IDFC Limited Vs ACIT (Madras High Court)
The Madras High Court considered a Tax Case Appeal filed by the assessee against the ITAT order dated 28 September 2012 concerning A.Y. 2006-07. The principal issues concerned exemption under Section 10(23G) of the Income Tax Act, 1961 in respect of liquidated damages, underwriting commission and structuring fees, and deductions under Sections 36(1)(viii) and 36(1)(viia)(c).
The first two substantial questions concerned whether liquidated damages, underwriting commission and structuring fees qualified for exemption under Section 10(23G), including whether such receipts fell within the definition of “interest” under Section 2(28A). Both parties agreed that the issue concerning liquidated damages was covered in favour of the assessee by the Court’s decision in T.C.(A) Nos.1288 and 1290 of 2007 dated 8 September 2015.
Regarding underwriting commission, the Court held that it was directly covered by Clause (f) of the Explanation to Section 10(23G), which refers to commission received by a financial institution for extending a guarantee or enhancing credit. The Court also considered structuring fees, which were charged when modifications were made to financial assistance through additional or enhanced assistance, a new loan or otherwise. Referring to the inclusive definition of “interest” under Section 2(28A), the Court held that service fees or other charges concerning money borrowed, debt incurred or credit facilities were included. It therefore held that fees charged for restructuring credit facilities fell within the definition of “interest”.
