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Indian Power Projects Ltd. Versus Deputy Commissioner of Income Tax, Company Circle I (2) , Chennai

2015 (4) TMI 1181 - MADRAS HIGH COURT

Sale of tender documents - income from other sources or capital receipt - Nature of receipt - Held that:- A reading of the order of the CIT (Appeals) as also the Tribunal would reveal that the CIT (Appeals) has relied on the decision in Bokaro Steel case (1998 (12) TMI 4 - SUPREME Court) to come to the conclusion that in the case on hand, the receipt by way of sale of tender documents, even at the pre-commencement stage is inextricably linked to the process of setting up of business and, is ther .....

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ting up of business could not be construed in any other manner other than in the nature of capital receipt. - The Tribunal fell in error in merely stating that the decision in Bokaro Steel case (supra) is distinguishable from Tuticorin Alkali Chemicals & Fertilizers case (supra), without even understanding the scope of the decision in Bokaro Steel case (supra). - The admitted fact in this case is that the amount received by the appellant/assessee in sale of tender documents at the pre-co .....

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cordingly substantial question of law is answered in favour of the appellant/assessee and against the respondent/Revenue. - T.C.A. No. 543 of 2007 - Dated:- 27-4-2015 - R. Sudhakar And K. B. K. Vasuki, JJ. For the Appellant : S. Sridhar For the Respondents : T. R. Senthilkumar JUDGMENT R. Sudhakar, J. Aggrieved by the order of the Tribunal in allowing the appeal filed by the Revenue, the appellant/assessee is before this Court by filing the present appeal. This Court, vide order dated 11.6.07, w .....

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ndent in the light of the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd., even though the subsequent decision rendered by the Supreme Court distinguishing the above case was followed by the first appellate authority in deleting the said addition?" 2. The case of the appellant/assessee is that while it intended to produce power, floated a global tender and towards sale of tender documents, during the pre-commencement period, received a sum of & .....

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. - Vs - Commissioner of Income Tax (1997 (227) ITR 172 (SC)), on the contrary the assessee/appellant relied upon the decision of the Supreme Court in Commissioner of Income Tax - Vs - Bokaro Steel Ltd. (1999 (236) ITR 315 (SC)). The case was adjudicated and an assessment order was passed negativing the stand of the assessee/appellant. 3. The assessee/appellant, aggrieved by the said order, preferred appeal to the CIT (Appeals), who after considering the case, held in favour of the assessee/appe .....

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and Mr.T.R.Senthilkumar, learned standing counsel appearing for the respondent/Department and perused the materials placed in the typed set of documents as also the judgments relied on by the learned counsel on either side which have been referred by the authorities below in coming to their respective findings. 5. The short issue that arise for consideration in this appeal is "Whether on the admitted facts, the receipt of amount on the sale of tender documents should be treated as income fr .....

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decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd., cited supra, is directly on the point at issue. The decision of the Hon'ble Supreme Court in the case of Bokaro Steel Ltd., on which the Commissioner (Appeals) relied on, is distinguishable as the decision in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd., has directly dealt with the pre commencement expense and receipts. We are of the view that the order of the Assessin .....

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pital is in nature. In the facts of the said case, the Supreme Court was of the view that the company had surplus funds in its hands and in order to earn income out of the surplus funds, it invested the amounts for the purpose of earning interest and, therefore, held that it is revenue in nature and has to be taxed accordingly. The relevant portion is extracted hereinbelow for better clarity:- "In the case before us, the company had surplus funds in its hands. In order to earn income out of .....

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t be treated as sanctioned by law and was not acceptable for the purpose of computation of taxable income." 8. In the case of Bokara Steel (supra), the Supreme Court found that the activities of the assessee was in connection with three receipts, viz., rent charged by the assessee to its contractors for housing workers and staff employed by the contractor for the construction work of the assessee including certain amenities granted to the staff by the assessee; hire charges for plant and ma .....

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ee made to the contractors to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitch as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable .....

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preme Court is extracted hereinbelow for better appreciation :- "In the case of Addl. CIT v. Indian Drugs and Pharmaceuticals Ltd. (1983 (141) ITR 134), the Delhi High Court considered a case where the work of construction of the factory of the assessee was in progress and production had not commenced. Receipts from sale of tender forms and supply of water and electricity to the contractors engaged in construction as also receipts on account of sale of stones, boulders, grass and trees were .....

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y, para-6, which has been extracted above, to come to the conclusion that in the case on hand, the receipt by way of sale of tender documents, even at the pre-commencement stage is inextricably linked to the process of setting up of business and, is therefore, capital in nature. Similar was the view of the Delhi High Court in the case of Indian Drugs & Pharmaceuticals (supra), which view has been endorsed by the Supreme Court. 10. However, a reading of the order of the Tribunal would reveal .....

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