TMI Blog2017 (2) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... es under consideration should also be held as revenue expenses. Thus, we find that Ld. CIT(A) has rightly held these expenses as revenue expenditure. Thus, respectfully following the order of the Tribunal for A.Y.2007-08, no interference is required in the order of the Ld. CIT(A) and the same is upheld - Decided in favour of assessee Non deduction of TDS u/s 194J, 194C as well 195 - addition u/s 40(a)(ia) - Held that:- Nothing has been discussed about the nature of the expenses, position of crystallisation of these expenses, availability of particulars of the payees, etc. It has been observed in the order by Ld. CIT(A) that whenever payments are actually made against these provisions, TDS is deducted as was stated by the Ld. Counsel. But, what are the precise facts in this regard has not been discussed in the order. No details are available or discussed by the Ld.CIT(A) regarding various aspects, e.g. when these expenses were actually incurred, in whose name these are finally credited, who are the actual payees, when the payments were made actually and whether the TDS was deducted at the time of making of payments or not? Nothing has been brought out on record to ensure that fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and professional charges are clearly allowable expenses u/s 37(1) of the Act. He has not discussed the details of the legal and professional charges and whether these have been incurred on account of revenue or capital field. Disallowance u/s 14 r.w.r 8D - Held that:- Disallowance made by the AO without assuming jurisdiction as per law for invoking provisions of Rule 8D(2)(iii) is directed to be deleted. Disallowance on account of provision for leave encashment made by the assessee on the basis of actuarial valuation - Held that:- None of the authorities have narrated proper facts as to whether the total amount debited under this head was on account of provision or some part of it was paid also. Further, it is also not coming out whether provision for leave encashment has been made on the basis of actuarial basis or not. In our view, this issue needs to go back for proper verification of facts, and therefore, we send this issue back to the file of the AO for proper adjudication Amount of Passenger Service Fee – Security Component (PSF – SC) received - whether forms part of taxable income of the assessee company - Held that:- As per the terms of SOP issued by MOCA, if ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 012 passed against the assessment order of the AO u/s 143(3) dated 29.12.2010 for A.Y. 2008-09. 2. During the course of hearing, arguments were made by Shri Vijay Mehta, Authorised Representative (AR) on behalf of the Assessee and by Shri N.P. Singh, Departmental Representative (CIT-DR) on behalf of the Revenue. 3. First we shall take up appeal filed by the revenue in ITA No.3232/Mum/2012 filed on following grounds: 1. On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in deleting the disal lowance of ₹ 74,01,325/- incurred oil of perimeter road, treated by the A( ) as capital expenditure, without considering the fact that the entire expenditure has been incurred for complete renovation and replacement of old assets . 2. On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in deleting the disallowance of refurbishment expenses in the nature of civil works amounting to ₹ 24,24,34,541/treated by the AO as capital expenditure, without considering the fact that the entire expenditure has been incurred for renovation, expansion and modernization of the Airport . 3. On facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O as capital expenditure. 4.1. The brief background of the issue is that as noted in the assessment order, during the year under consideration, the assessee company was engaged in the business of providing service of an Airport operator. The assessee company had taken over the operation of Mumbai Airport i.e. Chhattrapati Shivaji International Airport w.e.f. 03.05.2006. During the course of assessment proceedings it was noted by the AO that assessee had claimed deduction of ₹ 74,01,325/- as revenue expenditure incurred towards operation and management of the Airport. It was submitted by the assessee that the said expenditure was incurred towards strengthening of the perimeter road of the Airport premises. The AO observed that impugned expenses were actually part of capital work in progress and that work done on perimeter road was meant for complete renovation of the old assets and therefore it cannot be treated as revenue expenditure. It was also observed that assessee should not have adopted different positions for the income tax purposes and for accounting purposes. In view of all these reasons, this amount was disallowed. 