Calcutta High Court
M/S. V2 Retail Limited vs Deputy Commissioner Of Income Tax on 2 July, 2024
1
O - 78 A.F.R.
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction [Income Tax]
ORIGINAL SIDE
ITA/30/2021
M/S. V2 RETAIL LIMITED
VS
DEPUTY COMMISSIONER OF INCOME TAX,
CIRCLE - 10, KOLKATA
BEFORE :
THE HON'BLE JUSTICE SURYA PRAKASH KESARWANI
And
THE HON'BLE JUSTICE AJAY KUMAR GUPTA
Date : 2nd July, 2024
Appearance :
Sri J.P. Khaitan, Sr. Adv.
Sri Saurabh Bagaria, Adv.
Sri Pranav Sharma, Adv.
...for the appellant.
Smt. Smita Das De, Adv.
.. . for the respondent.
1. Heard Sri J.P. Khaitan, learned senior advocate assisted by
Sri Saurabh Bagaria, learned counsel for the
appellant/assessee and Smt. Smita Das De, learned senior
standing counsel for the respondent/revenue.
2. This appeal has been admitted by this Court by order dated
11.11.2021 on the following substantial questions of law :
"i) Whether LIC Mutual Fund can be regarded as Public
Financial Institutions as specified in Clause (a) of
Explanation 4 to Section 43B of the Act?
ii) Whether an amount of Rs.9,75,16,996/- being
"interest provision" as at the year end made in the
2
accounts is allowable considering the fact that the
said payment relates to LIC Mutual Fund and hence does
not attract the provisions of Section 43B of the Act?"
Facts:
3. Briefly stated facts of the present case are that the
appellant/assessee is a company registered under the
Companies Act, 1956. Its certain debentures were purchased by
'LIC Mutual Fund'. A sum of Rs.9,75,16,996/- accrued towards
interest during the assessment year 2009-10 payable to the
aforesaid 'LIC Mutual Fund'. Payment of the aforesaid amount
of interest was extended for another two years to be ending
on 31.3.2011. Since the interest has become payable on
accrual basis during the assessment year 2009-10, therefore,
the appellant/assessee claimed it as deductible expenditure
in its profit and loss account. The assessing officer while
passing the assessment order dated 8.12.2011 disallowed the
aforesaid amount of interest of Rs.9,75,16,996/- on unsecured
debentures on the ground that it has not been paid within the
stipulated period. Aggrieved with the aforesaid assessment
order, the appellant/assessee filed an Appeal No.357/XII/Cir-
10/2011-12 before the Commissioner of Income Tax (Appeals) -
XII, Kolkata which was partly allowed by order dated
19.8.2013. The appellant/assessee succeeded on the point of
deduction of interest of Rs.9,75,16,996/-. While allowing the
appeal on the point of interest on debentures, the CIT(A)
held that Section 43B of the Income Tax Act, 1961
(hereinafter referred to as the 'Act, 1961') covers only
financial institution and not mutual fund and since the 'LIC
Mutual Fund' is not a financial institution under Section 43B
of the Act, 1961 read with Section 4A of the Companies Act,
1956, therefore, the interest claimed as deduction by the
appellant/assessee is allowable.
4. Aggrieved with the order of the CIT(A), the revenue filed
ITA/2627/Kol/2013 (DCIT, Circle -10, Kolkata Vs. M/s. Vishal
Metal Limited) before the Income Tax Appellate Tribunal,
Kolkata Bench 'A', Kolkata. The ITAT allowed the appeal of
the revenue by the impugned order dated 15.3.2017 and held in
para 13 as under :-
"A plain reading of the above provision reveals that
the Life Insurance Corporation of India comes within
the ambit for public financial institution. The name
of LIC mutual fund is not appearing in the definition
of public financial institution as defined u/s 4A of
the Companies Act, 1956. However, the fact that the
LIC mutual fund is an arm of the Life Insurance
Corporation of India cannot be ignored. When the Life
Insurance Corporation of India is covered under the
definition of public financial institution being a
parent company then also the same analogy shall be
extended to the arm of it. Hence, we are of the view
that the definition of public financial institution
should also cover the LIC mutual fund being an arm of
Life Insurance Corporation of India.
