National Cooperative Developmentcorporation v. Assistant Commissioner Of [Income ][Tax

:K IN TI{E HIGH COURT OF DELHI + ITA NOs . 51^gl20l1, 810/20l1,8lll201,l, [ll39/20Ll,1140120L1, ][&]1r4ll20llReserved on : 19th November.2011.% Date of Decision : [28'n ]November. [201 ][1 ]'NATIONAL COOPERATIVE CORPORATION "" [APPellant]Through: Mr. Rajat Navet, [Adv.]VERSUSASSISTANT COMMISSIONER [TAX,]CIRCLE .....ResPondent13(1) Through : Ms. Suruchi Aggarwal, [Adv.]CORAM:IION'BLE MR. JUSTICE IION'BLE MR. JUSTICE [R.V. ] 1. Whether Reporters of local [papers ][may ][be ][allowed ][to ][t.. ][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.5l2/20tt.l- r'4l *'-, (R.V.EASWAR)JT]DGE,l-l [, ]t( [(-.](sANJrv KHANNA)JT]DGE NOYEMBER 28,2OIL 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. - , i ' 'f IN T'XIE HNGTI COIJ]RT OF DEI,TII AT.NEW + ITA NOs.512/20L1, 51312011, 810/2011' [81112011,]1139 l20ll, 1140120LL, & 11.411201\ Reserved on [' ]16tl'November;2011.Date of Decision : 28tr'November. [2011.] % NATIONAL COOPERATIVE DEVELOPMENTCORPORATION ... APPellantTtnough: Mr. RajatNavet, Adv. VERSUS ASSISTANT COMMISSIONER OF [TAX,] ruchi d;,,1,:l:l1T* COR.AM:trION'BLE MR. JUSTICtr SANJIV HON'BLE MR. JUSTNCtr R.V. 1. Whether Reporlels of local [[papers ]][may ][be ][allowed to ][see ][the ][judgment?] [[papers ]]2. To be refen'ed to the Reporter or [not ]? 1l-t 3. Whether the [judgment ]should [be ][reported ][in ][the ][Digest? ]["f'e] R.V. EASWAR. J.: These are seven appeals filed [by the ][assessee ][under ][Sec.260A ][of]the Income Tax Ait, 1961 [("the ]Act" [for ][short) ][against ][the ][orders ][of ][the] ITA Nos.5 I2/201I, 513/2011, [870/2011,]811/2011,1139/2011,1140/2OIl [& ][lI4l/2011 ] Page I of 17 Income Tax [Appetrlate ][Tribunal ][("Tribunal" for ][short) ][passed ][on ][different]dates and for different [assessment ][years ][as ][shown in the table below:] In respect of [the ][assessment ][years 1999-00, 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 ][assesslnent ][year ][and ][what]items of income [can ][be considered ][as ][profits ][derived ][fi'om]business of [providing ][long ][term ][finance ][which would ][in]law be eligible for [deduction u/s ][36(1)(viii)?]provisions of Sec.36(1)(viii) [of ][the Income ][Tax ][Act, ][1961]as it existed for [the ][relevant ][assesslnent ][year ][and ][what]items of income [can ][be considered ][as ][profits ][derived ][fi'om]business of [providing ][long ][term ][finance ][which would ][in]law be eligible for [deduction u/s ][36(1)(viii)?] (2)What are the [principles ][to ][be ][applied ][for ][determining]whether a particular [item ][of ][income ][is ][derived ][frorn ][the]whether a particular [item ][of ][income ][is ][derived ][frorn ][the]'business "of providing long term finance for being eligible of providing long term finance for being eligible for deduction [under ][Section ][36(1)(viii) ][and whether ][the] ITA Nos.5 2l20ll, 57312011 , 8 10/201 1 ,P-age2 of 17811/201 I,ll39/20r1, [114012011 ][& ][ll4tl20l1] 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 arguments? (2)What are the [principles ][to ][be ][applied ][for ][determining]whether a particular [item ][of ][income ][is ][derived ][frorn ][the]whether a particular [item ][of ][income ][is ][derived ][frorn ][the]'business "of providing long term finance for being eligible of providing long term finance for being eligible for deduction [under ][Section ][36(1)(viii) ][and whether ][the] ITA Nos.5 2l20ll, 57312011 , 8 10/201 1 ,P-age2 of 17811/201 I,ll39/20r1, [114012011 ][& ][ll4tl20l1] 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 arguments? (3)Whether in the facts and [circumstances ][of ][the ][case, ][the]Tribunal was [gonect ]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 ][Incotne ][Tax]act, l96L? (a)whether in the facts and [circumstances ][of ][the ][case, ][the]Tribunal was coffect in [law ][in ][holding ][that income ][earned]of dividend from [redeemable sh4res ][was ][not]by way eligible for deduction under [Section ][36(1)(viii) ][of the Act?](5)Whether in the facts and [circumstances ][of ][the ][case, ][the]Tribunal was colrect [in ][law in holding ][that ][interest ][earned.]on short term deposits [made ][during ][the interregnum period]between disbursement [of ][funds ][was ][not ][profit ][derived ][fiom]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, ][thb]Tribunal was coffect [in law ][in holding that ][service ][charges]earned by the Appellant for [monitoring ][and]irnplementation of [' ]SDF [Loans ][was ][not ][eligible ][for]deduction under Section [36(1)(viii) ][of ][the ][Act?] In respect of the assesstnent [years 2007-08 ][and ][200I-02 ][the]assessee has, in addition to [the ][above ][six ][questions, ][raised ][olle rlore]question which is as under: "Whether in the facts [and ][circutnstances ][of ][the ][case, ][the]Tribunal was conect in [law ][in ][holding ][that ][interest ][on ]and [misc. ][receipts ][were ][not ][eligible ][for]advances/deposits deductiori under Section [36(1)(viii) ][of ][the ][Act?"] ' ITANos.512l20ll, [51312011, ][810/201i,]8I|12011, 1139l20l1, [1140/2011l ][& ][|l4l/2011.] Page3 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]Tribunal was [correct ][in ][law ][in ][upholding ][initiation ][of]proceedings by [the ][Assessing ][Officer ][under ][Section ][148 ][of ][the]Income Tax [Act, ][t96l?"] In respect [of ][the ][assessment ][year ][2OO3-04, ][the ][assessee ][has raised] the following [four ][questions:] in [the ][facts'and ][circumstances ][of ][the ][case, ][the ][Tribunal](l)Whether was correct in [law ][in ][upholding ][initiation ][of ][proceedings ][under]section 263 [as ][well ][as ][the ][ordeipassed ][by ][the ][cIT ][under ][Section]263 of the Act?was correct in [law ][in ][upholding ][initiation ][of ][proceedings ][under]section 263 [as ][well ][as ][the ][ordeipassed ][by ][the ][cIT ][under ][Section]263 of the Act? No.1: "Whether in [the ][facts ][and ][circumstances ][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, ][t96l?"] In respect [of ][the ][assessment ][year ][2OO3-04, ][the ][assessee ][has raised] the following [four ][questions:] in [the ][facts'and ][circumstances ][of ][the ][case, ][the ][Tribunal](l)Whether was correct in [law ][in ][upholding ][initiation ][of ][proceedings ][under]section 263 [as ][well ][as ][the ][ordeipassed ][by ][the ][cIT ][under ][Section]263 of the Act?was correct in [law ][in ][upholding ][initiation ][of ][proceedings ][under]section 263 [as ][well ][as ][the ][ordeipassed ][by ][the ][cIT ][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) [of ][the ][Income ][Tax ][Act, ][196l ][as ][it ][existed ][for ][the]relevant [assessment ][year ][and ][what ][items ][of ][income ][can ][be]considered as [profits ][ierived ][from ][business ][of ][providing log ][term]finance which [would ][in ][law ][be ][eligible ][for ][deduction ][u/s]36(1)(viii)?sec.36(1)(viii) [of ][the ][Income ][Tax ][Act, ][196l ][as ][it ][existed ][for ][the]relevant [assessment ][year ][and ][what ][items ][of ][income ][can ][be]considered as [profits ][ierived ][from ][business ][of ][providing log ][term]finance which [would ][in ][law ][be ][eligible ][for ][deduction ][u/s]36(1)(viii)? (3)What are the [principles ][to ][be applied ][for ][determining whether ][a]itemof [income ][is ][derived ][from ][the ][business ][of pfoviding]itemof [income ][is ][derived ][from ][the ][business ][of pfoviding]particular Iong term finance [for ][being ][eligible ][for ][deduction ][under ][section]36(lXviiD [and ][whether ][the ][itt,rtas ][to ][what is ][profits ][derived ][fiom]such business [of ][providing ][long term finance ][is ][to ][be decided on the]basis of [pragmutic ][brrsiness ][consideration ][rather ][than ][purely]l"galistic arguments?Iong term finance [for ][being ][eligible ][for ][deduction ][under ][section]36(lXviiD [and ][whether ][the ][itt,rtas ][to ][what is ][profits ][derived ][fiom]such business [of ][providing ][long term finance ][is ][to ][be decided on the]basis of [pragmutic ][brrsiness ][consideration ][rather ][than ][purely]l"galistic arguments? (a)Whether in the [facts and ][circumstances ][of ][the ][case, ][the ][Tribunal]was correct in law [in ][relying ][and ][applying the ][ratio ][of ][decisions]was correct in law [in ][relying ][and ][applying the ][ratio ][of ][decisions] ITANos.51212017, [5t312011, ][810/2011']Page 4 of 178 1 1/20i l, [113912011, ][ll40l20l1 ][& ][ll41 ][12011] which do not deal or [pertain ][to ][the ][provisions ][contained ][in]Sec.36(1)(viii) of [the ][Income Tax ][Act, ][196I?"] 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 admitted. The revenue [contests ][this ][position.] 3. The assessee is [a ][company ][set ][up ][under the ][National ][Cooperative]Development Corporation [Act, ] [with ][the ][object ][of ][promoting ][the]cooperative movement [in ]lhe [countty.] 4. We can take up ITA [No.5I3l20l1 ][as ][the lead ][case. ][In ][the ][return]filed for this [year, ][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]companies: Rs. 46,94,800 a) Interest on short-term [deposits ][with ][banks: ][Rs.3,76,3I,L44] c) Service charges [on SDF ][loans: ][Rs. ][85,09,703] 3. The assessee is [a ][company ][set ][up ][under the ][National ][Cooperative]Development Corporation [Act, ] [with ][the ][object ][of ][promoting ][the]cooperative movement [in ]lhe [countty.] 4. We can take up ITA [No.5I3l20l1 ][as ][the lead ][case. ][In ][the ][return]filed for this [year, ][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]companies: Rs. 46,94,800 a) Interest on short-term [deposits ][with ][banks: ][Rs.3,76,3I,L44] c) Service charges [on SDF ][loans: ][Rs. ][85,09,703] The deductions [were clairned ][on ][the ][footing ][that the ][assessee ][was ][engaged]in the business of [providing ][long-term finance ][and ][the ][aforesaid iterns ][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] ITA Nos.5 1212011, 51312011, [810/201 ][1,]8I l lz0l l, 1739 1201 [1, ][1 r ][40 ][l20 ][l ][l ][& ][l ][1 ][4l /20r ][1] Page 5 of L7 these were not [items ][of ][income ]["derived ][from" ][the ][business ][of ][providing]finance [within ][the ][meaning of the ][section.]long-term 5. on appeal, [the ][cIT ][(A) ][endorsed ][the ][view ][taken ][by ][thq ][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 ][income.should ][be "derived ][frorn" ][the]business of [providing ][long-term ][finance was ][not ][satisfied' ][In ][this ][view ][of]the matter, it [pioceeded ][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]ftom 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-term]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 aF essentially [they ][are ][the ][assessee,s ][investments;] ITA Nos.5 1212011, [51312011, ][8i0/2011,]81 l/201 I,1l3gl20lr,114012011 [&' ][rr41l20r1] Page 6 of L7 c) The seruice charges [received ][by the ][assessee ][in ][respect ][of ][SDir]loans did not represent [any ][interest, ][that ][they ][were ][only ][service ][charges.]received by'the [assessee ][on ][loans ][given ][by ][the ][goveffIment ][but ][routed]assessee [and ][therefore the service ][charges ][camot ][be ][said ][to ][be]through the income or profit derived [frorn the ][business ][of ][providing ][long-tertn]finance. ITA Nos.5 1212011, [51312011, ][8i0/2011,]81 l/201 I,1l3gl20lr,114012011 [&' ][rr41l20r1] Page 6 of L7 c) The seruice charges [received ][by the ][assessee ][in ][respect ][of ][SDir]loans did not represent [any ][interest, ][that ][they ][were ][only ][service ][charges.]received by'the [assessee ][on ][loans ][given ][by ][the ][goveffIment ][but ][routed]assessee [and ][therefore the service ][charges ][camot ][be ][said ][to ][be]through the income or profit derived [frorn the ][business ][of ][providing ][long-tertn]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 ][clividend]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 [tenn ][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]alorig 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]share capital of a company: [preference share ][capital ][and ][equity ][share]capital. Section B0 makes [detailed ][provisions ][for ][the ][issue ][by ][a company]of redeemable preference [shares. ][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 ][nr'ade ][for ][the ][purpose ][of] ITANos.512l207I, 513/2011, [810/2011,]811 l20lr, 1139 l20TI, [114012011 ][& ][lr41 ][1201 ][1]PageT oflT In [Globe ][United ][Engineening ][and Foundry Co' ][X-,td ][v]redemption. Industrial Finance [corporation of ][India ][I'td. ][(1974) 44 ][Cornp' cas']347, this Court [observed: ]["The ][preference ][shares ][are ][really ][parl ][of ][the]share [capital; ][they ][are ][not ][loans". ][In ][the ][light of ][the ][clear]company's statement of [this ][court, ][redeemable ][preference ][shares ][cannot ][be ][treated ][as]loans. g. In the case [of ] [alchand Surana ][& ][others ][v ][Xfyderabad ][Vansspathi]Ltd. [(1gg0) ]6s [conry.cos. ][415,the ][Andhra ][Pradesh ][High ][cotttt ][held that]since redeemable [preference ][shares ][can ][be ][redeemed ][by ][a company ][only]out of its profits [(which ][would ][otherwisb ][be ][available ][for ][dividend) ][or out]of proceeds of [an ][issue tnade ][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 ][Companies ][Act ][do ][not ][apply ][to ][an ][ordinary creditor']We must however [add ][that ][the ][Andll'a ][Pradesh ][High ][Court ][was concerned]with the position [of ][a redeemable ][preference shareholder after ][the failurd]of the company [to ][redeem ][the ][share. ][In ][the ][case ][before ][us, ][we ][are]concemed with [the ][position ][of ][a ][redeemable ][preference ][share ][holder ][prior]to the due date [for ][redemption. ][If ][anything, such ][a ][case ][is ][on ][stronger]rI.and as-such [shareholders can ][never ][be ][held ][to ][be ][a ][creditor of ][the]footing company. 9. The issue [had also ][arisen under ][the Interest ][Tax ][Act, ][1974 before]the suprerne [court in,crT, ][Kanpur ][vs' ][sahara ][India ][savings ][snd]Investment [corporation ][Ltd. (2010) ][321 ITR ][37L' ][The ][question ][before] ITANos.512l2OI1, [5l3l2}l7, ]810/2011,Page 8 of 1781 1/201 l, ll3glz}rl, [rl40l20r1 ][&, ][l14rl20rr]Page 8 of 1781 1/201 l, ll3glz}rl, [rl40l20r1 ][&, ][l14rl20rr] ) 9. The issue [had also ][arisen under ][the Interest ][Tax ][Act, ][1974 before]the suprerne [court in,crT, ][Kanpur ][vs' ][sahara ][India ][savings ][snd]Investment [corporation ][Ltd. (2010) ][321 ITR ][37L' ][The ][question ][before] ITANos.512l2OI1, [5l3l2}l7, ]810/2011,Page 8 of 1781 1/201 l, ll3glz}rl, [rl40l20r1 ][&, ][l14rl20rr]Page 8 of 1781 1/201 l, ll3glz}rl, [rl40l20r1 ][&, ][l14rl20rr] ) 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. ][Under ][this ][definition,]interest means interest on [loans and ][advances ][made ][in ][India; ][it ][included]and excluded 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 obseryed [by ][the Court 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)' ][ln]this view it was held that such [interest ][was ][not ][chargeable ][under ][the]Interest Tax Act. 10. We rnay also [refer ][to ][a ][judgment ][of ][the ][Gujarat ][High ][Court ][in],A,narkali Sarabhai v. CIT Guiarat t19S2l [138 ] [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 ][amQunt ][equal ][to ][the ][face]value of the preference shares [when ][the ][company redeem ][them. ][The].