4.2. Being aggrieved, the assessee filed appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of it as capital in nature. The relevant part of observations of the Tribunal reproduced below: We have carefully considered the orders of authorities below and the submission of ld. Representatives of the parties. We observe that the authorities below have considered the said expenditure as capital mainly for the reasons that the assessee itself has categorized that expenditure in its books of account as capital in nature. In determining whether the expenditure is a capital expenditure or revenue expenditure, one has to take into consideration the facts and nature of expenditure to decide whether it is made for the initiation of business or extension of business or substantially replacement of existing equipment and treatment given in books of accounts could not decide the nature of expenditure. The expenditure would be capital if the expenditure has been incurred to create new assets. However, it will be revenue in nature, if incurred merely in facilitating assessee s operation or enable assessee s business to be carried on effectively, while leaving capital untouched. The similar view is taken by the Hon ble Apex Court in the case of CIT V/s Associated Cement Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account has given treatment of it as capital in nature. We may state that the assessee will not be entitled for depreciation thereon as it is held to be revenue in nature. Hence, Ground No.1 of the appeal taken by assessee is allowed. 4.6. During the course of hearing before us no distinction has been made out on facts or law by the either party. Rather, it was fairly agreed that issue is covered with earlier year s decision. We also find that facts are same. The nature of expenses is also same. Therefore, respectfully following the decisions of the tribunal for A.Y. 2007-08, the impugned expenses are held to be allowable as revenue expenditure. Thus, no interference is called for in the decision of the Ld. CIT(A) and therefore, same is upheld in view of detailed and well reasoned findings of the Tribunal for A.Y. 2007-08. Thus, Ground No.1 is dismissed. 5. Ground 2 : In this ground, the Revenue has challenged the action of the Ld.CIT(A) in deleting the disallowance of refurbishment expenses in the nature of civil works amounting to ₹ 24,24,34,541/- which was treated by the AO as capital expenditure. 5.1. It was noted by the AO during the course of assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case was filed on 30-09-2008 and the revised return was filed on 31-03- 2010. Thus, revised return was filed within the time limit allowed as per law. The revised return was accepted by the AO and, therefore, the claim was made by the assessee in accordance with law and thus, the Ld. CIT(A) has rightly allowed the same after considering the entire facts and evidences on record, and in any case this issue was covered in favour of the assessee on the basis of judgement of the Tribunal for A.Y. 2007-08. 5.4. We have gone through the orders of the lower authorities and submissions made by both the sides. It is noted that the primary reason given by the AO for disallowance was that since the assessee has made this claim by filing revised return of income, therefore, it shows that it was an afterthought claim on the part of the assessee. It was further objected to by the AO that the assessee should not have adopted different stands for income-tax purposes and for accounting purposes. It was also observed by the AO that since the assessee was responsible only for the development of new airport therefore, most of the expenses incurred under this head were capital in nature. 5.5. Per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence is required in the order of the Ld. CIT(A) and the same is upheld. Ground No.2 is dismissed. 6. Grounds 3 4 : In this ground, the Revenue has challenged the action of Ld.CIT(A) in deleting the addition of ₹ 4,43,32,547 made by the AO u/s 40(a)(ia) for the reason that the assessee failed to deduct tax at source under various sections, i.e. section 194J, section 194C as well as section 195. 6.1. During the course of assessment proceedings, the AO observed from the tax audit report that auditors had identified various items of inadmissible expenditure u/s 40(a)(ia) of the Act. One of the items identified for the disallowance was provision for expenditure of ₹ 4,43,32,547/- on which tax was not deducted at source by the assessee. The assessee was asked to furnish item-wise details of such provisions with actual date of payment. The assessee furnished list of such expenses as well as explanation for non deduction of tax at source. But the AO in the assessment order held that the entire expenditure was liable for deduction of tax at source under various sections, viz. 194C, 194J and 195, and since the assessee failed in deducting tax at source, the AO disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Ld. CIT(A) that he has simply accepted the claim of the assessee by stating that the assessee had made only provision and the Ld. Counsel of the assessee had submitted that in the next year when payments were made against the provisions , TDS