June 2019

Sections 2(28A), 10(23G), 36(1)(viia)(c) and 36(1)(viii) – Exemption u/s. 10(23G) – Assessee providing long-term finance for infrastructure projects and facilities – Exemption of interest – Definition of “interest” – Borrowers liable to pay “liquidated damages” at 2.10% in case of default in redemption or payment of interest and other moneys on due dates, for period of default – Liquidated damages fall within purview of word “interest” – Assessee entitled to exemption

K. B. BHUJLE
Advocate

21

Infrastructure Development Finance Co. Ltd. vs. ACIT; 412 ITR 115 (Mad)

Date of order: 1st March, 2019

A.Y.: 2002-03

 

Sections 2(28A), 10(23G), 36(1)(viia)(c) and 36(1)(viii) – Exemption u/s. 10(23G) – Assessee providing long-term finance for infrastructure projects and facilities – Exemption of interest – Definition of “interest” – Borrowers liable to pay “liquidated damages” at 2.10% in case of default in redemption or payment of interest and other moneys on due dates, for period of default – Liquidated damages fall within purview of word “interest” – Assessee entitled to exemption

 

Business expenditure – Provision for bad and doubtful debts – Deduction u/s. 36(1)(viii) and section 36(1)(viia)(c) to be allowed independently

 

The assessee provided long-term finance to enterprises which developed, maintained and operated infrastructure projects and facilities. For the A.Y. 2002-03 the assessee claimed exemption u/s. 10(23G) of the Income-tax Act, 1961 in respect of the interest earned by it from the long-term finance provided and the liquidated damages received from the borrowers on account of default on their part in making payments according to the terms of the loan agreements. The assessee also claimed deductions u/s. 36(1)(viia)(c) and independently u/s. 36(1)(viii) in respect of provision made for bad and doubtful debts.

 

The A.O. rejected the claim for exemption u/s. 10(23G) on the ground that the amounts earned by the assessee did not constitute “interest” as defined u/s. 2(28A). He further held that the claim for deduction u/s. 36(1)(viia)(c) was allowable only after reducing from the assessee’s income, the deduction allowable u/s. 36(1)(viii) and that deduction could not be granted independent of each provision.

 

The Commissioner (Appeals) and the Tribunal affirmed the order of the A.O.

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