TMI Blog2020 (1) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment of India, Ministry of Power. It is thus not a case where the interest income was earned by the assessee-company and the same was applied to discharge any obligation after such income reached the assessee. The amount of interest in question, going by the nature of obligation as stipulated by the Government of India, Ministry of Power in the letter dated 25.09.2008 did not form part of the income of the assessee as the same was liable to be used for the cost of Project by way of adjustment in the last instalment of capital subsidy and the same thus was in the nature of capital receipt being capital subsidy received from the Government of India, Ministry of Power. The interest so earned thus was received by REC as well as all the Implementing Agencies including the assessee-company for and on behalf of the Government of India, Ministry of Power and since the same was to be used for cost of the project by way of adjustment in the last instalment of capital subsidy, the REC as well as all the Implementing Agencies including the assessee-company never had any title or right in the interest so earned as they were under an obligation to use the amount of interest for cost of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses claimed by the appellant are already disallowed by the AO separately . 3. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that even though a single ground is raised by the Revenue in its appeal, the same involves three issues relating to the deletion by the ld. CIT(Appeals) of the additions made by the Assessing Officer on account of additional depreciation, ERPC charges and disallowance under section 14A. As agreed by the ld. Representatives of both the sides, all these issues are squarely covered in favour of the assessee by the decision of this Tribunal rendered in assessee s own case for A.Y. 2010-11 and 2011-12 vide its common order dated October 31, 2017 passed in ITA Nos. 871, 872, 1001 1002/KOL/2015. A copy of the said order is placed on record before us and perusal of the same shows that the issue relating to the deletion of addition on account of additional depreciation was decided by the Tribunal in favour of the assessee vide paragraphs no. 6 to 9 of its order, which read as under:- 6. We have heard the arguments of both the sides on this issue and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of generation of distribution of power to give benefit of additional depreciation was only clarificatory. As submitted by the learned counsel for the assessee, the decision of Bangalore Bench of this Tribunal in the case of Hutti Gold Mines Co. Ltd. (supra) has been upheld by the Hon ble Karnatake High Court (IT Appeal No 08 of 2014 dated 16.09.2014) by holding that section 32(1)(iia) of the Income Tax Act, 1961 includes the business of generation and distribution of power to avail the benefit of additional depreciation. 8. The learned counsel for the assessee has also relied on the decision of Hon ble Madras High Court in the case of CIT vs Hi Tech Arai Ltd. 321 ITR 477 wherein the assessee company had set up two windmills in addition to already exceeding four windmills and thereby increased its generation activity by above 50%. The assessee company was engaged in the business by manufacture of oil-seeds, moulded rubber parts etc. and it was using wind energy for generating power for its captive consumption apart from selling surplus power generated to Tamil Nadu Electricity Board. In these facts and circumstances of the case, one of the questions rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal dated October 31, 2017 in ITA Nos. 871, 872, 1001 1002/KOL/2015 in favour of the assessee in A.Y. 2010-11 vide paragraph no. 13 as under:- 13. As regards the issue involved in ground no 2 of the revenue s appeal for A.Y. 2010-11 relating to the deletion by the Ld. CIT (A) of the disallowance made by the A.O. under section 40(a)(ia) on account of payment of ERPC charges without deduction of tax at source, it is observed that the relief on this issue was allowed by the Ld. CIT (A) to the assessee in the year under consideration i.e. A.Y. 2010-11 by relying on the order of his predecessor in assessee s own case for A.Y. 2008-09. As agreed by the learned representatives of both the sides, the decision rendered by the Ld. CIT (A) giving relief to the assessee on the similar issue in A.Y. 2008-09 has been upheld by the Tribunal vide its order dated 04.05.2016 passed in ITA No. 1428/Kol/2013. This issue thus now stands squarely covered in favour of the assessee by the decision of this Tribunal in assessee s own case for A.Y. 2008-09 and respectfully following the same, we uphold the impugned order of the Ld. CIT (A) deleting the disallowance made by the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O. under section 14A read with Rule 8D and sustained by the Ld. CIT (A). Ground no. 3 of the assessee's appeal is accordingly allowed while ground no 1 of the revenue's appeal for A.Y. 2010-11 is dismissed . The aforesaid decision rendered for A.Y. 2010-11 was followed by the Tribunal to decide the similar issue involved in assessee s case for A.Y. 2011-12 vide its order dated October 31, 2017 (supra). 6. As all the three issues involved in Revenue s appeal for the year under consideration as well as all the material facts relevant thereto are similar to that of A.Ys. 2010-11 and 2011-12, we respectfully follow the order of the Coordinate Bench of this Tribunal for the said years and uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on these issues. The appeal of the Revenue is accordingly dismissed. 