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Income Tax Officer 12 (3) (1) , Mumbai Versus M/s Hiranandani Builders and Vica-Versa

2015 (11) TMI 1066 - ITAT MUMBAI

Eligibility to claim deduction u/s 80IA - whether the receipts i.e. Interest on IT refund,Interest from others, Interest on FDR, Sale of scrap and Tender fees can be considered to be profits or gains “derived” from the eligible business or not? - CIT(A) allowed the claim - Held that:- In the instant case, TDS deduction is integral part connected with the receipt of lease income and the same cannot be separted from the activity carried on by the assessee. Since the lease income is the primary sou .....

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DS refund should be netted off against the interest expenditure for the purpose of computing the profits and gains derived from the undertaking, in which case, the interest income need not be assessed separately and it would automatically get deduction u/s 80IA of the Act due to netting off. In view of the above, we uphold the decision taken by the Ld CIT(A) on this issue.- Decided in favour of assessee.

Receipt relates to the interest received from others, which is the interest recei .....

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Receipt relates to the interest received on FDR - The assessee had received lease deposits from the lessees, which is required to be returned to them upon vacating the premises. Since the possibility of vacating the premises in the middle is always there, in which event the lease deposits are required to be refunded, the assessee was not in a position to use the entire lease deposits for business purposes including for repayment of loans taken by it. Hence, as a prudent business policy, t .....

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in the alternative argument of the assessee that the interest income should be netted off against the interest expenditure, since the assessee was constrained to keep part of lease deposits into fixed deposits in view of the peculiar nature of activities of the assessee instead of using the same for business purposes including repayment of loan. In view of the above, we do not find any infirmity in the decision taken by the Ld CIT(A) on this issue allowing interest received on FDR eligible for .....

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held that the activity of inviting tender is very much part of the development and operation of SEZ and accordingly held that the sale of tender forms shall be eligible for deduction u/s 80IA of the Act. Since the tenders have been invited in connection with the development and operation of IT parks and SEZ, we are of the view that the Ld CIT(A) was justified in holding that the tender fees are eligible for deduction u/s 80IA of the Act. - Decided in favour of assessee.

Corresponding .....

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d in favour of assessee for statistical purposes. - I.T.A. No. 4613/Mum/2013, CO No. 188/Mum/2014 - Dated:- 28-10-2015 - Shri Joginder Singh ( JM ) And B. R. Baskaran ( AM ) For the Petitioner : Shri K Mohandas For the Respondent : Shri Chetan Karia ORDER Per B. R. Baskaran ( AM ) The appeal filed by the revenue and the cross objection filed by the assessee are directed against the order dated 08-03-2013 passed by Ld CIT(A)-23, Mumbai and it relates to the assessment year 2009-10. 2. The revenue .....

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The assessee is operating two IT parks under the name Fairmount and Winchester and also one Special Economic Zone (SEZ) under the name Kensington . The provisions of sec. 80IA(1) provides for deduction in respect of profits and gains derived by an undertaking from any business referred in sub-section (4) thereof. Under the provisions of sec. 80IA(4)(iii), the deduction u/s 80IA(1) shall be allowable to an undertaking which develops, develops and operates or maintains and operates an industrial .....

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provide for deduction in respect of Profits and gains derived by an undertaking . The assessing officer, by placing reliance on the decision rendered by Hon ble Supreme Court in the case of Liberty India Ltd (317 ITR 280), held that the following receipts declared by the assessee cannot be considered to be the Profits and gains derived by an undertaking :- Particulars Amount (RS.) Damage charges 4,800 Income from extra work 25,934 Income from shooting 10,000 Interest on I.T Refund 1,12,09,827 I .....

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respect of remaining receipts, the Ld CIT(A) upheld the view taken by the assessing officer. The revenue is aggrieved by the decision of Ld CIT(A) in granting relief in respect of the above said receipts except on sale of scrap. In the cross objection, as stated earlier, the assessee is contending that the net income should have been disallowed in respect of the receipts that were held to be not eligible. 7. We heard the parties and perused the record. The issue that requires examination is whet .....

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ry of derived from . In the case of Liberty India Ltd (supra), the assessee therein claimed deduction u/s 80IB in respect of DEPB credit/duty draw back. However, the Hon ble Supreme Court held that the DEPB credit/ duty draw back flows from the scheme framed by the Government and hence they cannot be considered to be the profits derived from the eligible business. 8. In the instant case, the assessee is not operating any industrial undertaking. It has developed IT parks and SEZ and derives lease .....

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assessee u/s 80IA of the Act, the entire amount of tax deducted at sources (TDS) became refundable to the assessee. The assessee has received interest on the refund of TDS as per the provisions of the Income tax Act. The assessee has also received interest from tenants on delayed payment of lease rent. The assessee also generated income on sale of tender forms and sale of scrap. The Ld CIT(A) has held that the assessee is eligible for deduction u/s 80IA of the Act in respect of all the receipts .....

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S on the same is deducted by the lessees. Since income of firm is exempt from tax, firm claims the same as refund in its Return of Income. The said refund is received by firm along with interest on it. During the year firm has received refund of ₹ 1,12,09,827/- for A Y. 2006-07 and 2007-08 along with interest thereon. Details of the same are ' enclosed herewith from the above it can be seen that interest on income tax refund is received on account of refund of TDS on Lease Rentals of p .....

