TMI Blog2020 (12) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... other than package bridge projects and that the interest earned on deployment of grant funds in FD's and are creation to such grant and not income in the hands of assessee - HELD THAT:- Assessee received Grant for Government of Karnataka for carrying out construction activities. It is also not disputed that assessee was a nodal agent for Government of Karnataka. And that assessee had parked the Grants so received in FD till such monies were utilized, against which interest was earned. Hon'ble Karnataka High Court on identical facts has held that such interest income earned was inextricably linked with the business activity of assessee. Revenue has not brought before us any evidence to establish that these grants were used for any other purpose other than for construction activities on behalf of Government of Karnataka. Admittedly, there is no difference in factual background in respect of this issue for years under consideration as well as facts considered by Hon'ble High Court in case of CIT vs Karnataka State Agricultural Produce Processing and Export Corporation Ltd. 2015 (11) TMI 391 - KARNATAKA HIGH COURT] There are no factual differences brought out by Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has collected certain payments by in the form of royalties from the contractor's however did not deposit it. In case of labour welfare cess the same has been deposited beyond the due date in certain years. We find force in the alternative argument advanced by Ld. AR. We are therefore remanding the issue back to Ld. AO. Ld. AO shall call for all necessary details and information is in order to verify the contentions/submissions of assessee. Assessee shall file all requisite information in support of its claim of having paid the statutory dues to the Government of Karnataka. Ld. AO shall then consider the claim of assessee to the extent of actual payment made in the relevant assessment year. - ITA Nos. 935/Bang/2018, 322/Bang/2017, 703 to 706/Bang/2017, 426/Bang/2017, 805 to 808/Bang/2017, CO No. 80/Bang/2018 in ITA No. 935/Bang/2018, CO No. 48/Bang/2018 in ITA No. 426/Bang/2017 - - - Dated:- 27-11-2020 - CO No. 44/Bang/2018 in ITA No. 805/Bang/2017, CO No. 45/Bang/2018 in ITA No. 806/Bang/2017, CO No. 46/Bang/2018 in ITA No. 807/Bang/2017 and CO No. 47/Bang/2018 in ITA No. 808/Bang/2017 Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, factual background are identical in all assessment years under consideration. Ld. CIT.DR did not object for these appeals to be disposed off by way of common order. Accordingly, we dispose of all these appeals issue wise, as tabulated hereinabove. 4. Issue No. I These issues have been raised by assessee in its appeals for relevant assessment years more specifically mentioned in the table hereinabove. Ld. AR submitted that, assessee raised identical and common grounds in ITA nos. 703, 704, 705, 706, 322/Bang/2018. For sake of convenience, we reproduce herewith grounds raised by assessee in ITA no. 703/Bang/2018 as under: ITA No. 703/Bang/2017 1. The Commissioner of Income Tax (Appeals) - 4, Bangalore, has erred in sustaining the additions and disallowances to the admitted income made by the assessing authority by not deleting such additions and disallowances in total. 2. The assg. authority, has erred in disallowing depreciation of ₹ 11,14,95,562 claimed by the appellant on the bridges, alleging that the appellant is not the owner of the bridges and is not using for the purpose of its business. The assg. authority ought to have considered the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y has erred in not considering the accounting treatment followed by the appellant company in capitalizing the interest paid on borrowings and reducing the interest earned on deposits made out of borrowings from the capital work in progress, resulting in net capitalization of interest. The assg. authority having treated the interest income as income from other sources ought to have allowed deduction u/s. 57(iii) of the Income Tax Act, 1961 on account of interest paid to HUDCO on borrowings. For these and such other grounds that may be urged at the time of hearing, the appellant prays that additions and disallowances made by the assg. authority and sustained by the Commissioner of Income Tax (Appeals)-4, be deleted and the Appeal be allowed. Ld. AR submitted that, except for Grounds 6-8, other grounds stands not pressed by assessee and therefore no arguments are advanced by Ld. AR before us. Accordingly the other grounds being Ground No. 2-5 are dismissed as not pressed. Ground No. 1, 9 are general in nature and therefore do not require any adjudication. 4.1. He submitted that Grounds 6-8 pertains to Issue no. 1 in the table above. 