7. Now we shall take up the assessee s appeal being ITA No. 150/KOL/2018. Although as many as six grounds are raised by the assessee in this appeal, the common solitary issue involved therein relates to the addition of ₹ 21,48,33,731/- made by the Assessing Officer and confirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . During the course of appellate proceedings before the ld. CIT(Appeals), the following submission was made by the assessee in writing in support of its case on this issue:- 60. For construction of capital asset required for electrification in the rural areas, Government of India sanctioned a project called Rajiv Gandhi Gramin Vidyutikaran Yojana (RGGVY). This is plan scheme of the Government of India. 61. The said scheme was initiated Wholly and exclusively for development of Rural Electricity Infrastructure and Household Electrification. The main emphasis under the scheme was given to effect electricity connection to all rural household belonging to Below Poverty Line (BPL). 62. Rural Electrification Corporation Limited (RECL) is acting as Nodal agency of the project. State owned power utilities and Central Public Sector Undertakings (CPSUs) are acting as implementing agencies of the RGGW Project. 63. Funding of the project is done by Government of India through the Nodal agency RECL. 64. The entire fund of the project was available to the implementing agencies from Government of India through Rur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no appeal there against was ever preferred before the Hon ble Supreme Court of India . 10. The ld. CIT(Appeals) did not find merit in the submissions made on behalf of the assessee and proceeded to confirm the addition made by the Assessing Officer on account of interest for the following reasons given in his impugned order:- I have considered the material before me. It is observed that there is no dispute on the fact the appellant company was maintaining its accounts on mercantile basis, and the impugned interest income of ₹ 21,48,33,731/- had arisen and accrued to the appellant for the relevant financial year ending 31.03.2012. The appellant has mainly argued that the interest income was not taxable being capital receipts in its hands and alternatively was not real income on account of diversion of income at source. It is not in dispute that the appellant company had invested the amount of grant received by it in fixed deposits with commercial banks, on which interest income of ₹ 21,48,33,731/- was received/accrued during the previous year relevant to the AY 2012-13 under consideration. In the appellant s case, no material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no material brought on record to establish that the Central Government was at any point of time aware about the interest income received/ accrued by the assessee company over which it can lay any claim. These Government Orders appear to have been issued just to take out the interest income earned by the assessee from the taxation under the Income Tax Act. On the issue of diversion of income, the factors to be considered were enunciated by the Hon'ble Apex Court in the case of Moti Lal Chhadami Lal Jain v. Commissioner of Income-tax in [199.1] 56 TAXMAN 4A (Se), wherein it was held that, 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be aware about the exact amount of such income which it has earned. In the present case, the obligation to divert the income has admittedly arisen after the interest income has reached the assessee and not before and would thus comprise application of the said interest income after it was received by the appellant company. The said Government Orders appear to have been issued just to take out the interest income earned by the assessee from the taxation under the Income Tax Act. The A/R has relied upon the ratio of decision of the Calcutta High Court in CIT v. A. Tosh Sons Pvt. Ltd. (1987) 166 ITR 867 (Cal), which is found to be distinguishable as the facts of the said case are found to be distinct from the facts and circumstances of the appellant's case wherein the interest earned on fixed deposit made out of surplus left with the assessee out of the taxes and rebate raised on behalf of foreign buyers and paid to the Government was held as not taxable in its hands. However, in the appellant's case, the interest income has not been paid to the Central Government by the appellant company. Thus, the ratio of the said decision is found to be not appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to defeat the provisions of the Act. (5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee. (6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. (7) Mere improbability of recovery, where the conduct of the assessee is unequivocal, cannot be treated as evidence of the fact that income has not been resulted or accrued to the assessee. After debiting the debtors account and not reversing that entry but taking the interest merely in suspense account cannot be such evidence to show that no real Income has accrued to the assessee or been treated as such by the assessee. (8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognized limits. In the case of Kedarnath Jute Mfg. Co. Ltd. (1971) 82 ITR 363 (Se), the Hon ble Apex Court has held that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that no material has been placed on record by the appellant to indicate that there was any stipulation that the interest earned on such grant/aid if kept in fixed deposit in commercial bank would not accrue to the appellant but to the Central Government. Moreover, there is also no material on record to indicate that the interest income was transferred or passed on to a third person by the