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Tamil Nadu Urban Finance & Infrastructure Development Corpn. Ltd. Versus Assistant Commissioner of Income-tax, Company Circle-III (1)

2012 (9) TMI 1074 - ITAT CHENNAI

IT APPEAL NOS. 5, 6, 79 AND 80 (MDS.) OF 2010 TO 603, 700 TO 701 (MDS.) OF 2011 - Dated:- 11-9-2012 - DR. O.K. NARAYANAN, VICE-PRESIDENT AND VIKAS AWASTHY, JUDICIAL MEMBER G. Basker for the Appellant. Anirudh Rai for the Respondent. ORDER Vikas Awasthy, Judicial Member - The present set of appeals have been filed by the Department as well as assessee impugning the orders of CIT(A)-III, Chennai. 2. ITA No. 700/Mds/2011 has been filed by the Department assailing the order of the CIT(A) dated 4.1.2 .....

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the assessee respectively relevant to the assessment year 2007-08 impugning the order of the CIT(A) dated 5.1.2011. Since all the appeals involve similar questions, they have been taken up together and decided by this single order on merits. 3. The brief facts of the case are that the assessee is a company registered under the provisions of the Companies Act, 1956. The State Government is holding 100% shares of the assessee company. The assessee company was incorporated to act as a nodal agency .....

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4. The assessee company filed its return of income for the assessment year 2003-04 on 18.11.2003 declaring Nil income. The case of the assessee was selected for scrutiny and assessment order under section 143(3) was passed on 21.10.2005 and total income was assessed at ₹ 30,57,00,884/-. Subsequently, the case of the assessee was reopened and notice under section 148 was issued to the assessee on 31.3.2008. The Assessing Officer vide assessment order dated 22.9.2009 passed under section 143 .....

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om Integrated Development of Small and Medium Town (hereinafter referred to as "IDSMT"). The CIT(A) vide order dated 4.1.2011 allowed the appeal of the assessee and held as under:- "6. I have carefully considered the facts of the case and the submission of the ld. AR. I have also perused the scheme for Integrated Development of Small and Medium Towers (IDSMT). I have also gone through the decisions relied on by the appellant. The MCP fund is being utilized in Chennai by the Corpor .....

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d Water Supply (MA II) Department and hence these incomes are no more in the books of the appellant. I have already decided that income of MCP fund is not taxable in appellant's own case for assessment years 2005-06 and 2006-07 in ITA No.452/07-08/A.III and 163/08-09 /A.III dated 30.10.2009 respectively based on the decision of Hon'ble Karnataka High Court in the case of CIT & Another v. Karnataka Urban Infrastructure Development and Finance Corporation in (284 ITR 582 (Kar). The SLP .....

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he tune of ₹ 1,52,71,188/-. 6. The D.R. defending the Department submitted that the assessee is following mercantile system of accounting. The assessee had made deposits of the funds received from State and Central Government and had earned interest thereon. But the interest so received by the assessee on the deposits has not been offered to tax. The D.R. submitted that similar controversy arose in the assessment year 2004-05 in the assessee's own case and the Tribunal had decided the .....

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2. The facts of the present case are different from the facts decided by the Hon'ble Karnataka High Court. 7. On the other hand, Shri G. Basker, counsel appearing on behalf of the assessee submitted that the assessee is only a trustee of the funds received from the Central & State Governments for various development and infrastructure projects. Planned funds are received both from State and Central Government. The assessee only acts as a nodal agency for receiving funds and disbursing th .....

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are of funds for the scheme (Infrastructural Development in Mega Cities) during the year 1997-98. The counsel for the assessee further submitted that the accounts of the assessee are audited by the Office of the Comptroller & Auditor General of India. All funds received are distinguishable and are maintained in separate accounts. The counsel further contended that the decision of the Tribunal in ITA No.352/Mds/2007 relevant to the assessment year 2004-05 was on different issue and the contro .....

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ed by the lower authorities. It is an admitted fact that the assessee is a State Government Undertaking and is only acting as nodal agency for receiving funds from Central as well as State Governments and the disbursement of the funds for the development and the infrastructure projects is as per the directions of the Government from time to time. The controversy involved in the present appeal is with regard to accrued interest on the funds advanced to the local bodies /IDSMT funds programme. The .....