was deducted and thus disallowance made by the AO was also deleted. We find that, unfortunately, the order of the Ld. CIT(A) on this issue is devoid of factual analysis or proper reasoning. Ld. CIT(A) has not even discussed the details of the expenses for which provision was made by the assessee which has been disallowed by the AO. Nothing has been discussed about the nature of the expenses, position of crystallisation of these expenses, availability of particulars of the payees, etc. It has been observed in the order by Ld. CIT(A) that whenever payments are actually made against these provisions, TDS is deducted as was stated by the Ld. Counsel. But, what are the precise facts in this regard has not been discussed in the order. No details are available or discussed by the Ld.CIT(A) regarding various aspects, e.g. when these expenses were actually incurred, in whose name these are finally credited, who are the actual payees, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have carefully considered the orders of authorities below and submissions made by Ld. Representatives of the parties. We have also considered the relevant Articles of OMDA and the cases relied upon by the parties before the authorities-below (supra) as well as the cases referred before us. 10.1 The assessee is a Joint Venture company. it has entered into an agreement with AAI and under the agreement i.e. OMDA , the assessee has been granted exclusive right, and authority to undertake some of the functions of AAI being functions of operation, maintenance; development, design, construction, up gradation, modernization, finance and management of Airport for an initial term of 30 years, which is extendable for a further period of 30 years on the same terms and conditions as applicable for the initial period, as per Article 18.1 of 'OMDA . Under the terms and conditions of OMDA , the assessee paid a sum of ₹ 150 crores to AAI as upfront fee m described under Article 11.1.1 of Chapter-XI of OMDA which is reproduced as under: 11.1.1 Upfront Fee The JVC shall pay to the AAI an upfront fee (the 'Upfront fee ) of ₹ 150 crores (Rupees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is akin to license in terms of section 32(1)(ii) of the Act, therefore, eligible for depreciation. Their lordships have held that right to participate in the market is an economic and money value, itself satisfies the test of being a license. There is no dispute to the fact that the said payment of ₹ 150 crores paid to AAI has not resulted to the assessee in the acquisition of any tangible assets like building, machinery, plants or furniture, Therefore the said payment of ₹ 150 crores has not resulted into acquisition of tangible assets . Thus, the assessee has only acquired right to collect charges from the users of the Airport preemies, which is a business or commercial right in the form of license and therefore it is an Intangible assets as per section 32(1)(ii) of the Act. The Hon'ble Delhi High Court In the case of Hindustan Coca Cola Beverages Pvt Ltd (supra) has also held that the assets which are included in the definition of intangible assets include, along with other things, any other business or commercial rights of similar nature. In this regard, it is relevant to state that the decision of Delhi High Court in the case of ONGC Videsh Ltd (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee from the IDBI, UTI and other banks to finance the CAPEX requirement for upgradation and modernisation of the Mumbai Airport under a common loan agreement signed by the assessee with the consortium banks. It was held by the Assessing Officer that since the loan disbursements were envisaged to fund the capital asset, the interest component of the loan was to be capitalised with the cost of the asset till these were put to use for the business of the assessee in terms of Explanation (8) to section 43(1) of the Act. Accordingly, the Assessing Officer made some working and disallowed a sum of ₹ 35,10,000/- after deducting benefit of depreciation of ₹ 3,90,000/- out of total interest of ₹ 39,00,0000/-. 8.2. Being aggrieved, the assessee filed appeal before the Ld. CIT(A) and also filed exhaustive submissions supported with various evidences for justifying the claim of interest and for disputing the disallowance made by the Assessing Officer. Ld. CIT(A) was satisfied with the submissions of the assessee and deleted the disallowance. Being aggrieved, Revenue is before us. 8.3. During the course of hearing before us, the Ld. CIT-DR vehemently contested the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , with these directions, this issue is sent back to the file of the Ld. CIT(A). This ground may be treated as allowed for statistical purposes. 9. Ground 7: In this ground, the Revenue has challenged the action of the Ld. CIT(A) in deleting the disallowance of legal and professional charges of ₹ 1,72,98,000/-. 