appellant company during the financial year, under an existing obligation. In fact, the orders Issued by the Central Government were for treating the amount of interest after its receipt in the hands of the appellant company. In view thereof, I am of the opinion that the appellant's alternative claim of the theory of real income is also not applicable to the facts of the present case inasmuch as the interest has accrued to the appellant which it had retained as income in its own hands, and the interest income has arisen from the fixed deposits are liable to be taxed as income in the hands of the appellant company as held by the Hon'ble Supreme Court in. the case of State Bank of Travancore, (supra). Therefore, it is held that the A.O was correct in treating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Account and informed REC about the same vide its letter dated 13.06.2014 (copy at page no. 73 of the paper book). The ld. Counsel for the assessee contended that this entire correspondence is sufficient to establish that the assessee never had any right or title in the interest and the interest amount in question was received by it on behalf of the Government of India, which was earlier liable to be adjusted against the last payment of capital subsidy and latter was liable to be remitted back to the Government Account, which was duly done by the assessee. He contended that the said interest thus was not in the nature of income earned by the assessee and as per the specific terms of the Government of India, it was diverted even at the inception by an overriding charge in favour of the Government of India. In support of this contention, he relied on the decision of the Hon ble Calcutta High Court in the case of CIT vs.- A. Tosh Sons Pvt. Limited [166 ITR 867], wherein it was held that when it was clear under the agreements that the assessee would be entitled to receive the excise duty rebate and customs duty drawback only on the account of the foreign buyers and not on its ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no difference between the Executing Agency and Implementing Agency as sought to be pointed out by the ld. D.R. He submitted that REC was the Nodal Agency and there were various Implementing Agencies including the assessee-company. To support and substantiate this stand, he invited our attention to the letter dated 20.11.2013 issued by the REC (copy at page no. 70 of the paper book) and the letter dated 02.05.2014 issued by the Government of India, Ministry of Power (copy at page no. 71 of the paper book) and pointed out that the said letters were specifically addressed to the assessee giving the reference of the earlier correspondence, which is sufficient to show that the assessee-company was involved in the Project as Implementing Agency and the correspondence of REC and Government of India, Ministry of Power relied upon by him is a relevant evidence to decide the issue under consideration involved in the assessee s case. 14. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the Rural Electrification Programme was implemented by the Government of India, Ministry of Power through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of the obligation is the decisive fact and where by the obligation, income is diverted before it reaches the hands of the assessee, the same is not chargeable to tax. As per the conditions stipulated by the Government of India, Ministry of Power, the interest amount in question received by the assessee was liable to be adjusted against the capital subsidy receivable under the programme and since the assessee-company was under an obligation to adjust the interest amount against the capital subsidy, there was an overriding charge, which was enforceable in law. This position gets further fortified by the fact that the Government of India, Ministry of Power subsequently decided to recover the amount of interest in question earned by the REC as well as the Implementing Agencies including the assessee-company and the same was indeed remitted back by the assessee-company finally to the Government of India, Ministry of Power. 16. At the time of hearing before us, the ld. D.R. has contended that the assessee-company was an Executing Agency and not the Implementing Agency. However, as rightly contended by the ld. Counsel for the assesese, there is no difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, wherein it was stipulated that the funds released by Government of India shall be kept in a separate account for the desired purpose and the amount of interest earned by the assessee was to be refunded to the Government of India. As per the said stipulation, interest was actually refunded by the assessee in the next year and keeping in view the same, it was held by the Tribunal that the interest might not have accrued to the assessee or otherwise it should not have refunded in the subsequent year. It was held that the interest belonged to Government of India and was diverted at source. In our opinion, this decision of the Ahmedabad Bench of this Tribunal in the case of National Dairy Development Board (supra) relied upon by the ld. D.R. actually supports the case of the assessee, inasmuch as, the assessee-company as per the letter dated 25.09.2008 issued by the Government of India, Ministry of Power while releasing the funds was under an obligation to adjust the interest amount in question against the capital subsidy receivable from the Government and the said interest amount having been finally remitted back by it entirely to the Government of India, Ministry of Power, it canno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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