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ts will flow directly to the specialised institutions/nodal agencies as grant and the nodal agency will constitute a revolving fund with the help of Central and State shares out of which finance could be provided to various agencies such as water, sewerage boards, municipal corporations, etc. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and, therefore, the assessee is a nodal agency formed/created by the Government of Karnatak .....

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ment is distributed to the other wing of the Government for public purpose as per the guidelines issued. The monies so received, till it is utilised, is parked in a bank. The finding recorded by the Tribunal clearly shows that the entire money in question is received for implementation of the scheme which is for a public purpose and the said scheme is implemented as per the guidelines of the Central Government and, therefore, the assessee is only acting as a nodal agency of Central Government fo .....

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ny previous year the interest accrued on bank deposits cannot be treated as an income of the assessee as the interest is earned out of the money given by the Government of India for the purpose of implementation of mega-city scheme. 5. Therefore, we do not find any error in the conclusion reached by the Tribunal that there was no income earned by way of interest by the assessee and setting aside the order of AO which is affirmed by the first appellate authority. The finding given by the Tribunal .....

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as expenditure under section 10(23G) of the Income Tax Act and has also claimed deduction under section 36(1)(viii) of the Act to the extent of 40% of the business income without approval from CBDT. We are of the considered opinion that the controversy involved in the present case is different from the one which has been decided by the Tribunal in ITA No.352/Mds/2007 relevant to the assessment year 2004-05. However, the present case of the assessee is squarely covered by the Division Bench judg .....

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. 2005-06 & 2006-07) & ITA Nos. 79 & 80/Mds/2010 (Revenue - A.Y. 2005-06 & 2006-07): 11. Since the issues involved in the above appeals are common, they are taken up together for disposal. The Revenue in its appeal nos.79 & 80/Mds/2010 has impugned the order of the CIT(A) dated 30.10.2009 primarily on the ground that the CIT(A) has deleted the interest income assessed by the Assessing Officer in respect of interest earned by the assessee on Mega-City Project. The other ground .....

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ee for Mega-City Project. The nature of activity and purpose for advance are same in both the cases. Therefore, for the reasons recorded by us in ITA No.700/Mds/2011, both the appeals of the Revenue i.e. 79 & 80/Mds/2010 are dismissed. 12. The assessee on the other hand, in ITA Nos. 5 & 6/Mds/2011 has impugned the order of the CIT(A) on two grounds:- (i) The CIT(A) had disallowed the claim of the assessee under section 10(23G) of the Act; & (ii) The CIT(A) had disallowed a portion of .....

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8.2.2008. Since the orders have not been challenged by the assessee in the higher forum, the same have attained finality. The counsel for the assessee could not place any document on record to controvert the submissions made by the D.R. It is evident from record that the assessee has not obtained approval from CBDT for the purpose of claiming exemption under section 10(23G). Therefore, this issue is decided against the assessee. 14. Similarly, with respect to second ground raised by the assesse .....

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n utilized for advancing funds under the various schemes as per the instructions of the Government from time to time. Therefore, the same should be considered at par with the accrued interest from Integrated Development of Small & Medium Town and Mega-city projects. 15. We do not agree with the contentions of the counsel for the assessee on this issue. The income earned from deposits with the bank etc. cannot be treated as income from business. The said interest income has to be treated as & .....

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is engaged in providing "long term finance" for industrial or agricultural development or development of infrastructure facility in India. The legislature in unequivocal words have stated that deduction under section 36 is available only in respect of income computed under the head "Profit and Gains of Business or Profession" under section 28. Interest from short term deposits are not taken into consideration in computing the income referred to in section 28. Rules of interpr .....

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of the counsel for the assessee on this issue, resultantly this ground of appeal of the assessee is dismissed. 16. In the result, appeals of the assessee as well as Revenue relevant to the assessment years 2005-06 & 2006- 07 are dismissed being devoid of any merit. ITA No. 603/Mds/2011 (Assessee - A.Y. 2007-08) & ITA No. 701/Mds/2011 (Revenue - A.Y. 2007-08): 17. The assessee has impugned the order of the CIT(A) dated 5.1.2011on the ground that deduction under section 36(1)(viii) on int .....

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