9.1. The brief background of this issue is that during the course of assessment proceedings it was observed by the Assessing Officer that that the assessee had not made proper allocation of indirect expenses between capital and revenue heads and therefore in assessment year 2007-08 the assessment was completed by making an allocation of 75% of indirect expenses to the capital heads as it was first year of operation during which assessee had embarked upon massive investments in capital outlays for modernisation and development of the airport. During the year under consideration, the assessee furnished reply before the Assessing Officer vide letter dated 20-12-2010 furnishing a statement containing item-wise details of apportionment of indirect expenses after making analysis of the details furnished by the assessee. The Assessing Officer was of the opinion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of revenue or capital field. Therefore, under these circumstances, we send this issue back to the file of the Ld. CIT(A) with the same directions as have been given with regard to ground 6 above. This ground may be treated as allowed for statistical purposes. 10. As a result, appeal of the Revenue is partly allowed. 11. Now we shall take up assessee s appeal in ITA No. 2760/um/2012: The assessee company has filed the appeal before us on the following grounds: Ground No. 1: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the learned Assessing officer of making a disallowance of ₹ 50,20,500/- u/s. 14A r.w.r. 8D of the Income Tax Act, 1961. The Appellant prays that the same may please be deleted. Ground No. 2: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of the provision for leave encashment of ₹ 13,782,831/made on the basis of an actuarial valuation by relying on the decision of Calcutta High Court in the case of Exide industries Ltd. v Union of India (292 ITR 470). The appellant prays that the same may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs REI Agro Ltd in GA No.3022 of 2013 iii. Order of the Tribunal in the case of Global Calcium Pvt Ltd vs DCIT in ITA Nos. 2255/Chennai/13 iv. Order of the Tribunal in Kalyani Steels Ltd vs. Addl CIT in ITA No.1733/PN/12 v. Order of the Tribunal in 3DPLM ASoftware Solutions Ltd vs ITO and vice versa in ITA No.5736/Mum/12 12.3. Per contra, the Ld. CIT-DR relied upon the orders of the lower authorities. 12.4. We have gone through the facts and circumstances of the case, submissions made by both the parties as well as the judgements placed before us. We have noted at the outset that the assessee has mainly made investments in the mutual funds and total number of transactions done during the year was 19. In view of the same, assessee made voluntary disallowance of ₹ 1,62,500/-. In support of it, following working was submitted by the assessee before the lower authorities: 1. In case of investments done from Operations Surplus funds, interest cost is considered to be NIL. 2. Payroll costs are as follows: AVP Finance - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8D(2)(iii) is directed to be deleted. 13. Ground 2 : In this ground, the assessee has challenged the action of the Ld.CIT(A) in confirming the disallowance made by the AO on account of provision for leave encashment of ₹ 1,37,82,831/- made by the assessee on the basis of actuarial valuation. 13.1. The brief facts of the case are that in the assessment order, the AO made addition of the aforesaid amount on account of provision for leave encashment debited to the Profit Loss Account on the ground that the decision of Calcutta High Court in the case of Excel Industries vs UOI 292 ITR 470 (Cal) has been stayed by the Hon ble Supreme Court and, therefore, as on that date, the expenses were not allowable. 13.2. Before the Ld. CIT(A), the assessee challenged this disallowance. But Ld. CIT(A) decided the issue against the assessee. 13.3. During the course of hearing, the Ld. Counsel of the assessee fairly submitted that this issue should go back and it should be decided on the basis of judgement of the Hon ble Supreme Court in the case of Excel Industries Ltd (supra). It was also submitted that the amount actually paid should be allowed. 13.4. Per contra, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO was not satisfied with the stand of the assessee, and therefore, he further analysed the instruction issued by MOCA (Government of India) Dt 19-01-2009 as well as clarification dated 30-06-2008 issued by the CBDT to MOCA, and made an opinion that the receipts on account of PSF SC were taxable as income in the hands of airport operator and confronted the same to the assessee. Under these circumstances, the assessee vide letter dated 20-12-2010 submitted that though the aforesaid amount did not constitute assessee s income in view of doctrine of diversion of income by overriding title , and since the impugned amounts was collected in fiduciary capacity and the return of income was filed accordingly by not including the said amount as part of its income, but in view of the instruction of MOCA (Government of India) dated 15-11-2010, the assessee was constrained to offer the same as part of its taxable income and pay taxes thereon. Under these circumstances, the AO brought to tax the impugned amount as part of income of the assessee amounting to ₹ 132.59 crores. 