^,."2.1e.1 [y]assessee received from [the ][company ][an ][amount ][which ][aeeeded ][the]!. amount *tri"fffrud paid for these shares. In deciding this question [the]Gpjarat High Court had [to ][examine ][the nature ][of ][redeemable ][preference]shares issued by [a corrrpany. The ][Court referred ][to ][Palmer's ][Company]Law (pag e 356, paragraph l, [22"d ][Edition) wherein ][it ][was ][observed ][that]"frorn the finalcial [point ]of [view, ][redeemable ][preference ][shares ][are ][a][""+n;a :y ['-W#gd ]form of shares and debentures, incorporating features [of ][both,] ITANos.512l201l, [51312017, ][81012011,]81 1 lZOr l, [1 ]739 [1201r, ] [l40 ][l20rr ][& ][1 ][l4r ][l20 ][1 ][r]Page 9 of L7 and being closer [to ][the ][latter than other ][preference ][shares, ][but ][fiom ][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, 4th Edition, [page ][195 ][that ][if ][redemption ][of ][the petitioner's ][shares].would malce a company insolvent, it may not be.allowed to redeem thoseshares because [repayment ][of ][preference ][capital ][woirld ][be ][a ][fraud upon ][the]creditors. [According ][to ][ihe ][Gujarat ][High ][Court ][this ][view ][of]company's the author clearly [inilicated that the holder ][of ][preference ][shares ][is ][not ][in]the same position [as ][that ][of ][a creditor. ][The ][learned author ][had ][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]date fixed [for ][redemption, the holder ][thereof ][cannot ][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 auth6r, ][according ][to ][the ][Gujarat]Court [also negatives ][the ][contention ][that ][once ][the ][cornpany ][decides]High to redeem its [preference ][shares, ][the ][holder thereof ][would ][be ][in ][the]positicin 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 ][made ][by ][the ][assessee ][to]the company for [interest. ][The ][basic characteristic ][of ][a ][loan ][is ][that ][the]person advancing [the. ][loan ][has ][the ][right ][to ][sue ][on ][the ][debt, ][whereas the]holders [cannot sue ][for ][the ][money due ][on the ][shares]preference share ITANos.512l20I1, [5l3l20ll, ]810/20i1'8ll l20lr, r13g [12017, 114012011 ][&' ][ll4rl2011] Page 10 of 17 ( ' undeftaken to be redeemed [and ][as ][of ][right ][claim a ][return ][of ][the ][share]money. except in a [winding ][up ][and ][that ][to ][after ][the ][redemption ][date.]Similarly, a preference [share ][holder ][stands ][on ][a ][different footing from ][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 ][purpose understood ][between]the parties, the money or some [equivalent ][to ][be returned" ][etc. ][Thus ][an]advance is also [quite different from ]fl [preference shares ][in ][nature ][and]character. IZ. 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 thq redeemable [preference ][shares ][atnounts ][to ][profits ][derived]fi'om providing long [term ][finance ][within ][the ][tneaning ][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 ][affirrnative]We, accordingly, and in favour of the Revenue. 13. Question No.5 is [directed ][against ][the ][finding ][of ][the Tribunal ][that]lnterest t--.^-^^n+ o^*-ol ^- ohnrf-forrn r{e^ncifc earned on short-term [deposits made ]rncr{e [during ]r{rrrino the [the ntenegnum ]ir [periot]Jbetween disbursement of [funds was ][not ][profit ][derived fi'om the ][business]of providing long-term [finance. ][As ][held ][by ][the Tribunal, ][this is ][also ][an] ITANos.512l20II, [51312011, ][810/2011,]8rl l2o11, 1139 12011, [lr40/201 ][1 ][& ][lr4l ][1201 ][r]Page 11 of 17 investment of the funds [of ][the ][assessee ][for ][making ][use ][of ][the ][idle ][funds]remaining with it during [the ][interregnum ][period. The ][interest ][cannot ][be]considered as profit 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 ][Tribunal, ][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]tlre loans are not [provided ][by ][the ]['assessee ][but ][are given ][by ][the]Government through [the ][assessee ][for ][which ][service ][charges ][are ][paid, 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 [caru1ot ][therefore ][be ][considered ][to ][be ][canying ][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 ][Government]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 ][threq ][questions ][which ][are ][general ][in ][nature.]Having regard to the [findings ][.recorded ][by ][the ][Tribunal, ][which ][are not]disputed, these questions [are ][of ][acadbmic ][nature. ][They ][do ][not ][raise ][any]substantial [questions ][of law. ][We decline ][to ][admit them.] ITA Nos.5 1 2l20II, [5I3l20Il ], 8 I 0/201 l,8lI l20II, 1 139 l20l l, [11 ][40 ][120 ][| ][1 ][& ][1 ][| ][4 ][1 ][l20ll]Page 12 of 17 16, The [questions ][raised ][by ][the ][assessee ][in ITA ][No'5l2l20l1 ][are]identical. For the [above ][reasons ][we ][decline ][to ][adrnit ][thern.] 