While quashing an order passed by the Income Tax Appellate Tribunal (ITAT), the Madras High Court has remanded the matter to the Assessing Officer (AO) for determination to determine whether M/s. Infrastructure Leasing and Financial Services Limited (IL&FS) is a Public Financial Institution.
The assessee/respondent is an investment company, was promoted jointly by the Government of Tamil Nadu and IL&FS, with a view to implementing a project under TirupurArea Development Program. A shareholders agreement was entered into between the Government of Tamil Nadu and IL&FS as per which, apart from equity, the promoters agreed to provide the assessee company (TWICL) unsecured loan of Rs.40 crores in the proposition of Rs.25 crores by the Government of Tamil Nadu and Rs.15 crores by IL&FS for implementing the project.
While so, the assessee filed its returns for the assessment years in question. After scrutiny the Assessing Officer was of the view that as per the loan agreement, the liability to pay interest on the unsecured loan arises only after five years from the operation date; the assessee was not required to pay the interest until the moratorium period; and they can claim interest after the moratorium period when the liability crystalizesTherefore, the assessing officer disallowed the claim for interest payable to the Tamil Nadu Government and IL&FS and completed the assessment for the years in question. The Income Tax Appellate Tribunal allowed the assessee’s appeal and dismissed the appeals filed by the Revenue, after having observed that the Government of Tamil Nadu and ILFS were not covered by the definition of Public Financial Institution as per Explanation 4 to sec. 43B read with sec.4A of the Companies Act, 1956, and hence, the provisions of section 43B(d) read with Explanation 3C would not be attracted to the case of the assessee.
While quashing the ITAT order, the division bench of Justice R.Mahadevan and Justice J.Satyanarayana held that “the matters are remanded to the Assessing Officer to examine, whether M/s.Infrastructure Leasing and Financial Services Limited (IL&FS) is a public financial institution; and if it is in affirmative, then, section 43B(d) r/w explanation 3C will be applicable; and pass orders afresh, after providing the due opportunity of hearing to all the parties, within a period of eight weeks from the date of receipt of a copy of this judgment.”
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