The Two member bench of Income Tax Appellate Tribunal ( ITAT ) of Mumbai ruled that Income From housing finance for residential purposes for a period of less than 5 years should be eligible for deduction under Section 36(1)(viii) of Income Tax Act, 1961.
The Assessee Housing Development Finance Corporation Limited, is regulated by National Housing Bank, which is a wholly owned subsidiary of Reserve Bank of India and satisfies all conditions stipulated by the National Housing Bank. The assessee’s business activity include, leasing and providing loans for the purposes other than for purchase or construction of residential house.
The assessee filed the return of income for the assessment year 1998-99 on 30/11/1998 declaring a total income of Rs.146,93,24,570/-.Thereafter the case was selected for scrutiny.During the proceedings it was observed that the assessee has claimed an amount of Rs.101,58,37,175/- as deduction under section 36(1)(viii) of the Act. The assessee has shown the income arising from housing finance business at Rs.247,36,18,306/- and had claimed 40% of the same as deduction under section 36(1)(viii) of the Income Tax Act
Subsequently,the Assessing Officer did not accept the contentions of the assessee for the reason that the definition of the term “long term finance” given in clause (e) of Explanation to section 36(1)(viii) provides that any income derived from providing loans other than from long term finance or loans given other than for residential purposes are debarred from the ambit of eligibility criteria.Therefore the AO denied the deduction claimed by the assessee
Aggrieved by the order assesee filed appeal before the CIT(A) .Who upheld the decision of assessing officer. ) Thus the assessee filed an appeal before the tribunal.
During the adjudication Nitesh Joshi, the counsel for assessee argued that residential loans for period less than 5 years are mainly granted to individuals for construction or purchase of house where the borrower is of an advanced age and his age of retirement from employment does not justify a loan for a period beyond five years.
Further more income from housing finance for residential purposes for periods less than 5 years qualify for deduction under section 36(1)(viii) of the Act as the same is part of the business of providing long term finance.
Riddhi Mishra, Department representatives argued that the assessee’s claim of loans to developers for a period less than 5 years, which is later got converted as loans to individuals, who purchased the flats from the developer for a period of more than 5 years cannot be the reason to claim deduction for the entire loan given to the developers since it is the individual loan transaction that needs to be looked into as to whether it is a long term loan given for more than 5 years or not.
It is observed by the tribunal that The basic conditions for availing the deduction under section 36(1)(viii) are that the assessee should be engaged in the business of providing long term finance and the long term finance should be extended for construction or purchase of houses in India for residential purposes.
In the given case there is no dispute that the assessee is engaged in the business providing long term finance for construction or purchase of houses for residential purposes. Accordingly the assessee is entitled to claim deduction under section 36(1)(viii).
Therefore the interest income earned from loans extended or construction or purchase of house for a period of less than 5 years should also be included in the profits for the purpose of deduction under section 36(1)(viii) of the Income Tax Act.
Therefore the bench comprising Amit Shukla ( Judicial Member ) and Padmavathy S. ( Accountant Member ) allowed the above ground raised by the assessee.
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