TMI Blog2022 (3) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, has no difficulty in accepting the submission of the Assessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying its business and should be considered as income derived from its essential business activities. Likewise, the late payment by GRIDCO for the electricity supplied, is sought to be made up by GRIDCO by issuing bonds on which the Assessee earns interest. This also therefore, has a direct nexus with the essential business activity of the Assessee. In CIT v. Meghalaya Steels Ltd [ 2016 (3) TMI 375 - SUPREME COURT ] held that subsidies were reimbursement for either the entire or partial costs incurred towards transporting raw materials to the Assessee s factory or finished products to its dealers, who then sell the finished products. Further, power subsidy, interest subsidy and insurance subsidy were also reimbursed, either wholly or partially, power being a necessary element of the cost of manufacture of the Respondent s products. Extending the same analogy and reasoning to the interpretation of Section 80-IA, this Court is satisfied that on the netting principle, since there is no other activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erprise solely engaged in the business of generation of power. The Assessee has set up power plants including Thermal Power Stations and Mini Hydel Projects in Odisha. The power generated by the Assessee s plants is sold exclusively to the Grid Corporation of Odisha Limited (GRIDCO) under a Power Purchase Agreement (PPA). In terms of the said agreement, the Assessee is obliged to sell the entire power produced only to GRIDCO and cannot sell the power to any other entity or agency. 4. In each of the AYs in question, initially a return of income was filed disclosing the total income at NIL. Thereafter, a revised return was filed disclosing the income after claiming deduction under Section 80-IA of the Income Tax Act ( Act ). 5. For both the AYs 2002-03 and 2003-04, the sum shown under other income was not allowed to be claimed towards deduction under Section 80-IA of the IT Act. As far as AY 2002-03 is concerned, a sum of ₹ 24,97,18,456/- was claimed under the head other income whereas for AY 2003-04, a sum of ₹ 21,77,36,307/- was claimed. The said figures included the sum towards interest on the bonds issued by GRIDCO to the Assessee in lieu of unpaid energy bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the Assessee does not have any other source of business. Reliance was placed on the decision of the Supreme Court of India in Commissioner of Income Tax v. Meghalaya Steels Ltd. (2016) 6 SCC 747. 8. Countering the above submissions, Mr. Satapathy, learned Senior Standing Counsel for the Department contended that the critical words in Section 80-IA of the IT Act were that the other income must be derived from the business of generation of electricity and not merely attributable to it. In other words, such income should have a direct and active nexus to the main activity. It was contended that the income, profit or gain cannot be said to have been derived from an activity merely because such activities may have helped the Assessee earn income or profit in an indirect manner. According to Mr. Satapathy, applying the test evolved in Pandian Chemicals Ltd. (supra), the AO, the CIT (A) and the ITAT were correct in disallowing the above sum as deduction under Section 80-IA of the IT Act under the head other income . 9. The relevant portion of Section 80-IA (4)(iv)(a) of the IT Act reads as under: 80 IA (1) Where the gross total income of an assessee includes any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income earned by it, from advances given to its employees as well as provision of electricity and water charges collected from water through its employees and contractors for facilities in the township, receipt from transit hostel, sale of scrap, insurance claim etc. The facilities were given to its employees for better conditions of employment. This was to improve the overall efficiency of the undertaking which is devoted to the single purpose of generation of power. The Court, therefore, has no difficulty in accepting the submission of the Assessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying its business and should be considered as income derived from its essential business activities. Likewise, the late payment by GRIDCO for the electricity supplied, is sought to be made up by GRIDCO by issuing bonds on which the Assessee earns interest. This also therefore, has a direct nexus with the essential business activity of the Assessee. 13. In CIT v. Meghalaya Steels Ltd. (supra), the Respondent there was engaged in manufacturing steel and ferro silicon. The interest earned on the subsidies were trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under 80-IA of the IT Act. There is merit in the contention of the Assessee that the interest received from the bonds issued by GRIDCO have a direct nexus with its essential business activity and therefore, was income derived from it, thus, making it eligible for such deduction. 16. The question framed by this Court is, therefore, answered in the negative i.e. in favour of the Assessee and against the Department. The impugned orders of the ITAT and the corresponding orders of the AO and the CIT (A) to the above extent for the AYs 2002-03, 2003-04, 2007-08 and 2008-09 are hereby set aside. 17. ITA Nos.24 and 25 of 2009 and ITA No.1 and 2 of 2015 are accordingly disposed of. Expenses on development of the periphery 18. As regards ITA No.3 of 2015 the sole question that has been framed for consideration concerns the disallowance by the AO of a sum of ₹ 89,70,409/- on the ground that periphery development expenses is not related to the business of the Assessee and was voluntary in nature. 19. The CIT(A) observed that ₹ 25,41,312/- had been spent through the Corporate Office, Bhubaneswar and could not be considered for the business purpose of the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
