TMI Blog2013 (10) TMI 1496X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Authorised Representative at the very outset, submitted that he does not want to press grounds No.4 and 5. Hence these two grounds are dismissed as not pressed. 4. In ground No.3, the assessee has contested the action of the CIT(A) in confirming the action of the Assessing Officer in treating the interest on bank deposits as income of the assessee from other sources. 5. Briefly the facts are, the assessee company is a Special Purpose Vehicle (SPV) created for the purpose of implementing the projects funded under the Industrial Infrastructure Upgradation Scheme (IIUS) by the Department of Industrial Policy and Promotion(DIPP), Ministry of Commerce, Government of India. For the assessment year under dispute, the assessee filed its return of income on 20.10.2007 declaring total income of ₹ 39,51,981. The return was processed under S.143(1). Subsequently, the Assessing Officer having reason to believe that there is escapement of income on account of claim of deduction of ₹ 26,55,625 under S.36(1)(vii), which is otherwise not allowable in the absence of specified business activity, reopened the assessment by issuing a notice under S.148 of the Act on 26.2.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elong to the assessee. The CIT(A) further observed that these are only administrative conditions placed by the Government on the usage of interest income. But they are not in the nature of statutory direction which take away the title over the interest income. The title of the original grant as well as the interest income remains with the assessee and the assessee is bound to use that amount for the purpose of achieving the objects of the company. Accordingly, the CIT(A) upheld the findings of the Assessing Officer in treating the interest on certain deposits as income of the assessee from other sources. 8. The learned Authorised Representative for the assessee reiterating the stand taken before the CIT(A), submitted before us that when the Government which is the granting authority has issued instructions specifically making it clear that the interest income earned on deposits should be returned or will be adjusted against the future grants, then it would effectively mean that the amount sanctioned for a particular project is reduced to the extent of quantum of interest received by the assessee. Thus, the government treats the interest received as its income and such income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny purpose. The interest earned shall be indicated in the UC which can either be adjusted in next release or to be refunded to Government of India after grants-in-aid sanctioned is utilized. A plain reading of the aforesaid clause would make it clear that the Government has given a clear instruction and that interest on short term deposits either has to be refunded back to the government or to be adjusted against the future grants to be released for implementing the project. In other words, the amount to the extent of interest earned on fixed deposits will be reduced from the grants. Therefore, in real sense, the interest on short term deposits partake the character of grants, unless it is refunded back to the Government. In either case, interest earned on short term deposits cannot be said to have accrued as income to the assessee. The instruction issued by the government in the aforesaid letter also makes it mandatory that he SPV 'shall not' utilize the interest earned on the grant for any purpose. In the foresaid view of the matter, interest earned on short term deposits cannot be treated as income of the assessee, when the assessee in strict sense of the term has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation is not allowable. 13. The assessee agitated the issue before the CIT(A). The CIT(A) also confirmed the disallowance by holding that since the assessee is not the owner of the asset, depreciation is not allowable. 14. Learned Authorised Representative submitted before us that the Assessing Officer has come to his conclusion solely relying upon the financing pattern. However, the ownership is not determined by the financing pattern. It was submitted that source of finance and ownership are two different things. If the source of finance is towards the share of the project, i.e. towards joint ownership, then to that extent, the ownership has to be shared. It was further submitted that since in the present case the Government has created the assessee company to implement, own and operate the project, ownership relating to 85% of the cost of the project remains with the company, whereas 15% of the cost of the project shall be owned by the beneficiaries and not with the assessee. Hence, the assessee has claimed depreciation only in respect of 85% and not full value. It was submitted that since the Government itself is the creator of the assessee through the SPV, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) to the Assessing Officer to assess 3% of the grant allotted towards administrative expenses for implementation of the project, as the income of the assessee, and further not allowing any deduction towards expenditure therefrom. 18. Briefly stated, facts relating to the issue are that in the course of proceedings before the first appellate authority, the CIT(A) noticed that the assessee had completed various projects and others were in various stages of completion. He further noted that though as per the agreement with the Government, payments were due to the assessee on the work done, the assessee has not shown any accrued payments. He therefore, issued a notice for enhancement of assessment by letters dated 9.12.2012 and 17.12.2012. In response to the aforesaid letters, the assessee submitted that the assessee is a SPV conceived by the Department of Industrial Policy and Promotion and so far as the administrative overheads are concerned, the sanctioned proceedings provided that the administrative expenses have to be met from a 3% amount calculated from Central Grant. Further, this expenditure has to be incurred by or under the directions of Department of Industrial Pol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant's income. The income has accrued as per the agreement. Further, 1% of these amounts is already allowed by the Government for administrative expenditure. The balance 2% is the surplus. The appellant's contention that further expenditure is to be allowed is not tenable because all other expenditure has already been met out of the grants given by the Government. No more expenditure is to be charged as surplus. Accordingly, I hold that in addition to the income already declared, another 2% surplus as discussed above is to be added to the income assessed, and the assessment income will be enhanced accordingly. 20. The learned Authorised Representative submitted before us that the instructions issued by the Department of Industrial Policy and Promotion makes it clear that the assessee is entitled to only 2% of the Central Grant towards administrative expenses and the assessee can get the claim only after furnishing the project completion certificate. It was therefore, submitted that the CIT(A)'s observation that 1% is towards miscellaneous expenses and 2% of the grant is available as surplus, is without any basis. The learned Authorised Representative further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asing such 2% grant. These facts make it clear that only 2% grant is to be released to the SPVs towards expenses under the administrative head. Therefore, the CIT(A)'s observation that 3% grant towards administrative expenses has been released to the assessee is without any basis, and consequently his direction for treating the balance 2% as income also is not sustainable. Before treating the 2% of grant received to be the income of the assessee, it has to be factually ascertained whether such grant has actually been sanctioned to the assessee, and if at all it has been sanctioned and received by the assessee, then the expenses actually incurred by the assessee under administrative head have to be set off against such grant. Since these facts have not been verified properly, we remit the issue back to the file of the Assessing Officer, who shall take a decision in the mater, after considering all the factual aspects of the matter, and after affording reasonable opportunity of hearing to the assessee. 24. In the result, this appeal of the assessee is partly allowed for statistical purposes. ITA No.139/Hyd/13 : Assessment year 2009-10 25. Ground Nos.1, 2, 11 12 being g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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