Kerala HC Allows South Indian Bank to Receive IT Deduction for Long-Term Residential Property Financing

It has been ruled by the Kerala High Court that the South Indian Bank is entitled to the deduction as per section 36(1)(viii) of the Income Tax Act for providing long-term finance for the construction and purchase of residential properties in India.

Background of the Case

The South Indian Bank Ltd, the appellant- bank/assessee, is engaged in providing housing loans for purchasing or constructing houses. They had been availing the deduction under section 36(1)(viii) before the amendment. However, post the 2010 amendment, they faced disallowance of the deduction.

Court’s Decision

The assessing authority had previously denied the deduction on the grounds that banking companies were not eligible to claim the deduction for providing long-term finance for housing development. The appellate tribunal also upheld this decision post-amendment.

However, the court observed that the amendment had overlooked the importance of providing long-term finance for residential housing purposes for banking companies. The court allowed the appeal filed by the South Indian Bank, emphasizing that their activity of providing long-term finance for residential properties should be eligible for the deduction u/s 36(1)(viii).

Legal Considerations

The court highlighted that the National Housing Bank, a financial institution not directly involved in long-term financing for residential housing, had been denied the benefits of the unamended section 36(1)(viii). Therefore, the amendment was crucial to extend this benefit to all financial institutions involved in the housing sector.

Case Details

Case Title: The South Indian Bank LTD Vs. The Assistant Commissioner of Income Tax Circle-1

Citation: ITA Nos.165 of 2019, 26 and 28 of 2020

Date: 08.07.2024

Appellant’s Representatives: Joseph Markose, V. Abraham Markos, Isaac Thomas, Alexander Joseph Markos, Sharad Joseph Kodanthara

Respondent’s Representatives: Sri. P.K. Ravindranatha Menon, Sri. Jose Joseph

Conclusion

The Kerala High Court’s decision to allow the South Indian Bank to claim the IT deduction for long-term residential property financing sets a precedent for banking companies involved in housing finance. This ruling ensures fairness and clarity in tax deductions for financial institutions engaging in the housing sector.