14.2. However since the assessee was not satisfied with the assessment order, it contested the issue of taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation on without prejudice basis. Reliance in this regard was placed on the following judgments: 1. Mayank Poddar (HUF) vs WTO - 262 ITR 633 (Cal) 2. Nirmala L Mehta vsCIT 269 ITR 1 (Bom) 3. Balmukund Acharya vs DCIT 310 ITR 310 (Bom) Lastly, it was submitted by the Ld. Counsel that in this case the impugned receipt cannot be brought to tax as income in anybody s hands, as there is no surplus or profit which can be characterised as income. Whatever amount is left at the end of the year, it is already earmarked or deducted for meeting security expenses. There is no discretion to use the amount left for any other purposes. He took us through various clauses of the agreement and other documentary evidences to impress upon his point that the impugned amount was not available to the assessee for its own use. It was lastly argued that all the authorities including AO, CIT(A), CBDT and MOCA grossly erred by relying upon the judgement of Hon ble Supreme Court in the case of Chowringhee Sales Bureau vs CIT 87 ITR 542 (SC) to hold the impugned amount as taxable receipt in the hands of the recipient. He submitted detailed analysis carving out the distinction between facts of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee company and made liable to tax in its hands as per provisions of Income Tax Act, 1961? 14.7. Having heard both the parties, we have pondered over all the three issues and few other allied issues which were germane to the issues before us and necessary for deciding these grounds, and all these issues are decided hereunder one by one. 14.8. With regard to the first issue, the brief facts and background brought before us are that in pursuance to process of privatisation of airports in India, the assessee company had entered into an agreement in the nature of OMDA with Airport Authority of India to operate, maintain, develop, design, construct, upgrade, modernise, finance and manage the Chhatrapati Shivaji International Airport at Mumbai (hereinafter called airport , in short). As per Rule 88 of the Aircraft Rules, 1937, the assessee was entitled to collect a fee termed as Passenger Services Fee (PSF) from all the passengers embarking at the airport. The said fee was initially collected by the concerned airline and then handed over to the assessee company for the sake of administrative convenience. As per terms, the PSF was chargeable @ ₹ 200 per passenger, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be done strictly in accordance with law and mere acquiescence of the assessee expressed during the course of assessment proceedings would not alter the true position of law and would not make the aforesaid amount as liable to be taxed in the hands of the assessee, if the same is actually not liable to be taxed as per the provisions of the Income-tax Act. 14.10. We have analysed this issue. It is well settled position of law that an amount can be brought to tax in the hands of an assessee only in accordance with the provisions of Incometax Act. This fundamental position has been well explained and well settled in many judgements. It is well settled that there is no estoppel against law. No tax can be collected except with the authority of law as per clear mandate of Article 265 of Constitution of India. If the taxes are to be collected depending upon consent/concurrence of the taxpayers or otherwise, then it will lead to chaotic situation and administration of tax would become impossible. Therefore, if an amount is taxable under the law, assessee is bound to pay tax thereon and if an amount is not taxable under the Incometax law, then the tax cannot be recovered from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officers concerned with the execution of the Act and they must carry out their duties in the light of the circular. In view of this clear position regarding the effect of the circular, it was obvious that in the instant case it was incumbent on the Income-tax officer to advise the assessee to claim relief under section 2(5)(a )(iii) if the proceeding or any other particulars before him at the stage of the original assessment indicated that the assessee was entitled to such relief under the provisions of the relevant Finance Act, 1965, so far as the order under reference was concerned...... 14.12. Further reference is placed upon another judgment in the case of S.R. Koshti 276 ITR 165 (Guj) in which relief was granted to assessee with following observations: The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is overassessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. [Para 20] 14.13. In the case of CIT vs Lucknow Public Educationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Income-tax Act, 1961. 