TMI Blog2018 (2) TMI 1529X X X X Extracts X X X X X X X X Extracts X X X X ..... nue and against the assessee as far as certain items of income are concerned, i.e., miscellaneous recovery from employees, difference between WDV/book value of released assets, commission for collection of electricity duty, rental income. Income derived from the items, viz., penalty recovered from suppliers/contracts, unclaimed balance outstanding pertaining to SD/EMD of contractor written back in the books of accounts, rebate from power generators, interest income (FD for opening of LC to Power Grid Corporation Ltd., PGCIL) are allowable deduction under Section 80-IA(4)(iv)(c) of the Act, the substantial questions of law relating to these items are answered in favour of the assessee. The substantial questions of law relating to the revisional order under Section 263 is held in favour of the assessee and against the Revenue. - ITA Nos.100025-100027/2017 C/W ITA No.100028/2017 - - - Dated:- 9-2-2018 - MRS. S. SUJATHA AND MR. JOHN MICHAEL CUNHA, JJ. FOR THE APPELLANT : SRIYUTHS V.K. GURUNATHAN, H.R.KAMBIYAVAR, S PARTHASARATHI JINITHA CHATTERJEE, MALLAHARAO K AND SMT. PRATHIBHA K, ADVS. FOR THE RESPONDENT : SRI. Y V RAVIRAJ, ADV. JUDGMENT These appeals are fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us resulting in violation of the provisions of Article 265 of the Constitution of India? 4. The appellant, a wholly owned company of Government of Karnataka is engaged in the business of distribution of electricity. During the assessment year 2006-07, its income included the following items of income which were treated as income from profits and gains of business . 1) Interest on bank Fixed deposits Rs.4,53,925 2) Interest on loans to societies Income from trading Rs.13,770 3) Profit on sale of stores Rs.4,47,120 4) Sale of scrap Rs.11,60,671 5) Other misc. receipts from trading Miscellaneous receipts Rs.30,58,776 6) Rental from staff quarters Rs.28,53,683/- 7) Rental from others Rs.1,36,591 8) Excess found on physical Verification of cash Rs.4,419 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same line, disallowing the claim of deduction under Section 80-IA(4)(iv)(c) of the Act. The authorities treated the items of income claimed as other income and charged the same to tax. Against these matters, the appeals were filed before the ITAT. All these appeals for the A.Y. 2006-07 to 2008-09 were clubbed together, heard and disposed of by the common order, dated 17.02.2017. The ITAT disallowed the income of the claim made inasmuch as following items are concerned:- i) Interest income ii) Profit on sale of stores iii) Miscellaneous receipts from trading iv) Rental income v) Commission for collection of electric duty vi) Penalty recovered from suppliers/contracts vii) Unclaimed balance and difference between WDV/book value of released asset. viii) Miscellaneous recovery from employees of ₹ 8,45,452/- 7. The items which are not reduced from the profits of the assessee as per the profits and loss account for the purpose of computing deduction are as under: i) Department of exam fees ii) Sale of department books iii) Sale of forms iv) Sale of scrap/stock excess found v) Meter reading testing charges vi) BBC theft ca colle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80-IA(4)(iv)(c) of the Act, which postulates that the undertaking which undertakes substantial renovation and modernization of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, 2017 shall be entitled for deduction, where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or an enterprise referred to in subsection (4). This view is reversed by the authorities while passing the consequential orders, pursuant to the order of Revisional Authority. 11. Reference was also made to Section 4(2) of the Karnataka Electricity (Taxation on Consumption) Act, 1959 and Circular No.05/2004, dated 15.07.2005, inasmuch as extension of tax benefit under Section 80-IA of the Act, in case of substantial renovation and modernization of transmission and distribution lines in the power sector. 12. In support of his contentions, learned counsel placed reliance on the following judgments: I) COMMISSIONER OF INCOME TAX VS. GOVINDA CHOUDHURY SONS, (1993) 203 ITR 0881 II) COMMISSIONER OF INCOME TAX VS. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as prejudicial to the interest of the revenue. Revisional authority while canceling the assessment though has not directed a fresh assessment, consequential order being passed and the same being challenged by the assessee, assessee is estopped from challenging the order of the revisional authority passed under Section 263 of the Act; more particularly, with an inordinate delay of 913 days. As such, the ITAT was right in rejecting the appeal filed by the assessee relating to the A.Y.2006-07 challenging the order of the revisional authority. 15. Learned counsel made an attempt to distinguish the judgments relied upon by the learned counsel appearing for the appellant to contend that the same are not applicable to the facts of the present case. 16. We have heard the learned counsel appearing for the respective parties and perused the material on record. 17. Section 80-IA(4)(iv)(c) of the Act is excerpted for ready reference:- 80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. (4)This Section applies to_ (i) xxxxx (ii) xxxxx (iii)xxxxx (iv) an undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In our view, the interest payable to him certainly 5 of the same character as the receipts for the payment of which he was otherwise entitled under the contract and which; payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts granted to the assessee under the awards and treated as income from other sources . The second question is, therefore, answered in favour of the assessee and against the Revenue. 21. The Hon ble Apex Court in the case of Meghalaya Steels Ltd. (supra) has held thus: 28. It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognized by Section 14 of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n contracts executed, held that the interest payable to the assessee certainly partakes the same character as of the receipts for the payment of which he was otherwise entitled to under the contract, which accrued due to the delay caused as a result of certain dispute between the parties. 25. On examining the present set of facts in the light of these judgments of the Hon ble Apex Court, we are of the considered view that penalty recovered from suppliers/contractors for delay in execution of works contract stand on the same footing as that of the case of Govinda Choudhury Sons (supra); if for any reasons, the suppliers/contractors caused delay in execution of works contract and penalty received by the assessee in terms of the contract, obviously it relates to receipts relatable to the business and cannot be treated as income from other sources . Hence, the penalty recovered from suppliers/contracts to an extent of ₹ 4,31,07,307/- is allowable deduction under Section 80-IA of the Act. 26. Unclaimed balance outstanding for many years which pertains to S.D./EMD of Contractor written back on their books of accounts also partakes the character of the receipts which arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred by such licensee. However, the said amount of rebate shall not be electricity tax collected by the licensee. 32. On account of the same, the assessee has claimed deduction under the head rebate from power generators, which has been denied by the authorities. This amount of rebate when certainly related to the business activities of the assessee and brings down the cost of manufacture of the goods, the assessee is entitled for deduction towards rebate collected. 33. In the case of Empire Pumps Pvt. Ltd. (supra), the High Court of Gujarat has held that the income earned from fixed deposit placed for business purposes cannot be treated as income from other sources , but must be seen as part of the assessee s business income. We are in respectful agreement with the same. The amount of deposit parked in the bank(FD for opening of LC to Power Grid Corporation Ltd., PGCIL) deserves to be considered for deduction under Section 80-IA(4)(iv)(c) of the Act. 34. As regards the rental income, it is also required to be observed that it is an independent income having no direct nexus towards reimbursement of manufacturing or selling expenses, in the absence of the fact that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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