17 . euestion [Nos.l ][to ][5 ][raised ][in ] [No.1 ][13912011 are ][identical to ][the]first.five [questions ][raised ][in ][the ][appeals ][in ] [Nos.5 ][t3 ] [5l2l20l1. ][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 ][ernployees ][amounting ][to ][Rs'9,95,152 ][does]advances/deposits not qualifl, for [the ][deduction ][because ][it ][does ][not.represent ][profit ][derived]from the business of [providing ][long-term finance. ][In ][substance ][and]qualitatively, 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 ][riot ][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 [declile to ][admit ][the ][question ][No.6 ][in ][this ][appeal']first.five [questions ][raised ][in ][the ][appeals ][in ] [Nos.5 ][t3 ] [5l2l20l1. ][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 ][ernployees ][amounting ][to ][Rs'9,95,152 ][does]advances/deposits not qualifl, for [the ][deduction ][because ][it ][does ][not.represent ][profit ][derived]from the business of [providing ][long-term finance. ][In ][substance ][and]qualitatively, 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 ][riot ][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 [declile to ][admit ][the ][question ][No.6 ][in ][this ][appeal'] 18. We now take [up ] [Nos. 810 ][&' ][8II120I1 ][relating ][to ][the]assessment years 2007-08 [and ][2o0I-02 ][respectively. ][The ][first ][six]questions raised by [the ][assessee ][are ][identical ][with ][the ][six ][questions raised]by it in ITA Nos. [5L2 ]& [51312011. ][For ][the ][same reasons ][given ][by ][us ][in]those appeals, we decline [to ][admit ][these ][qrr"riionr. ]Questioh [No'7 ][in ][these]two appeals [(i.e., ]ITA [Nos.810 ][& ][8LI12OI1) ][are identical ][to ][Question]No.6 raised in ITA No.l [I3gl20I1, ][i.e., ][against ][the ][finding ][of ][the ][Tribunal] ITA Nos.512l2OIl, [5l3l20ll, ]810/2011,81 1/201 1, 1139 1201L, ll40l20l1 [& ][ll4rl20ll]Page 13 of 17 18. We now take [up ] [Nos. 810 ][&' ][8II120I1 ][relating ][to ][the]assessment years 2007-08 [and ][2o0I-02 ][respectively. ][The ][first ][six]questions raised by [the ][assessee ][are ][identical ][with ][the ][six ][questions raised]by it in ITA Nos. [5L2 ]& [51312011. ][For ][the ][same reasons ][given ][by ][us ][in]those appeals, we decline [to ][admit ][these ][qrr"riionr. ]Questioh [No'7 ][in ][these]two appeals [(i.e., ]ITA [Nos.810 ][& ][8LI12OI1) ][are identical ][to ][Question]No.6 raised in ITA No.l [I3gl20I1, ][i.e., ][against ][the ][finding ][of ][the ][Tribunal] ITA Nos.512l2OIl, [5l3l20ll, ]810/2011,81 1/201 1, 1139 1201L, ll40l20l1 [& ][ll4rl20ll]Page 13 of 17 that interest on [advances ][or ][loans ][to ][employees does ][not ][quali$ ][for ][the]deduction. Following [our ][reasoning ][given ][in ][the preceding ][paragraph, ]-wedecline 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]assessmenr years Lggg-2000 [and ][2004-05 ][to ][the ][miscellaneous ][receipts]and held that they do [not ][also ][qualify ][fof ][the ][deduction. ][In ][our ][view, ][the]same reasoning [given ][by ][us ][in ][respect ][of ][the other items ][of ][income ][would]apply to miscellaneous [income ][also, ][the ][details ][of ][which ][have ][not ][been]frulished to us. We [accordingly ][decline ][to ][admit ][the ][questions raised ][by]the assessee inITANos. [810 ][& ][811/2011.] D. We now take [up ] [No.l ] [(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 ][& ][8IL/20II](asst. years: 2OO7-08 and [2001-02). ][For the ][reasons ][given ][by ][us ][in ][those]appeals, we decline to [admit ][question ][N?t. ][2 ][to ] [for this ][year' ][In ][question]No.1, the [assessee ][has ][challenged ][the decision ][of ][the ][Tribunal holding ][that]the reassessment proceedings [were ][validly ][initiated ][under ][Sec.1471148 ][of]the Act. The decision [of ][the ][Tribunal ][is i., ][putugraph ][5 ][of ][its ][order' ][The]on [the basis ][of which ][the ][reassessment ][proceedings were held to]findings be in order are: ITANos.512l20ll, [51312071, ][Bi0/2011,]8r1lz0n, n39l20rl, [1140/2011 ][& ][l14r/201 ][r] Page 14 of 17 i u) 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 [datetl 3-12-2004 shows ][that ][it ][is ][just ][a]general letter and did not contain [any ][working ][for ][the ][pulpose ][of ][the]section. c) The assessment was [reopened ][within ][4 ][yearc ][from ][the ][end ][of ][the]assesslnenr year and therefore [the ][benefit ][of ][the ][proviso ][to ][Sec.147 ][is not]:available to the assessee. The reassessment [proceedings ][were ][not ][prompted ][by ][a ][change]d) of opinion If that is so, it is obvious [that ][the conclusion ][of ][the ][Tribunal ][that the]reassessment proceedings [were ][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 perusal of the letter [datetl 3-12-2004 shows ][that ][it ][is ][just ][a]general letter and did not contain [any ][working ][for ][the ][pulpose ][of ][the]section. c) The assessment was [reopened ][within ][4 ][yearc ][from ][the ][end ][of ][the]assesslnenr year and therefore [the ][benefit ][of ][the ][proviso ][to ][Sec.147 ][is not]:available to the assessee. The reassessment [proceedings ][were ][not ][prompted ][by ][a ][change]d) of opinion If that is so, it is obvious [that ][the conclusion ][of ][the ][Tribunal ][that the]reassessment proceedings [were ][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 I4LI20L1, [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 ] [Nos. 5I2 ][& ][5L3120LL ][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]validly initiated revision [proceedings ][under ][Sec.263 ][of ][the ][Act ][and ][set] ITANos.512l20ll, 5l3l20ll, [810/2011,]8lll20Il, 1739 12011, lr40l20rr [&' ][| ][141 ][/2011] Page 15 of 17 a aside the assessrnent order [for ][de-novo consideration ][and passing ][of ][fresh]assessment order in respect of [the ][various ][claims ][made ][by ][the ][assessee]under Sec.36(1)(viii). These [claims ][are ][the ][same as ][have ][been made ][in]respect of the other [years, ][viz., ][dividend ][on redeemable preference ][shates,]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 ][assessment]order was elToneous in [as ][mirch ][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 AO [has ][failed ][to ][examine ][the claims ][made by ][the]assessee for deduction [under Sec.36(1)(viii). ][It ][is ][seen ][fiom ][the ][order ][of]the CIT that in'taking [proceedings ][under ][Sec.263 ][he ][has refemed ][to ][and]relied upon the [judgment ][of this ][Court ][in ][Gee ][Vee ][Enterprises ][(1975) ][99]ITR 375 wherein it wirs [held that ][failure ][to make relevant enquiries ][would]invite 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 [judgm"nt ]*ur 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. 2I. In the result, [question ][No.4 ][raised ][in ][ITA No.5l3l20l1 ][is ][answered]in affir-mative and [against ][the ][assessee. ][The identical ][question raised ][in]other appeals is also answered [against ][the ][assessee. ] [other ][questions] ITANos.512/2017, 51312011, [810/2011,]811 l20rr, r r39 lz\n, [11 ][40 ][120 ][11 ][& ][| ][141 ][/20 ][| ][|] Page 16 of 17 raised in all theappeals are not admitted [as ][they ][are ][not ][substantial]questions of law.The appeals are [disposed ][of ][accordingly- ][No ][costs-] 0tt\\Fl)r*,1,*-r'(R"V.EASWAR)JUDGE /(- ^ [lr<-]L [*'l(](SANJIV ICIANNA)JT'DGE NOVEMBER28,2011.vld/mm ITA Nos.51212071, 51312011, [810/20i ][1,]8 1 1/201 7, 1139/207r, [ll40/20r1 ][&' ][1141 ][/201 ][r] Page 11 of 17