14.18. The aforesaid discussion takes us to the second issue wherein we have been called upon to decide about the binding legal force of the opinion expressed by CBDT and MOCA vide their office memorandum/ instructions for determining taxability of the impugned amount. It is admitted fact on record that the assessee company collected PSF-SC in view of the order issued by MOCA vide its order dated 09th May, 2006. The terms of the order have been modified / amended from time to time as per the requirements. One such order issued by MOCA was issued on 20th June, 2007. Subsequently, CBDT issued an Office Memorandum dated 30/06/2008 in pursuance to the request made by the concerned officials of MOCA regarding taxability of PSF SC, wherein it has been observed that since the assessee company was collecting this amount in the course of business and assessee was rendering facilitation and securities services whether in-house or outsourced, therefore, the amount collected by the assessee in the form of PSF-SC was in the nature of income of the assessee and liable to be taxed in its hands. In support of its view, reliance has been placed by the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales Bureau (supra). But facts of that case have not been discussed. The aforesaid judgment has different facts, wherein, the amount of sales-tax was received by the said assessee and deposited in its bank account. The funds got mixed in assessee s accounts. Thus, in case of non payment by the said assessee, the same became income of the seller (the said assessee), whereas the facts are totally different in the case before us. The amount here was collected purely in fiduciary capacity and the same was deposited in escrow account on which assessee had no control at all; the assessee had no discretion at all upon its usage. No reasoning has been made out by the CBDT while issuing its opinion as to how the said judgment was applicable on the facts of this case. It is noted by us that aforesaid judgment came up for consideration before many courts wherein its true meaning and scope of its applicability was explained time to time. In one such matter having similar facts as to the assessee before us, Hon ble Allahabad High Court explained correct application of aforesaid judgment in the case of CIT vs. Sita Ram Sri Kishan Das 141 ITR 685 (All). In this case, the facts were that said asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the perusal of aforesaid proviso that neither the Board has power to decide the taxability of a particular receipt nor has it got any power to interfere with the appellate functions of Commissioner (Appeals), which is judicial in nature. Thus, in view of the aforesaid legal scenario coupled with facts of this case as discussed above, we have strong doubts if at all the Board could have issued any instructions to decide the taxability of amount collected by the assessee company on account of PSF SC in a purely fiduciary capacity. This task of determination of taxability has been left by the legislature upon the shoulders of the designated AO, who is obliged under the law to determine the same strictly in accordance with the provisions of the Income-tax Act, 1961. 14.22. Further, aforesaid clarification issued by the Board in this case is actually an Office Memorandum . It is an interdepartmental communication. In our view, Office Memorandum would not carry the legal force of binding effect. Further, it has been provided in section 119 that orders, instructions and directions shall be binding upon the incometax authorities. It is noted that Income-tax Appellate Tribunal does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal statute and such circulars would be binding on the authorities enshrined in the Act. 14.24. Thus, taking guidance from the aforesaid legal discussion as has been clarified by the Hon ble jurisdictional High Court as well as by Hon ble Supreme Court, it is clear that the Office Memorandum issued by CBDT to MOCA cannot hold an amount as taxable, if the same is otherwise not taxable as per the provisions of the Income-tax Act, 1961. Further, as far as the clarification issued by MOCA is concerned, it is noted that the role of MOCA was confined to issuing Standard Operating Procedures and other guidelines to the airport operators to ensure that funds collected by the assessee company in the fiduciary capacity on behalf of MOCA are properly kept and disbursed for the designated purposes only. It has no jurisdiction to determine the taxability of the impugned amount. It clearly had no jurisdiction in holding the same as taxable and, therefore, to that extent its order / clarification has no authority in the eyes of law and the same has been rightly ignored by the assessee as well as by the appellate courts while determining the taxability of the impugned amount. 