Full Judgment
R. Gururajan, J.
1. These petitions are directed against an order of the CBDT dt. 3rd May, 2000, (Annex.-K) and for a prayer to direct the CBDT to accord approval to the petitioner under Section 36(1)(viii) of the IT Act, 1961 ('Act' for short) for the asst. yrs. 1995-96, 1996-97 and 1997-98.
2. Petitioner, a limited company, carries on the business of providing long-term finance for construction or purchase of houses in India for residential purposes. Petitioner commenced business during the end of 1994 and its first year of business ended on 31st March, 1995. Petitioner has filed a memorandum and articles of association in terms of Annex.-A with regard to its business of providing long-term finance for construction or purchase of houses in India for residential purposes.
3. The IT Act provides for substantial concession in terms of Section 36(1)(viii) of the Act with regard to special reserve created and maintained by a public limited company founded and registered in India with the object of carrying on the business of providing long-term finance for construction or purchase of houses. The said section provides for approval by the Central Government. Petitioner preferred an application before the first respondent through the second respondent seeking approval in terms, of an application dt. 15th May, 1995. First respondent called upon the petitioner to furnish information with regard to his request. Thereafter, first respondent accorded approval for the purposes of Section 36(1)(viii) through its notifications dt. 3rd Feb., 1999 and 12th April, 1999, for the asst. yrs. 1998-99 and 1999-2000 respectively. Notifications are filed at Annexs. C and D. No approval is necessary for subsequent assessment years from 2000-2001 onwards.
4. First respondent did not accord approval for the asst. yrs. 1995-96, 1996-97 and 1997-98: Petitioner aggrieved by the same filed a writ petition in this Court in WP No. 29208 of 1999 seeking for a direction. This Court passed an order on 29th Feb., 2000, directing the first respondent, to consider the petitioner's application with reference to approval to be granted in terms of the Act. Thereafter, petitioner submitted applications at Annexs. G and H. Petitioner also submitted Annex.-J to the first respondent. First respondent by an order dt. 3rd May, 2000, rejected the request of the petitioner. Petitioner is, therefore, before me.
5. Respondents have entered appearance through their counsel. Matter is heard for final disposal.
6. Dr. R.B. Krishna, learned counsel for petitioner invited my attention, to the history of the case to contend that injustice has been meted out to his client. Learned counsel says that no specific norms as such were published, and without application of mind petitioner is found, fault with for non-compliance of the terms. He says that for subsequent years, approval has been granted. His further submission is that mere grant of approval does not by itself provide the benefits, and that the AO is always at liberty to look into the object for the purposes of concession. Sufficient safeguards are available according to the learned counsel in terms of the Act, Learned counsel strongly relies on a judgment of the Supreme Court in CIT v. Sirpur Paper Mills : [1999]237ITR41(SC) , and also a judgment of the Bombay High Court in Dharamsi Morarji Chemical Co. Ltd. v. CBDT : [1994]206ITR608(Bom) . Per contra learned counsel for the respondents supports the matter.
7. After hearing the learned counsel for the parties, I have carefully perused the material placed on record.
8. Admitted facts reveal of refusal of approval in terms of Section 36(1)(viii) of the Act. Section 36(1)(viii) of the Act reads as under:
'36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28--
(viii) in respect of any special reserve created and maintained by a financial corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived from such business of providing long-term finance (computed under the head 'Profits and gains of business or profession' before making any deduction under this clause) carried to such reserve account:
Provided that the corporation or, as the case may be, the company is for the time being approved by the Central Government for the purposes of this clause :
Provided further that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital and of the general reserves of the corporation or, as the case may be, the company, no allowance under this clause shall be made in respect of such excess.
Explanation : In this clause, -
(a) 'financial corporation' shall include a public company and a Government company;
(b) 'public company' shall have the meaning assigned to it in Section 3 of the Companies Act, 1956 (1 of 1956); .
(c) 'Government company' shall have the meaning assigned to it in Section 617 of the Companies Act, 1956 (1 of 1956);
(d) 'infrastructure facility' shall have the meaning assigned to it in Clause (23G) of Section 10;
(e) 'long-term finance' means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less, than five years;'
9. A reading of the said provision would show that prior approval is necessary for the purpose of concession. In the case on hand, petitioner's approval has been granted for the subsequent years, namely 1997-98, 1998-99 and 1999-2000. Only for the years from 1995-96 to 1997-98 was rejected. Same was challenged in this Court and for this the Court remitted matter for reconsideration. After reconsideration, matter has been remitted for consideration. After remand, authorities, namely first respondent, has chosen to reject the endorsement. The reason given by the respondent authority is that the Central Government has prescribed internal norms. The first respondent has rejected the request on the ground that the petitioner has not deployed the requisite level of capital in the housing finance for the asst. yrs. 1996-97 and 1997-98. The authorities rely on internal norms for the purpose of approval. Admittedly, those norms were not made known by way of public notice. Non-application of internal norms to a certain extent has caused prejudice to the petitioner. Even otherwise, it is seen that prima facie, the norms are not uniformly applied in considering other financial companies. When the same has been raised by way of objections, a bald answer has been given to the effect that approval was granted only after ensuring that the norms have been fulfilled.
10. It is also necessary at this stage to notice as to whether the norms are absolutely necessary for the purpose of approval in terms of Section 36(1)(viii) of the Act. The Supreme Court in the case of CIT v. Sirpur Paper Mills (supra) has considered the scope of providing deduction in terms of the IT Act. The Court was considering the norms in these matters. The Supreme Court while considering somewhat similar Notification dt. 21st Oct., 1995, has ruled that the condition of 80 per cent of the amount actually paid by the employer can be allowed as deduction in terms of the second condition, The supreme Court ruled that :
'This really falls into two parts: one is the requirement that the amount must be actually paid and the other is that the deduction shall only be 80 per cent Taking the second part first, we seek no justification for it. The section states that the deduction shall be wholly allowed. It permits the Board to specify conditions but conditions cannot have the effect of curtailing the scope of the deduction granted by the section. The amplitude of the deduction permitted by the section cannot be cut down under the guise of imposing a 'condition'. In fact, this is not a condition but an impermissible attempt to rewrite the section.'
The Supreme Court also approves the judgment of the Andhra Pradesh High Court in CIT v. Hyderabad Asbestos Cement Products Ltd. : [1988]172ITR762(AP) . In the case on hand, the non-published internal norms virtually curtails the scope of the section in the matter of deduction.
11. Moreover, as rightly pointed out by Dr. Krishna, grant of approval by itself does not directly provide for direct concession to the petitioner. It is further subject to strict scrutiny at the time of assessment proceedings. Taking all aspects into consideration, namely the object of Section 36(1)(viii) of the Act, the ruling of the Supreme Court, grant of approval for subsequent years and consideration in similar circumstances and the safeguards in the assessment proceedings, I deem it proper to direct the authorities to grant approval to the petitioner. Even the objects of the company in terms of Annex.-A provides that the petitioner is entitled for approval in terms of the Act.
12. In these circumstances and in the light of the earlier discussion in the earlier paragraphs, impugned order is set aside. A direction is issued to the first respondent to grant approval to the petitioner for the asst. yrs. 1995-96, 1996-97 and 1997-98. However, grant of approval does not by itself mean that this Court has approved any concession and the said concession is subject to the consideration by the concerned AO in accordance with law and in terms of the provisions of the Act.
13. Writ Petitions are allowed in the above manner with the above clarifications. Parties are to bear their own respective costs.