It is also important to note that LIC mutual fund was
established on 20th April 1989 by Life Insurance
Corporation of India, being an associate company of
India's premier and most trusted brand, LIC Mutual
Fund is one of the well known players in the asset
management sphere. With a systematic investment
discipline coupled with a high standard of financial
ethics and corporate governance, LIC Mutual Fund is
emerging as a preferred Investment Manager amongst the
investor fraternity. The definition of public
financial institution came with effect from 1st
February 1975 and since then life insurance
Corporation is treated as public financial
institution. On the contrary, the LIC mutual fund was
established dated 20th April 1989 which shows that the
LIC mutual fund came into existence much after the
date when Life Insurance Company of India was
established. Therefore, on this count also the LIC
mutual fund should be treated as public financial
institution.
It was also observed that CIC has treated the LIC
mutual fund as a public financial institution in its
order dated 28-10-2009 where the issue was raised
under the Right to Information Act. The relevant part
of the order is reproduced below:-
"38. As regards LIC Mutual Fund Assets Management Co.
Limited, the respondents have submitted that the ratio
of judgment, in the case of Tamil Nadu Road
Development company is not applicable to LIC Mutual
fund since LIC Mutual Fund is un independent
organization and not substantially financed by
appropriate government. The submissions of the
respondents fall to convince. The LIC of India is a
body established, constituted, owned and controlled by
Central Government which is the Appropriate Government
for the LIC of India and the funding by LIC of India
and their general control over the functioning of thee
LIC Mutual Fund can be nothing but an indirect funding
and control by the Appropriate Government, LIC of
India is publics authority having been constituted by
an Act of Parliament. LIC of India in turn in order to
further carry out their public function have formed
LIC Mutual Fund approved for formation 'through
subsidiary' which has to function under LIC's control.
The respondent Mutual Fund is fully financed and
administratively controlled by the LIC of India
through a Board of Trustees. The trustees of the Board
who manage the LIC Mutual Fund are appointed with the
approval of LIC of India. LIC of India has the power
to change the Trustees from time to time. The corpus
of the Trust amounting to Rs.10 lakhs was contributed
by the LIC. The Trust Deed provides that a further sum
not exceeding Rs 25 crores shall be made available as
initial contribution to the Trust by the LIC. The LIC
has floated the Mutual Fund to map up the additional
savings from the public in rural and semi-urban areas
and it would be receiving considerable, amount of
insurance business from the Mutual Fund. LIC of India
for the ghove purpose provides to the Mutual Fund all
suitable help and guidance which includes payment of
initial corpus of the Trust, financial assistance to
the Trust, renting out premises after housing the
Mutual Fund, provision of initial office equipment and
deputation of suitable employees etc: the Chairman of
LIC is authorized to take such administrative
decisions as may be required periodically so as to
ensure the smooth launching of the LIC Mutual Fund and
its successful operation.
39. Now coming to GK Housing Finance Limited, the
Commission's finding is not any different. The
shareholding of six Public Authorities in GIC Housing
Finance is 4.68% and coupled with the control they
exercise over the GIC Housing Finance is sufficient to
bring them within the ambit of the definition of
"Public Authority as defined in Section 2(h) of the
Right to Information Act. 2005."
In view of above we find that the interest expenses
claimed by the assessee to the LIC Mutual Fünd are
covered under the provisions of section 43B of the
Act. Accordingly the assessee was required to make the
payment of the interest before the due date of filing
income tax returns as specified under section 139(1)
of the Act. Hence we have no hesitation to reverse the
order of Id CLT(A). Hence, this ground of appeal
raised by the Revenue is allowed."
5. Aggrieved with the aforesaid order of the ITAT, the
appellant/assessee has filed the present appeal.
Submission :
6. Learned counsel for the appellant/assessee submits that 'LIC
Mutual Fund' is a trust established under a trust deed dated
20.4.1989 with initial contribution to the trust by the Life
Insurance Corporation of India Limited for Rs.25 crores. The
aforesaid 'LIC Mutual Fund' is managed by a company 'LIC
Mutual Fund Assets Management Company Limited' incorporated
under the Companies Act, 1956. The Life Insurance Corporation
of India has been established under the Life Insurance
Corporation Act, 1956. Clause (d) of Section 43B read with
Explanation 4(a) of the Act, 1961 and Section 4A of the
Companies Act, 1956 leaves no manner of doubt that clause (d)
of Section 43B is applicable only to those 'public financial
institutions' enumerated under Section 4A of the Companies
Act, 1956, in which 'LIC Mutual Fund' does not find mention.