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n repaying its loan and reduce the interest liability. Therefore even if the interest on Income Tax Refund of ₹ 1,12,09,827/- is considered as Income from other sources then interest paid of ₹ 7,88,92,760/- should be allowed deduction against the same. 5. Interest on Others of ₹ 3,749/- The lease Agreements provide for payments of interest by the lessee in case of delay in paying the rental. These are interest in case of lease rentals which are received late. During the year th .....

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ame are refundable to them as and when they vacate the premises. Based on the Agreements the firm has received lease deposit of ₹ 63 crore from various lessee's of Fairmount, Winchester and Kensington buildings. Since these amounts become refundable on vacating of leased premises which can be anytime firm has to keep sufficient amount in fixed deposit so that the same can be repaid immediately. Firm has kept aside sum of RS.43 crore in Fixed deposits for such unforeseen eventualities. .....

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8377; 7,88,92,760/- should be allowed as deduction against the same. 7. Misc. Income of ₹ 3,25,013/· Fairmount, Winchester and Kensington are I T Parks and SEZ These premises are highly secured and maintained very well as they are occupied by Multinationals. Therefore penalty is charges any damage done to any property or violation of any rules. Misc Income are amounts recovered as penalty from outside service providers to lessee's in Fairmount, Winchester and Kensington building .....

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; 25,93,954/- was realized from the same. Further firm has paid Custom Duty of the same of ₹ 6,99,662/-. Details of same are enclosed herewith. Since income of Kensington building is exempt these incidental income is also claimed as exempt. Alternatively the same can also be deducted from the Material expenses debited in Profit & Loss account. 9. Sundry Balances Written back of Rs, 58,894/- During the year under assessment Kensington B building was completed by firm. After the completi .....

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or work in Fairmount, Winchester and Kensington buildings and collected amount of ₹ 24,300/- Details of the same are enclosed herewith. Since the incomes of these three buildings are exempt the incidental receipts for the same area also claimed exempt. Alternatively even if these income amounting to ₹ 2,01,12,403/- is considered as income from other sources (which we strongly object to in view of the explanations given above for each of them along with the relevant explanations and s .....

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y India Ltd 317 ITR 280 (SC), the Hon'ble Supreme Court has made the distinction between these two words. By using the expression 'derived from', Parliament intended to cover sources not beyond the first degree. Whatever be the income receipts shown as income as stated above, in my opinion do not fall within the ambit of first degree sources as it is not directly relatable to the income of the assessee. Therefore, no deduction u/s. 80-IA can be allowed on these receipts. 10. However, .....

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ment was part and parcel of the business receipt of the appellant falling under the first degree source and, therefore, eligible for deduction under section 80IA of the Act. 2 Interest on others 3,749 This interest is charged to appellant s customers for delayed payment of lease charges. The interest so received partakes the character of lease rentals falling under the first degree source and, therefore, eligible for deduction u/s 80IA of the Act. 3 Interest on FDR 58,55,932 As per the terms of .....

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nerated during construction of the building was sold. Thus, the income has direct nexus with the construction activity of the appellant and, therefore, eligible for deduction u/s 80IA of the Act. 5 Tender fees 24,300 For the purpose of construction SEZ building appellant had availed services of various vendors in the shape of sub-contractors. These vendors were selected through the tender system and appellant received tender fees on this account. Thus, the activity of inviting tender being very .....

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income from other sources . 11. The first receipt disputed by the revenue relates interest received from the Income tax department on the refund received by it. We have earlier noticed that the income derived by the assessee from the operation of IT Parks and SEZ is the lease income received from the occupants of the premises. However, the assessee could not receive the gross lease income from the lessees, since the lessees are required to deduct tax at source (TDS) from the lease rent as per th .....

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f lease rent along with interest and hence the interest amount shall partake the character of lease rent as per the decision of Hon ble Supreme Court in the case of Govinda Choudury and Sons (supra). The assessee has also submitted that the lessees would not have deducted TDS, if no-deduction certificate had been issued by the AO in time, in which case, the question of granting refund along with the interest would not have arisen. In that scenario, the assessee would have been in a position to u .....

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ay in getting no-deduction certificate from the AO. In view of the same, the assessee was deprived of funds to the extent of TDS amount, which would have otherwise used for the purpose of business purposes including repayment of loan taken for construction of IT parks and SEZ. The Income tax department was required to pay interest only due to the delay in granting refund of TDS. In the case of Liberty India Ltd (supra), relied upon by the AO, the assessee therein received DEPB credits as per the .....

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eprived of a portion of lease rent for a temporary period for the reasons beyond the control of the assessee, there is some merit in the contention of the assessee that the interest on TDS refund should be equated with the interest on delayed payment of business receipts. In our view, the assessee has got strong case in the alternative contentions that interest received by it on the TDS refund should be netted off against the interest expenditure for the purpose of computing the profits and gain .....

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a Choudhary & Sons (supra) and the decision of Hon ble jurisdictional Bombay High Court in the case of CIT Vs, Bhansali Engg. Polymers Ltd (2008)(306 ITR 194), we do not find any infirmity in the decision of Ld CIT(A) in holding that interest so received partakes the character of lease rentals and hence eligible for deduction u/s 80IA of the Act. 14. The next receipt relates to the interest received on FDR. The assessee had received lease deposits from the lessees, which is required to be re .....

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ned interest income. Thus, we notice that the assessee was required to keep part of lease deposits amounts in fixed deposits out of business compulsion. Since the lease rental income is the primary source of the assessee, in our view, the keeping of fixed deposits shall form integral part of the business of operation of IT parks and SEZ. We also find merit in the alternative argument of the assessee that the interest income should be netted off against the interest expenditure, since the assesse .....

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