4.2. Brief Facts of Iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fixed deposits made out of the borrowed funds from HUDCO, to tax under income from other sources. The assessing authority having treated the interest income as income from other sources ought to have allowed deduction u/s. 57(iii) of the Income-tax Act, 1961 on account of interest paid to HUDCO on borrowings. Submission: The interest income earned by the appellant on deployment of funds received from HUDCO was not an income earned in the course of carrying out its business. Such income was assessable under the head 'Income from Other Source'. Hence, out of the total addition of interest income made to returned income, addition of interest being earned on temporary deployment of HUDCO loan funds is sustained. I agree with the decision of the Ld. CIT(A) and the same may be upheld. .......................... Conclusion: In view of the submissions made above, examination of submissions made by the assessee, the order of the Ld. CIT(A), Bangalore is not erroneous and bad in law. The Ld. CIT(A) order may be upheld. Prayer: In the wake of the above submissions, it is humbly prayed to uphold the Ld. CIT(A) order in respect of the above issues and any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paid on loans from HUDCO should be allowed as revenue expenditure as done so by the CIT(Appeals) in the order for the AYs 2002-03 to 2004-05 and which has been accepted by the Revenue. 15. We are of the view the prayer made in the alternative by the Assessee deserves to be allowed as was done in AYs 2002-03 to 2004-05 by the CIT(A) in the orders for those AYs. We direct the claim of the Assessee, to this extent, should be allowed. Gr. No. 4 is thus treated as partly accepted. 4.6.1. Admittedly, there is no difference in factual background in respect of this issue for years under consideration as well as the preceding assessment years the orders of which has been placed before us. There are no contrary evidences placed before us by Ld. CIT.DR in order to deviate from consistent view taken by coordinate bench of this Tribunal on this issue in preceding years. Respectfully following the same, we allow alternate claim raised by Ld. AR. We thus direct entire interest paid on loans from HUDCO as revenue expenditure. Accordingly these grounds stands partly allowed as indicated hereinabove. In the result assessee's appeal in ITA No. 703, 704, 705, 706, 322/Bang/2018 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received funds for projects other than package bridge projects received from street government. As the nodal agency, assessee is carrying out certain works other than the package bridge projects for and on behalf of state government. Assessee is acting as an agent to carry out works for which the state government is releasing specific grants for such work. It has been observed by Ld. CIT(A) that by way of annual budget allocation, grants are released by state Government to assessee by way of 'grant-in-aid bills', and interest is earned by assessee out of deployment of such grant fund in FD when such grant funds are not in use. Interest on such fund also belongs to the Government of Karnataka and not to the assessee. Ld. AO disallowed the claim of assessee by following decision of Hon'ble Supreme Court in case of Tuticorin alkali and fertilisers Ltd. vs. CIT reported in (1997) 2 to 7 ITR 172. 5.3.1. Ld. CIT(A) observed that, assessee filed working of such interest income relating to projects other than package bridge projects and that the interest earned on deployment of grant funds in FD's and are creation to such grant and not income in the hands of assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e chargeable to tax. Submission: The Ld. CIT(A) perused the reasons assigned by the Ld. AO for bringing interest income of ₹ 5.96 crores as income of the corporation, appellants' contention and court decision relied upon by the appellant. The assessee corporation has been carrying out certain works like, road works and bridges other than package bridges. Funds for these works other than package bridges are received from State Government by way of Annual budget allocation and by way of grant in aid bills. These are specific grants to the Corporation which is acting only as Nodal agency. An interest on deployment of such specific grants funds not in use would form part of accretion to such grants and cannot be construed as direct income of the Corporation. Such specific grant funds are liabilities of the Corporation to the extent not utilised and in case of expenditure in excess of such grant funds same are in the nature of receivable from Government of Karnataka. This is the stated practice followed by the corporation as per audited financials from year to year. The CIT(A) further relied on the Ld. CIT(A) order of the appellant for A.Y:2012-13, which is favourabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d income from other sources ? ............... 5. We have heard the learned counsel Sri K.V. Aravind, appearing for the revenue as well as Ms. Jinita Chatterjee appearing for the respondent-assessee. 6. Though the matter is listed for admission, with the consent of the parties the matter is taken for final disposal. 