Therefore, Section 43B is not applicable with respect to the
accrued interest in question. The Tribunal committed a
manifest error of law to assume that 'LIC Mutual Fund' is an
extended arm of Life Insurance Corporation of India, whereas
both the entities are separate legal entities. In support of
his submissions, Sri Khaitan has carried us to the order of
the CIT(A) and the impugned order of the ITAT as well as the
provisions of Section 43B of the Act, 1961, Section 4A of the
Companies Act,1956, the Life Insurance Corporation Act, 1956,
the Indian Trust Act, 1882 and Securities and Exchange Board
of India (Mutual Funds) Regulations, 1996.
7. Learned counsel for the respondent/revenue submits that
there is no dispute that the 'LIC Mutual Fund' is a trust
created under the Indian Trust Act, 1882 and it is managed
by 'LIC Mutual Fund Assets Management Company Limited'
incorporated under the Companies Act, 1956 and the Life
Insurance Corporation of India has been established under
the Act of Parliament i.e. Life Insurance Corporation Act,
1956. She submits that since the trust has been
established/sponsored by the Life Insurance Corporation,
therefore, the Tribunal has correctly held the 'LIC Mutual
Fund' to be an extended arm of Life Insurance Corporation
of India. Therefore, the 'LIC Mutual Fund' being a
constituent of Life Insurance Corporation of India shall
fall within the ambit of Section 4A of the Companies
Act, 1956 and, consequently, Section 43B of the Act, 1961
is attracted. She submits that the Tribunal has lawfully
reversed the order of the CIT(A) and held that the interest
in question is not deducted in view of Section 43B of the
Act, 1961.
Discussion and Findings :
8. We have carefully considered the submissions of the learned
counsel for the parties and perused the paper book.
9. As per definition clause 2(q) of the Securities and Exchange
Board of India (Mutual Funds) Regulations, 1996 (hereinafter
referred to as the "SEBI Mutual Funds Regulations, 1996"),
'Mutual Fund' means the fund established in the form of a
trust to raise monies through the sale of units to the public
or a section of the public under one or more schemes for
investing in securities, money markets, gold or gold related
instruments, silver or silver related instruments, real
estate assets and other assets and instruments as may be
specified by the Board from time to time. Clause 10 of SEBI
Mutual Funds Regulations, 1996 specifies necessary conditions
for grant of registration under clause 9 of the Regulations.
Clause 14 of the aforesaid Regulations mandatorily requires
that 'Mutual Fund' shall be constituted in the form of a
trust and the instrument of a trust shall be in the form of a
deed duly registered under the provisions of the Indian
Registration Act, 1908 (16 of 1908) executed by the sponsorer
in favour of the trustees named in such an instrument. Thus,
as per SEBI Mutual Funds Regulations, 1996, 'Mutual Fund
shall be constituted in the form of a trust' and the
instrument of trust shall be in the form of a deed which
shall be duly registered under the Indian Registration Act,
1908. Thus, 'LIC Mutual Fund' is a trust and the trust deed
has been duly registered under the Indian Registration Act,
1908. The aforesaid "LIC Mutual Fund" is a trust of movable
property, which has been created in terms of Section 6 of the
Indian Trust Act, 1882 [hereinafter referred to as 'the Trust
Act']. The Life Insurance Corporation of India can, at best,
be said to be an author of the trust or settlor of the trust,
but the said trust and the Life Insurance Corporation of
India both are separate legal entities. While the "LIC
Mutual Fund" Trust is governed by the provisions of the
Indian Trust Act, 1882 read with SEBI Mutual Fund
Regulations, 1996, the Life Insurance Corporation of India is
governed by the provisions of the Life Insurance Corporation
Act, 1956.
10. Clause (d) of Section 43B of the Act, 1961 refers to "any sum
payable by the assessee as interest on any loan or borrowing
from any public financial institutions or ..." Explanation
4(a) to Section 43B provides that "public financial
institutions" shall have the meaning assigned to it under
Section 4A of the Companies Act, 1956. Section 4A of the
Companies Act, 1956 is reproduced below:-
"[4A. Public financial institutions. - (1) Each
of the financial institutions specified in this sub-
section shall be regarded, for the purposes of this
Act, as a public financial institution, namely:-
(i) the Industrial Credit and Investment
Corporation of India Limited, a company
formed and registered under the Indian
Companies Act, 1913 (7 of 1913);
(ii) the Industrial Finance Corporation of
India, established under section 3 of the
Industrial Finance Corporation Act, 1948 (7
of 1948);
(iii) the Industrial Development Bank of India,
established under section 3 of the Industrial
Development Bank of India Act, 1964 (18 of
1964);
(iv) the Life Insurance Corporation of India,
established under section 3 of the Life
Insurance Corporation Act, 1956 (31 of 1956);
(v) the Unit Trust of India, established under
section 3 of the Unit Trust of India Act,
1963 (52 of 1963);
(vi) the Infrastructure Development Finance
Company Limited, a company formed and
registered under this Act.]
