Case Name : National co-operative development corporation vs. Asstt. CIT

Citation : [2011] 16 TAXMANN.COM 251/

Court : Delhi High Court

Section : 36

Meaning : “long-term finance” is defined in clause (h) of the explanation to section 36(1)(viii) to mean “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”. This takes us to the question whether a preference share can be held to be a loan or advance.The investment in redeemable preference shares cannot be considered as a loan or advance made by the assessee to the company for interest. The basic characteristic of a loan is that the person advancing the loan has the right to sue on the debt, whereas the preference shareholders cannot sue for the money due on the shares undertaken to be redeemed and as of right claim a return of the share money except in a winding up and that to after the redemption date. Similarly, a preference shareholder stands on a different footing from a person who has advanced monies to another. Thus an advance is also quite different from preference shares in nature and character. Thus there is no merit in the assessee’s claim that the dividend received in interest of the redeemable preference shares amounts to profits derived from providing long term finance within the meaning of section 36(1)(viii) of the act read with clause (h) of the explanation to the section.

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