7. The learned counsel Sri K.V. Aravind placed reliance on the Judgment of the Apex Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 and argued that the proceedings of Government of Karnataka by which a sum of ₹ 10.00 crores was granted to the assessee did not contain any condition with respect to the utilization of interest. The assessee being a company engaged in trading of agricultural produce is not entitled to the benefit of interest earned from the fixed deposits to get it capitalized and made an attempt to distinguish the judgment of CIT v. Karnataka Urban Infrastructure Development Finance Corpn. [2006] 284 ITR 582/155 Taxman 228 (Kar). 8. Learned counsel appearing for the assessee Ms. Jinita Chatterjee contended that the Government of Karnataka, while granting ₹ 10.00 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment of Karnataka other than for a particular scheme i.e., the said amount cannot be diverted for any other purpose other than for which it was sanctioned as per the Government Order dated 23.1.2007. Thus, the emphasis made by the revenue that the assessee-company being engaged in trading activities cannot be considered as a nodal agency of the State Government and the interest earned on the grants by the assessee-company has to be treated as income is not acceptable in view of the specific directions issued by the State Government regarding the utilization of the amount granted and on the interest accrued thereon. 10. The Tribunal relied on the Judgment of this Court in the case of Karnataka Urban Infrastructure Development Finance Corpn.'s case (KUIDC) (supra) wherein it is held that: The material on record shows that the very purpose of constitution of the assessee was to act as a nodal agency for implementation of mega-city scheme worked out by the Planning Commission. Both the Central and the State Governments are expected to provide requisite finances for implementation of the said project. The funds from the Central and State Governments will flow directl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affirmed by the first appellate authority. The finding given by the Tribunal is purely a question of fact. We do not find any substantial question of law involved in this appeal and therefore, this appeal is liable to be dismissed at the stage of admission itself. 11. In Tuticorin Alkali Chemicals Fertilizers Ltd.'s case (supra), the Apex Court has held that: There is another aspect of this matter. The company, in this case, is at liberty to use the interest income as it likes. It is under no obligation to utilise this interest income to reduce its liability to pay interest to its creditors. It can re-invest the interest income in land or share, it can purchase securities, it can buy house property, it can also set up another line of business, it may even pay dividends out of this income to its shareholders . 12. In the case of Karnataka Power Corpn. (supra), the Apex Court following the Judgment of Bokaro Steel Ltd's case (supra) has held that interest receipts and hire charges from contractors are in the nature of capital receipts . 13. In the case of Bongaigaon Refinery Petrochemicals Ltd., v. CIT [2001] 251 ITR 329/119 Taxman 488 the Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose for which the grants were made by the State Government. Even if we peruse the preamble to the Government Order dated 23.01.2007 by which the grant of ₹ 10.00 crores is made by the Government of Karnataka it is clear that in view of the National Horticultural Machine program implemented in Karnataka and major thrust given by the State Government for the development of horticultural sector, there is unlimited potentiality for export of horticultural produce, but the main constraint is lack of post harvest infrastructures viz., procurement centres, grading, washing, waxing, packing units, refrigerated transport, pre-cooling and cold storages, intermediate cold storages, processing units and export house. In order to harness the potentiality and to increase exports. Further KAPPEC has proposed to create these infrastructure facilities in various parts of State in a phased manner and efforts will also be made to rope in funds from Government of India under the relevant scheme from different agencies . The object of the scheme is to facilitate the farmers and to promote export of horticultural produce. 17. Hence, the very purpose of granting ₹ 10.00 crores to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by assessee becomes infructuous. In the result assessee's CO No. 44, 47, 80/Bang/2018 stands dismissed as infructuous. 6. Issues III IV: Ld. AR submitted that Issues III IV are common in ITA No. 426, 806, 807/Bang/2017 filed by revenue, pertaining to assessment years 2009-10 to 2011-12. 6.1. At the outset, Ld. CIT.DR has submitted that, appeal No. 426/B/2017 has been filed with delay of 48 days. It has been submitted that the delay in filing the present appeal was unintentional and caused due to technical difficulties of obtaining the scrutiny report order. He thus prayed for condonation of delay. Ld. AR did not raise any serious objection against condoning the delay so cost. 6.1.1. We are therefore considering the present circumstances and submissions made by both sides condoned the delay of 48 days in filing the present appeal by revenue. 