Income from Housing Finance for Non-Residential purposes not eligible for Deduction u/s 36(1)(viii) of Income Tax Act: ITAT [Read Order]

The Two member bench of Income Tax Appellate Tribunal (ITAT) of Mumbai  ruled that Income From housing finance for non residential purposes not 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 added a sum of Rs. 42,18,07,237 as part of income for the purpose of claiming deduction under section 36(1)(viii) which was denied by the assessing officer for the reason that the interest is earned from loans that are given for non-residential purposes.

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 the  housing projects which are constructed by corporate or developer may have an element of non-residential amenities and these cannot be isolated from housing projects. Therefore the  interest income earned should be considered as part of the profits derived from the business of long term finance for construction or purchase of residential housing.

Riddhi Mishra, Department representatives argued that the reason given by the assessee for lending loans for less than 5 years or for non-residential purpose is not relevant since the period and the purpose of loan are what is relevant for deciding the amount eligible for deduction. The loans given for less than 5 years and for non-residential purposes do not fall within the purview of deduction eligible under Section 36(1)(viii) of the Income Tax Act.  

It is observed by the tribunal  that  The income derived from the business of providing long-term finance for construction or purchase of houses in India for residential purposes is eligible for deduction under section 36(1)(viii). In the given case the claim of the assessee is towards interest on loans given for nonresidential purposes. Therefore the same cannot be said to be from the business activity of long-term finance for construction or purchase of houses.

Therefore the bench comprising  Amit Shukla (Judicial Member) and Padmavathy S. (Accountant Member)  held that the interest income earned by the assessee from loans given for non-residential purposes are not eligible for deduction under section 36(1)(viii) of Income Tax Act.

To Read the full text of the Order CLICK HERE

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