[***]
(2) Subject to the provisions of sub-section (1)
the Central Government may, by notification in the
Official Gazette, specify such other institution as
it may think fit to be a public financial
institution:
Provided that no institution shall be so
specified unless-
(i) it has been established or constituted by or
under any Central Act, or
(ii) not less than fifty-one per cent. of the
paid-up share capital of such institution is
held or controlled by the Central
Government.]"
11. From perusal of Section 4A of the Companies Act, 1956, it is
evident that the list of 'public financial institutions'
given in it is exhaustive. Clause (iv) of Sub-section (1) of
Section 4A of the Companies Act, 1956 specifically mentions
"Life Insurance Corporation of India", established under
Section 3 of the Life Insurance Corporation Act, 1956 (31 of
1956)". It does not mention "LIC Mutual Fund" which is a
Trust established under the Indian Trust Act. Further, Sub-
section (2) of Section 4A empowers the Central Government to
specify, by notification in the official gazette, such other
institutions as it may think fit to be a 'public financial
institution', provided that no institution shall be so
specified unless - (i) it has been established or constituted
by or under any Central Act, or (ii) not less than 51% of the
paid-up share capital of such institution is held or
controlled by the Central Government.
12. We find that neither "LIC Mutual Fund" Trust is mentioned in
the list given under Sub-section (1) of Section 4A nor the
"LIC Mutual Fund" Trust has been established or constituted
by or under any Central Act. Therefore, the "LIC Mutual Fund"
Trust is not a public financial institution under Section 4A
of the Companies Act, 1956. Consequently, Clause (d) of
Section 43B of the Act, 1961 is not attracted under the facts
and circumstances of the present case.
13. The language of Section 4A of the Companies Act, 1956 and
Section 43B of the Act, 1961 being plain and unambiguous, no
interpretation can be given, other than what is clearly
expressed by the plain language of the aforesaid provisions.
The list of public financial institutions given in Sub-
section (1) of Section 4A of the Companies Act, 1956 being
exhaustive and not illustrative, nothing can be added to it.
It is not the case of the respondent that there is any
notification under Section 4A of the Companies Act,
specifying "LIC Mutual Fund" as a 'public financial
institution'. That apart, it is also not the case of the
respondent/Revenue that "LIC Mutual Fund" Trust qualifies the
two conditions mentioned in Sub-section (2) of Section 4A of
the Companies Act, 1956. Since "LIC Mutual Fund" is not
"Public Financial Institution" under Section 43B of the Act,
1961 read with Section 4A of the Companies Act, therefore,
the interest of Rs.9,75,16,996/- on unsecured debentures
payable by the appellant-assessee to the "LIC Mutual Fund" is
not covered by Section 43B of the Act, 1961. Consequently, it
could not be disallowed in the hands of the appellant-
assessee on the ground of non-compliance of conditions of
Section 43B.
14. The above discussion leads to an irresistible conclusion that
the Income Tax Appellate Tribunal has committed a manifest
error of law to hold that "LIC Mutual Fund" is a 'public
financial institution' under Section 43B of the Act, 1961.
Therefore, the disallowance of Rs.9,75,16,996/- invoking the
provisions of Section 43B of the Act, 1961 cannot be
sustained and consequently, the impugned order to that extent
deserves to be set aside.
15. For all the reasons afore-stated, the appeal is Allowed to
the extent indicated above. The impugned order dated
15.03.2017 in ITA No.2627/Kol/2013 (AY 2009-10) passed by the
Income Tax Appellate Tribunal, Kolkata Bench 'A', Kolkata, to
the extent it relates to the disallowance of Rs.9,75,16,996/-
under Section 43B of the Act, 1961, is hereby set aside. The
substantial questions of law are answered in favour of the
assessee and against the Revenue.
(SURYA PRAKASH KESARWANI, J.)
(AJAY KUMAR GUPTA, J.)
S. Das / S. Kumar