14.25. Thus, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the orders of AO as well as Ld. CIT(A) reveals that none of the authorities have made independent application of mind to independently determine whether the impugned amount could have been characterised as income in the hands of the assessee. Relevant part of order of Ld. CIT(A) is reproduced hereunder, for the sake of ready reference:- I have considered the submissions and arguments of the appellant. It is undisputed that the Ministry of Civil Aviation had already issued its guidelines and instructions to the assessee on 19.01.2009, thereby clarifying the taxability aspect of PSF(SC) in the hands of the assessee notwithstanding the assessee's resistance and belief that such receipts are fiduciary in nature and not taxable. Further, the Ministry of civil Aviation reaffirmed its decision once again vide Instruction dated 15.11.2010. Therefore, the appellant had erroneously resisted from offering the receipts on account of PSF(SC) to tax purely on the basis of its own belief that PSF(SC) receipts are fiduciary in nature, thereby ignoring the mandatory instructions issued by the Ministry of Civil Aviation from time to time under which, the assessee functions as an Airport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies, Joint Venture. Companies to own and operate airports in the Country, the manner and mode of collection of Passenger Service Fee (PSF) at airports have been engaging the attention of the Government for some time. The matter has been deliberated with Airports Authority of India and other airport operators and it has now been decided that: - i. CISF will be deployed as per the assessment of BCAS at airports operated by JVCs or private operators also. ii. Passenger Service Fee (PSF) at airports would he collected by the respective Airport Operator, which could be AM, JVC, or a private operator. iii. The amount of PSF to be collected will he fixed by the Ministry of Civil Aviation. The amount will continue to be ₹ 200/- per passenger till further orders. The airport operator would retain ₹ 70/- towards passenger facilitation. An Escrow account would be opened whenever the airport operator is a JVC or private operator. This account will be operated by the airport operator (not by AM). ₹ 130/- of the PSF collected per passenger by such airport operator would be deposited in the Escrow account by the Airport Operator for payments to be made to CISF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet security related expenses of that airport. The security agency designated in this regard was CISF. It is further noted that the funds so collected were to be deposited in an Escrow account which was subject to the government audit of CAG. Further, in case of any amount was left in the said account, it was to be mandatorily transferred to Airport Authority of India by the airport operator. Thus, from the above said facts and circumstances of the case and terms and conditions it is clear that the said amount was collected by the assessee on behalf of MOCA to be disbursed for security purposes to CISF deployed by the Ministry of Home Affairs. The amount was collected and retained purely in fiduciary capacity. The assessee had no discretion or freedom at all to utilise the aforesaid amount for any other purposes other than the designated purpose of meeting security expenses. So much so, even the surplus left if any, was not at the disposal of the assessee company but was to be mandatorily transferred to the account of Airport Authority of India as per the prescribed procedure. Under these circumstances, it is clear that assessee merely acted as a conduit or a trustee for collection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rranties of Escrow Bank and JVC/Private operator and Miscellaneous provisions. 3.4 Parties to the Escrow Agreement would consist of JVC/Private operator and Escrow Bank. However, the Escrow Account Agreement will have a clause by which the MOCA will have supervening power to direct the Escrow Bank on the issues regarding operation as well as withdrawals from Escrow Account. 3.5 Escrow Account shall be maintained, controlled and operated by Escrow Bank under the Escrow Agreement as under: i) PSF (SC) Account: JVC/Private Operator shall deposit immediately all PSF (SC) collections into the PSF (SC) Account. ii) Withdrawal from PSF (SC) Account: The Escrow Bank shall allow withdrawal by JVC/Private Operators of amounts deposited into the PSF (SC) account only towards the following purposes, in the order of priority by descending under: a. To pay amounts towards taxes, including Income Tax on PSF(SC) income as per provisions of Income Tax Act, 1961, Service Tax or any other statutory does. b. To pay for security related expenses to Central Industrial Security Force (CISF). c. To pay other security related expenses in terms of MOCA order dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us courts all over the country. The relevant part of the judgment laying down an acid test to decide such issues is reproduced hereunder: In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it does so, not as part of his income, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same is meant for security agencies. Thus, the assessee merely acted as a collection agent. Thus, applying the first principle, the impugned amount would fall in the category of diversion of income. 