High Court Of Kerala
CIT vs. Kerala Financial Corporation
Section 36(1)(viii)
Asst. Year 1996-97
H.L. Dattu, C.J. & A.K. Basheer, J.
IT Appeal No. 95 of 2008
7th October, 2008
Counsel Appeared :
P.K.R. Menon, for the Petitioner : None, for the Respondent
JUDGMENT
H.L. Dattu, C.J. :
The Revenue is before us, being aggrieved by the orders passed by the Tribunal, Cochin Bench, in ITA No. 227/Coch/1999, dt. 20th June, 2003.
The brief facts are—The assessee is Kerala Financial Corporation, established under the State Financial Corporation Act. It is engaged in the business of financing industries in the State. The assessment year is 1996-97.
The assessee, in the returns filed, had claimed for deductions under s. 36(1)(viii) of the IT Act (“Act” for short), in respect of ‘special reserve’ created by the assessee. The claim so made by the assessee was disallowed by the assessing authority. In his order, the assessing authority has noticed that the assessee has created as a reserve of Rs. 4,50,05,629 during the previous year, relevant to the assessment year, and this reserve was transferred to the provision for bad and doubtful debts account before the close of the accounting year and, thus, the assessee has not satisfied the statutory requirement of creating a reserve. The submission of the assessee before the assessing authority was, that, there is no requirement as such to maintain the reserve created. The assessing authority has not accepted this thinking of the assessee.
Aggrieved by the orders passed by the assessing authority, the assessee was before the first appellate authority. Before the first appellate authority, it was the stand of the assessee, that, the conditions regarding maintenance of reserve were incorporated only w.e.f. 1st April, 1998 and, therefore, there was no reason for the assessing authority to reject the claim of the assessee. The submissions so made by the assessee were accepted by the first appellate authority and, therefore, in his order has stated that there was no reason for the assessing authority to deny the claim of the assessee.
Aggrieved by the said order passed by the first appellate authority, the Revenue was before the Tribunal in ITA No. 227/1999. The Tribunal, following the decision of this Court in IT Appeal No. 191 of 2000, for the asst. yr. 1994-95 [reported as Kerala Financial Corporation vs. CIT (2003) 182 CTR (Ker) 502—Ed.] , has rejected the Revenue’s appeal.
For the previous assessment year, the Tribunal had passed an order, in favour of the Revenue. That order had been called in question by the assessee before this Court in IT Appeal No. 191 of 2000. This Court had accepted the assessee’s claim and, accordingly, had allowed the assessee’s appeal.
The findings and conclusions reached by this Court in the case of Kerala Financial Corporation vs. CIT (IT Appeal No. 191 of 2000, decided on 14th Feb., 2003) are as under : “18. Therefore, we find considerable force in the submission made by the learned counsel for the appellant that though the amounts were transferred to ‘bad and doubtful debts’ there was not any existing liability or that there was any known liability. The question is not whether the assessee can anticipate or reasonably anticipate on the date when the balance sheet prepared about a ‘bad and doubtful debts’ and therefore, the amounts continued to be as a ‘reserve’ and not a ‘provision’.
19. As we have seen the condition for availing the benefit under s. 36(1)(viii) of the IT Act, as it stood at the relevant time, is that a reserve fund should be created and that there is no dispute that such a fund was created. In the absence of any condition that it should be continued to be maintained, there is no warrant to think that the legislature intended to confer the benefit of the provision only if it continued to maintain the reserve. In the absence of any expression indicating of such a requirement by the assessee and in view of the fact that such a requirement was made expressly clear by an amendment brought about by the Finance Act, 1997, we have no hesitation to hold that such a requirement made explicitly clear both by amendment to s. 36(1)(viii) as well as by insertion of sub-s. (4A) of s. 41 of the IT Act, that any retrospective effect cannot be presumed to be a condition for granting the benefit as per the provisions which stood prior to the amendment in question.
In the above circumstances, we hold that the decision of the Tribunal holding that the assessee is not entitled for the benefit of s. 36(1)(viii) is erroneous in law. We set aside the order of the Tribunal as well as that of the CIT and confirm the decision of the ITO. The question raised before us is answered in the affirmative, i.e. in favour of the assessee and against the Revenue.”
9. In view of the observations made by this Court in the aforesaid appeal, in our opinion, the questions of law raised by the Revenue require to be answered against the Revenue and in favour of the assessee. We do so. Ordered accordingly.
[Citation : 325 ITR 197]