6.2. Ld. AR submitted that, revenue raised identical and common grounds in all these appeals for relevant assessment years more specifically mentioned in the table hereinabove. For sake of convenience, we reproduce herewith grounds raised by revenue in ITA no. 426/Bang/2017 as under: ITA No. 426/Bang/2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived in fixed deposits Ld. AO noted that assessee has proportionately netted the interest and set off while accounting the capitalised cost of bridges as capital work in progress. Ld. AO was of the opinion that assessee cannot set of the interest income earned against the interest payable on loans borrowed for construction of the bridges. He was of the opinion that the entire interest which is being paid on the loans is to be capitalised. Reference was drawn to the decision of Hon'ble Supreme Court in case of Tuticorin Alkali and Chemicals Ltd., (supra). 6.3.2. Aggrieved by order of Ld. AO, assessee preferred appeal before Ld. CIT(A). 6.3.3. Based on submissions made by assessee, Ld. CIT(A) observed that, interest income earned from mobilisation advances given to mobilise men and material for the contract, and that such advance comes with the conditionality of interest. Ld. CIT(A) noted that in the final payout or the principal along with the interest is adjusted from the sum payable to the contractor. Ld. CIT(A) noted that such mobilisation advances are part of normal contract will agreement in infrastructure projects and there is no involvement of a third-party. Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Supreme Court. We note that, Hon'ble Court on identical issue has observed as under: .................. For the assessment year 1972-73, a consolidated reference was made at the instance of the revenue as well as the assessee and the following questions were referred: (1) Whether, on the facts and in the circumstances of the case, the receipts arising from the letting out of the quarters to the outsiders, such as employees of the contractors engaged in the construction of the plant can be treated as the income of the assessee and/or, in any event, should be adjusted against the cost of construction so as to reduce such cost? (2) Whether, on the facts and in the circumstances of the case, the receipts from the letting out of the properties to the outsiders, such as employees of the contractors engaged in the construction of the plant are to be assessed as income from property under section 22 of the Income-tax Act, 1961, or the said income should be assessed under section 28 of the Income-tax Act, 1961, as business income or in any event, under section 56 of the Income-tax Act, 1961, as income from other sources? (3) Whether, on the facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery. The advances which the assessee 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 hitches as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts are arrangements which are intrinsically connected with the construction of its steel plant. The receipts have been adjusted against the charges payable to the contractors and have gone to reduce the cost of construction. They have, therefore, been rightly held as capital receipts and not income of the assessee from any independent source. 6.7.1. There is no dispute that interest on advances made to contractors by assessee is not in connection with construction activities. Admittedly, these advances have been made by assessee to contractors for facilitating the work of construction. We note that the facts before Hon'ble Supreme Court in one of the issue are on identical nature of advance made by assessee there. Assessee in the present case has advanced money to the contractor's thereby avoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposited with the Government. Ld. AR submitted that payments have been subsequently made and the assessment years are also before this bench for consideration. He thus trade for the issue to be remanded back to Ld. AO for verification. 7.5. We have perused submissions advanced by both sides in light of records placed before us. Section 43B contemplates that, the payment must be real, substantial and effective and so long as this condition is satisfied, there can be no objection to allowing the same, without insisting that the amount has to be paid in cash or cheque or any other mode, i.e., in a physical sense. In our opinion, phrase, 'actually paid , has been used in this section, only to emphasize that, the payment should be real and a payment in point of fact and not something which is a pretence or a fiction. In the present facts of the case assessee has collected certain payments by in the form of royalties from the contractor's however did not deposit it. In case of labour welfare cess the same has been deposited beyond the due date in certain years. 7.5.1. We find force in the alternative argument advanced by Ld. AR. We are therefore remanding the issue back ..... X X X X Extracts X X X X X X X X Extracts X X X X
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