14.40. As far as the other three principles are concerned, the crux of these three principles is to find out whether the assessee had, in substance, earned any income. In other words, these three principles suggest application of the concept of real income , which suggests that unless the income has been earned by a person in real sense, the same cannot be held as taxable income. There has to be first income and only then its taxability could be determined. It is noted by us that in the facts before us, no portion of the amount collected on behalf of AAI / MOCA is reported to have been retained by the assessee as its income in as much as nothing belonged to it. Thus, the impugned amount is clearly not taxable in the hands of the assessee. 14.41. It is further noted by us that in many cases, wherein under some requirement of law if the amounts were transferred to the designated fund, then in such cases the Courts have held it to be a case of diversion of income by overriding tit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eserve fund constituted diversion of income by overriding title, and therefore, it was held to be excludible from assessee s total income. Similarly, in the case of CIT vs Bijli Cotton Mills Pvt Ltd 116 ITR 60 (SC), the Hon ble Supreme Court held that when right from the inception, amount of Dharmada was collected and held by the assessee company under an obligation to spend for charitable purposes only, then those amounts were not its trading receipts and was not taxable as business income. 14.44. Before parting with, we have also analysed the facts about utilization of the impugned amount. The Escrow Account maintained by the assessee is simply a pool created by the MOCA through assessee for meeting security expenses. Under these circumstances, if at all any income can be computed, that would be possible only if any surplus arises, which is not possible to happen since entire amount collected by Assessee Company is deposited in Escrow Account which is earmarked wholly and exclusively for meeting security expenses. There is no flexibility for using the funds elsewhere. If at all any amount is left unspent from this account, then, the same is to be transferred to the account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ways, taxiing track and parking ways. 15.1. The brief background of this issue is that during the impugned financial year, the assessee had spent an aggregate amount of ₹ 17.52 crores for making taxiways and aprons on which it had claimed depreciation under block of building @10%. But during the course of assessment proceedings, the assessee claimed that depreciation on these assets should be provided at 15% by treating the same as plant and machinery and not as building. The assessee also relied upon, in its favour, various judgments. But the AO was not satisfied with the claim of the assessee, and therefore, he rejected the claim of the assessee on the ground that taxi ways and aprons are nothing but concrete structures providing parking ways and other logistics facilities to the aircraft, when they are parked in between their flights and, therefore, these are part and parcel of larger meaning of the word building used in the Income-tax Act. In his view, these structures are easily identifiable with building and cannot be equated with a plant. Under these circumstances, he did not allow the assessee s claim made during the course of assessment proceedings. 15.2. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are basically structures and are in the nature of places which are used by Aircrafts for taxing, parking. Accordingly they are not in the nature of plant. Hence, assessee is in appeal before the Tribunal. 33. During the course of hearing, ld. AR reiterated the submissions as made before the First Appellate Authority and stated that aprons, taxiways and runway are not only the structures but they are structures for specific purposes which can be considered as tools for the purpose of business of the assessee. Ld AR referred the decision of the Mumbai Bench of Tribunal in the case of National Airports Authority of India V/s CIT [2011] 134 ITD 34 (Delhi), wherein it was held that the terminal place used for regulation of air traffic and communicational and navigational control are part of tool of business of the assessee and therefore they constitute part of the plant. Thus the assessee is accordingly entitled for depreciation as applicable on plant and machinery. The ld. AR referred the decision of the Hon ble Apex Court in the case of CIT V/s Dr. B. Venkata Rao (2000) 243 ITR 81(SC) and submitted that in the case of an operation theatre in the hospital, it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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