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04-10-2019, LIC Housing Finance, Section 36(1)(viii), 43D, Tribunal Mumbai

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6 days 16 hours ago #11064 by amit
Section - 36(1)(viii), 43D, 119
Order Date - 04-10.2019
Favouring - Partly
Court - Tribunal Mumbai
Appellant - LIC Housing Finance Limited
Respondent - DCIT
Citation - 1019Taxpundit98
Appeal No. - I .T.A. No.5434/Mum/2011
Asstt. Year - 2004-05


PER : Manoj Kumar Aggarwal

1. Aforesaid appeals for Assessment Years [AY] 2004-05 & 2005-06 are partially recalled matter since the appeals were disposed-off vide Tribunal order dated 09/10/2015. However, few issues have been recalled by the Tribunal, upon assessee’s miscellaneous applications MA Nos. 248-249/Mum/2016 order dated 01/06/2018 and accordingly, the issues have come up for fresh hearing before the bench.

ITA No. 5434/Mum/2011, AY 2004-05

2.1 As evident from Tribunal’s order in MA No. 248/Mum/2011, the only point of determination for this AY is whether balance in ‘Profit & Loss Account’, which is not in the nature of any other reserve having specific objectives, should form part of ‘general reserves’ or not for the purpose of proviso to Section 36(1)(viii) as it stood at the relevant point of time. The corresponding ground of appeal is Ground No. 2(c), which read as under: -

Not accepting the Appellant’s submission that all the item classified in the Appellant’s Balance Sheet under the head ‘Reserve & Surplus’ excepting Special Reserve created in term of 36(1)(viii) should be considered as “General Reserves”. He ought to have appreciated that there is no definition of “General Reserve” in the proviso to Section 36(1)(viii) or anywhere else in the Income Tax Act and that the reference to the expression “General Reserves” in plural is significant.

2.2 The assessee company is stated to be engaged in the business of providing long term housing finance and was eligible for deduction to the extent of 40% of specified profits u/s 36(1)(viii) on creation and maintenance of special reserve. As per proviso to this Section, where the aggregate amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital and of the general reserve, no allowance shall be made for the excess. We are concerned with determination of the point that whether the term General Reserve as used in the proviso would include the balance standing in Profit & Loss Account or not? Naturally, if the balance would be includible, the assessee would be eligible to claim higher deduction in terms of the proviso. The assessee’s Reserve & Surplus as on 31/03/2004 stood as under: -

2.3 The learned AR has advanced arguments to submit that the Tribunal, while disposing of this issue in para 21 of the order, has held that general reserve cannot include any other reserve having specific objectives and there was no specific mention therein of the balance in the Profit & Loss Account which is also disclosed in the Balance Sheet under the head Reserves and Surplus. The Ld. AR asserted that the expression used is “General Reserves” which is used in plural and therefore, the same would include balance standing in the Profit & Loss Account also. It has further been submitted that the expression ‘reserves’
has not been defined under the Income Tax Act, 1961. Our attention has been drawn to letter issued by Department of Company Affairs (department letter No. 3/1/80-CL-X dated 16/02/1982) wherein it has been clarified that surplus appearing in the Balance Sheet of the company is a part of free reserve as defined under the Company’s (Acceptance of deposits) Rules, 1975. It has further been pleaded that the term ‘free reserves’ is used inter-changeably with theexpression General Reserve. In the above background, Ld. AR pleaded for inclusion of balance standing in the Profit & Loss Account as part of General Reserves for the purpose of computation under proviso to Section 36(1)(viii). Per Contra, Ld. CIT-DR, submitted that Reserves is an appropriation out of Profit & Loss Account and quite distinct from the expression General Reserves and therefore, the same would not be includible for the purpose of computation It has been submitted that the issue stood squarely covered in assessee’s favor by the decision of Bangalore Bench of Tribunal rendered in the case of Canfin Home Finance Ltd. V/s DCIT ITA No. 861/Bang/2010 order dated 24/01/2012, a copy of which has been placed on record.

2.4 We have carefully considered the rival submissions and deliberated on cited decision of the Tribunal. As per the provision of Sec 36(1)(viii), certain specified assessees are eligible to claim deduction to the extent of 40% from profit derived from specified business upon creation of special reserve. As per the proviso, if the amount carried to such special reserve account, from time to time, exceeds twice the amount of the paid-up share capital and of the general reserves, no allowance under this clause shall be made in respect of such excess. The expression used in the proviso is the general reserves. The term general reserveshave been used in plural sense and preceded by the words the which would indicate that it carries special meaning and connotes general

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