlI, [5l3l20ll, ]810/2011'Page 5 of Jl7811 l20l 1, l13g [1201 ][l, ][rl40 ][l20r ][| & ][| ][| ][41 ][1201 ][|] , these were not [items ][of ][income ]["derived ][from" ][the ][business ][of ][providilg]finance [within ][the ][meaning of the ][Section.]long-tenn 5. on appeal, [the ][cIT ][(A) ][endorsed ][the ][view ][taken ][by ][the ][Assessing]Officer. On [further ][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 ][finance, that ][was ][not]sufficient to [attract ][the ][provisions ][of ][section ][36(1)(viii) ][and ][that ][the]condition in [the ][Section ][that ][the ][iiicome ][should ][be "derived ][fron" ][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-term ][finance ][and ][that there was ][nothing ][to ][show that]the investment [in ][the ][shares ][was made ][with ][a ][view ][to ][providing ][long-terrn]finance; That the [interest ][from ][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.5l2l2}1l, [51312011, ][810/2011']81i/201 r,1r3glz0n, [iioiioi'&' ][114112011 ] The service [charges ][received ][by ][the ][assessee ][in ][respect ][of ] c) loans did not represent [any ][interest, ][that ][they ][were ][only ][service ][charges]received by the [assessee ][on ][loans ][given ][by ][the gov"rnnent but ][routed]through th'e assessee [and ][therefore ][ihe ][service ][charges cannot be ][said ][to ][be]income or profit [derived ][from ][the ][business ][of ][providing ][long-term]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 ][redeernable ][preference]shares can be [treated'as ][profits ][derived ][fiom ][the ][business ][of ][providing]long-term finance. "Long [term ][finance" ][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 ][repayment]along with interest [thereof during ][a ][period ][of ][not ][less ][than ][ftve ][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 ][redeernable ][preference]shares can be [treated'as ][profits ][derived ][fiom ][the ][business ][of ][providing]long-term finance. "Long [term ][finance" ][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 ][repayment]along with interest [thereof during ][a ][period ][of ][not ][less ][than ][ftve ][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]shar-e 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] ITA Nos.5 [1 ]2l20II, [5l3l20tl, ]8 1 0/201 1,811 l20Il, lI39 l20lI, [114012011 ][&, ][1l4r ][/201 ][1]PageT oflT In [Globe ][united ][Engineening ][and Foundry ][co" ][Ltd ][v]redemption. Industrial Finance [corporation of India ][Ltd. ][(1974) ][44 ][Conip' ][cas']347, this Court [observed: ]["The ][preference ][shares ][are ][really part ][of ][the]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]1oans. g. In the case of I [alchand ][Sursna ][& ][others ][v ][llyderabsd ][Vansspatlai]Ltd. [(1gg0) ][6s ][contp.cas. ][475,the Andhra ][Pradesh ][Fligh ][court, h6td that]since redeemable [preference ][shares can ][be ][redeemed ][by ][a company ][only]out of its [profits ][(which ][would ][otherwise ][be ][available ][for ][dividend) ][or out]of proceeds of [an ][issue made ][for ][the ][purpose ][of ][redemption, the ][holder]thereof is not [a ][creditor ][as ][such ][lirnitations ][imposed ][by ][the ][Proviso ][(a) to]section 80(1) [of ][the companies ][Act ][do ][not ][apply ][to ][an ][ordinary creditor']We must however [add ][that ][the ][Andhra ][Pradesh ][High ][Court ][was coucerned]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]cencemed with [the ][position ][of ][a ][redeemable ][preference ][s.hare ][holder ][prior]to the due date [for ][redemption. ][If ][anything, such ][a ][case. ][is ][on ][stronger]U . r r- -1r r^ 1^^ ^ ^-^Ai+.And AxslJch [shareholders can ][never ][be ][held to ][be ][a ][creditor of ][the]footing company. g. The issue had also arisen under [the Interest ][Tax ][Act, ][1974 ][before]the supreme [court ][in ][cIT, ][Kanpur vs sahara Inclia'savings ][and]Investment [corporution ][Ltd. ][(2010) ][321 ] [371. ][The ][question ][before] Page B of [17] g. The issue had also arisen under [the Interest ][Tax ][Act, ][1974 ][before]the supreme [court ][in ][cIT, ][Kanpur vs sahara Inclia'savings ][and]Investment [corporution ][Ltd. ][(2010) ][321 ] [371. ][The ][question ][before] Page B of [17] the court was whether [interest ][earned ][on ][bonds ][and ][debentures ][was]chargeable to tax under [the ][aforesaid ][Act ][having iegard ][to ][the ][definition]of tlre wgrd "interest" in [sec.2(7) ][of ][the ][said ][Act. ][Und,er ][this ][definition,]interest tpeans interest [on ][loans ][eind ][advances ][made ][in ][India; ][it ][included]and excluded certain interest [which ][is ][not ][relevant ][for ][our ][purpose. ][The]question was whether bonds [and ][debenturel ][can ][be treated ][as ][loans ][and]advances. It was obserued [by ][the ][Couft that the ][interest ][on ][loans ][and]advances will 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]Interest Tax Act. 10. We may [also refer ][to ][a ][judgment ][of ][the ][Gujarat ][High ][Court ][in]Anarkali Sarabhai [v. ]CIT [Gujarat ][1952] [138 ][ITR 437. ][That ][case arose]under the Income Tax [Act ][and ][the question ][was ][whether the ][assessee ][was]liable to pay capital [gains ][tax ][on receipt ][of ][an atnount ][equal ][to ][the ][face]value of the preference [shares ][when ][the ][company redeem ][them' ][The].^rnz.le.l ydssessee received from [the ][company ][an ][amount ][which ][aeceded ][the]'Arlamount which/had [paid ]for [these ][shares. ][In ][deciding ][this ][question ][the]hGujarat High Court [had ][to ][examine ][the nature ][of ][redeernable preference]shares issued by a [company. ][The Court ][referred ][to ][Pafuner's ][Company]Law (page 356, [paragraph ][I,22"d ][Edition) ][wherein ][it ][was ][observed ][that].,flom the financial point of view, redeemable preference shares are a' Ivrtr',;a :uWd form of shares and [debentures, ][incorporating ][features ][of ][both,] ITA Nos.5 1212011, 5l3l20ll, 810/2011,8ll l20ll, I 139 1207 l, [ll ][& ][lr ][41 ][1201 ][1] Page 9 of17 and being closer [to ][the ][latter than other ][preference ][shares, ][but ][fi'orn ][the]legal point of [view ][they ][are ][shares ][and ][are ][treated as ][such"' ][The Coutt]fuither noted the view [of ][the ][leamed author ][in ][Pennington's ][Company]Law, 4'h Edition, [page ][195 ][that ][if ][redemption ][of ][the petitioner's ][shares]- would make a company insolvent, it may not be [allowed ][to ][redeem those]shares because [repayment ][of ][preference capital ][would ][be ][a ][fraud upon ][the]creditors. [According ][to ][ihe ][Gujarat ][High ][Court ][this ][view ][of]company's the author clearly [indic'ated ][that the holder ][of ][preference ][shares ][is ][not in]the same position [as ][that ][of ][a creditor. ][The ][learned author ][hadl ][also]expressed the view [in ][the ][aforesaid ][treatise, as noticed ][by ][the ][Gujarat]High Court, that if [a ][company defaults ][in ][redeeming the preference ][shares.]by the date fixed [for ][redamption, ][the ][holder ][thereof ][cannot compel ][it t6 ][do]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]High Court also [negatives ][the ][contention ][that ][once ][the ][company ][decides]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]judgrnents, we are of the view [that ][investment ][in ][redeemable ][pref-erence]shares cannot [be considered ][as a ][loan or ][advance made ][by ][the ][assessee ][to]the company for interest. [The ][basic ][characteristic ][bf ][a ][loan ][is ][that ][the]person advancing [the loan ][has ][the ][right ][to ][sue ][on ][the ][debt, ][whereas the]preference share holders [cannot sue ][for ][the ][money due ][on the ][shares] ITA Nos.5 2lZOl1, [51312011 ], 8 10/201 [1 ]'Page 10 of [17]81 1/201 1, ll39l2oll, [114012011 ][&, ][ll4l/20rr] undertaken to be redeemed [and ][as ][of ][right ][claim.a retum ][of ][the ][share]money except in a [winding ][up ][and ][that ][to ][after ][the ][redernption ][date.]Similarly, a preference [share ][holder ][stands ][on ][a ][different footing ][fi'om ][a]person who has advanced monies to [another. ][An ]["advance" ][has ][been]defined in thd Black's Law Dictionary [as ]["to ][pay money ][Or ][render ][other]value before it is due; to fuinish [something ][before ][an ][equivalent ][is]received or to furnish money for [a specific ][purpose understood ][between]the parties, the money or [some]equivalent to be retutned"etc. Thus anadvance is also quite differentfrom fr preference sharesin natule andcharacter. D.Having regard to the aforesaid [discussioll, ][we ][are ][of ][the ][view ][that]thereis no merit in the assessee's [claim that the ][dividend ][received in]interest of the redeemable [preference shares atnounts ][to ][profits ][derived]from providing long [term ][finance ][within ][the ][meaning ][of ][Section ][36(1)](viii) of the Act read with clause [(h) ]of [the ][Explanation ][to ][the ][Section.]answer [the substantial question ][of ][law ][in ][the ][affirmative]We, accordingly, and in favour of the Revenue. 13. Question No.5 is directed [against ][the ][finding ][of ][the Tribunal ][that]interest earned on short-term [deposits made ][dgring ][the interregnum period]between disbursement of funds [was ][not ][profit ][derived ][fiom ][the ][business]of providing long-tenn finance. [As ][held ][by ][the Tribunal, ][this is ][also ][an] ITA Nos.5i2l20II, 51312011, [810/2011,]8Il 1201 1, rl39 l20l [1, ][1 ][1 ][401201 ][| ][& ][ll ][41 ][1201 ][1]Pale 11 of17 n investment of the [funds ][of ][the ][assessee ][for ][makin, ][,rr" ][of ][the ][idle ][fund ][Y]remaining with it [during the ][interregnum ][period. The ][interest ][cannot ][be]considered as profit derived [from the ][business ][of ][providing ][long-term]finance within the meaning [of ][the ][Section. ][No ][question ][of ][law ][arises ][out]of the faptual finding [of ][the ][Tribunal, ][which ][is ][not ][challenged ][as ][perverse.]The question cannot [be ][admitted.] t4. Question No.6 [is ][directed ][against ][the ][finding ][of ][the Tribunal ][that]the service charges on [loans do ][not ][qualiff ][for ][the deduction ][because]the loans are not [provided ][by ][the ][assessee ][but ][are. ][given ][by ][the]Gover-nment 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 ][throigh ][the]assessee. The assessee [cannot ][therefore ][be ][considered ][to ][be ][canying ][on]th6 business of providing [long-term ][finance. ][It ][is ][in ][receipt ][of ][only ][set'vice]charges and not interest, [obviously ][because ][its ][funds ][are ][not involved. ][It ][is]also not the case that [the ][assessee ][borrows monies ][fiom ][the ][Goverrunent]for interest and [advances ][loans ][for ][higher ][interest. ][In ][view of ][the ][factual]position, no substantial [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 ][acadbmic ][nature. ][They do not ][raise ][any]substantial [questions ][of law. ][We decline ][to ][admit ][them.] ITANos.5I2l2OIl, [51312011, ][8l0l20ll,]8ly20rl, 1139 l2oll, [11401201 1 ][& ][1 ][1 ][41 12011] Page 12 of L7 a: 16. The [questions ][raised ][by ][the ][assessee ][in ] [NO.5I2l20Il ][ate]identical. For the [above ][reasons ][we decline ][to ][admit ][them.] t7. Question Nos.1 [to ][5 ][raised ][in ] [No.1 ][I3gl2O11 ][are ][identical to ][the]first five questions [raised ][in ][the ][appeals ][in ] [Nos.513 ][& ][51212011. ][For]the same reasons [given ][above, ][we decline ][to ][adrnit them. ][Question ][No.6 ][is]directed against the [finding ][of ][the ][Tribunal ][that ][interest ][on]or [loans ][to ][employees ][amounting ][to ][Rs'9,95,152 ][does]advances/deposits not qualify for the [deduction ][because ][it ][does ][not.represent ][profit ][derived]. [from ][the ][business ][of ][providing ][long-terrn ][finance. ][In ][substance ][and]is no [difference between ][the ][other items ][of ][income]qualitatively, there plaimed to be etigibte 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 ][from 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 ][& ][8Ill20I1 ][relating ][to ][the]assessment years [2007-08 ][and ][2001-02 ][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 ][same reasons ][given ][by ][us ][in]those appeals, we [decline ][to ][admit ][these ][questions. ][QuestioU ][No'7 ][in ][these]two appeals (i.e., ITA [Nos.810 ][& ][8Ill20I1) ][are identical ][to ][Question]No.6 raised in ITA [No.l ][I3gl20I1, ][i.e., ][against ][the ][finding ][of ][the ][Tribunal] ITANos.51212077, [5I3l20Il, ]810/201i,Page 13 of 178ll l20Ir, ll39 l20rl, [11401201 ][| ][&' ][1 ][l4rl20l1] that interest on [advances ][or ][loans ][to ][employees ][does ][not ][qualify 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 item ofreceipt separately [and has ][applied ][the ][earlier ][orders ][passed ][by ][it ][for ][the]assessment [years ][1999-2000 ][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 ][incotne ][would]apply to miscellaneous [income ][also, ][th.e ][details ][of ][which ][have ][not ][been]furnished to [us. ][we ][accordingly ][decline ][to ][adrnit ][the ][questions raised by]the assessee in [Nos. ][810 ][& ][81 ][1/201 ][1 ]['] 19. we now [take ][up ] [No. ][II40l20l1 ][(asst. ][year: ][2002-03) for]consideration. 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 ][& ][811/2011](asst. years: 2007-08 [and ][200l-02). For ][the ][reasons ][given ][by ][us ][in ][those]appeals, we decline [to ][admit question Nos. ][2 ][to ] [for ][this year' ][In ][question]No.1, the [assessee ][has challenged ][the decision ][of ][the ][Tribunal holding ][that]the reasseisment [proceedings were ][validly ][initiated ][under ][Sec.147l148 ][of]the Act. The [decision ][of ][the ][Tribunal ][is in ][paragraph ][5 ][of ][its ][order' ][The]on [the basis ][of ][which ][the ][reassessment ][proceedings were held to]findings be in order [are:] ITA Nos.51212011, [51312011, ][810/201 ][1,]Page 14 of l7811 1201 l, [1r3g ][l20ll, ][rr40 ][1201 ][r ][& ][11 ][41 ][120 ][1 ][|] 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 ][dated ][3-12-2004.] b) A perusal of [the letter ][dated 3-12-2004 ][shows ][that ][it ][is ][just ][a]general letter and did not [contain any ][wor{<ing ][for ][the ][pulpose ][of ][the]section. c) The assesslnent was [reopened ][within ][4 years ][fi'om the ][end ][of ][the]assessment year and [therefore the ][benefit ][of ][the ][proviso ][to ][Sec.147 ][is not]available to the assessee. The reassessment [proqeedings ][were ][not ][prornpted ][by ][a. ][change]d) of opinion. If that is so, it is [obvious ][that ][the conclusion ][of ][the ][Tribunal ][that ][the]reassessment [proceedings ][were ][validty initiated ][cannot ][give rise ][to ][any]question of law, much [less ][a ][substantial ][question ][of ][law. ][We ][therefore]decline to admit Question [No.l ][also ][for ][this year'] 20. In ITA No.1 !4tl20l1, [the ][assessee ][has ][raised ][four ][questions, ][stated]to be substantial [questions ][of ][law. ]Question [Nos. ][2to ][4 ][are ][identical ][with]Question [Nos.l ][to ][3 ][raised ][in ITA ][Nos. ][512 ][& ][51312011 ][and ][for ][the']reasons [giyen ]by [us ][in ][respect ][ff ][tnose 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 ITA Nos.512l20ll, [513/2011, ][810/2011,]811/201 r,lr39l20ll, [Lr40l201l ][& ll41l20rr] Paee 15 of17 ' " , . ,v-)(/2/t-/ 20. In ITA No.1 !4tl20l1, [the ][assessee ][has ][raised ][four ][questions, ][stated]to be substantial [questions ][of ][law. ]Question [Nos. ][2to ][4 ][are ][identical ][with]Question [Nos.l ][to ][3 ][raised ][in ITA ][Nos. ][512 ][& ][51312011 ][and ][for ][the']reasons [giyen ]by [us ][in ][respect ][ff ][tnose 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 ITA Nos.512l20ll, [513/2011, ][810/2011,]811/201 r,lr39l20ll, [Lr40l201l ][& ll41l20rr] Paee 15 of17 ' " , . ,v-)(/2/t-/ 'aside the assessment order for de novo consideration and passing of freshassessment order in respect [of ][the various ][claims ][made ][by ][the ][assessee]under Sec.36(1)(viii). These [claims ][are ][the ][salne as ][have ][been rnade ][in]respect of the other [years, ][viz., ][dividend ][on redeemable ][preference ][shares,]interest on bant( [deposits/FDs, ][service ][charges ][on ] [loans,]miscellaneous receipts, [interest ][on ][loans/advances ][to ][ernployees ][etc. The]Tribunal has taken [the ][view ][in paragraph ][5 ][of ][its ][order that the ][assessment]order was erroneous in [as ][muclr ][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 refeffed to andrelied upon the [judgment ][of this ][Court ][in ][Gee ][Vee ][Enterprises ][(1975) ][99]' ITR 375 wherein it was held that failure to rnake relevant enquiries wouldinvite action under the [Section ][on ][the ][ground that ][the ][assessment ][order ][is]. [erroneous and ][prejudicial ][to ][the ][interest ][of ][the ][revenue. ][In ][our ][opinion,]this [judgment ]was rightly [invoked by the ][CIT 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.assessment order in respect [of ][the various ][claims ][made ][by ][the ][assessee]under Sec.36(1)(viii). These [claims ][are ][the ][salne as ][have ][been rnade ][in]respect of the other [years, ][viz., ][dividend ][on redeemable ][preference ][shares,]interest on bant( [deposits/FDs, ][service ][charges ][on ] [loans,]miscellaneous receipts, [interest ][on ][loans/advances ][to ][ernployees ][etc. The]Tribunal has taken [the ][view ][in paragraph ][5 ][of ][its ][order that the ][assessment]order was erroneous in [as ][muclr ][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 refeffed to andrelied upon the [judgment ][of this ][Court ][in ][Gee ][Vee ][Enterprises ][(1975) ][99]' ITR 375 wherein it was held that failure to rnake relevant enquiries wouldinvite action under the [Section ][on ][the ][ground that ][the ][assessment ][order ][is]. [erroneous and ][prejudicial ][to ][the ][interest ][of ][the ][revenue. ][In ][our ][opinion,]this [judgment ]was rightly [invoked by the ][CIT 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. ZL In the result, [question ][No.4 ][raised ][in ] [No.5 ][I3l20I1 ][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.512/2011, [51312011, ][810/2011,]8l I lzul, [1 ]139 [/201 ][1, ][11 ][40 12011 ][&, I ][r41 ][l20r ][I]Page 16 of 17 raised in all the [appeals ][are ][not ][admitted as ][they ][are ][not ][substantial]questions of law. The [appeals are ][disposed ][of accordingly' No ][costs'] (itY\\.",e,--<'(R.V.EASWAR)JUDGE./L- -.// rll l, [(]\.-(, [l(SANIV I(HANNA)JUDGE NOVEMBER 28,2ollvld/mm ITA Nos.51212017,51312011, [810/2011,]81U2011,1r39120tr,tr40l201r & [1141l20rl] Page 17 ofL7