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TMI Blog2022 (7) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances. 3. The assessee is a wholly owned company of Government of Karnataka. It was established with the approval of the Government of India, for the implementation of rail based mass rapid transit system which was called as "Bangalore Metro Rail Project" in five years in five stages. The Government of India contributed in the form of equity and sub-ordinate debt to the extent of 25% of the project cost. The design and technology for the project was as per the assessee's project report which was also approved by the Government of Karnataka. It was the Government of India that assigned the working of the assessee to work as a 'special purpose vehicle' for the implementation of the project. Further, as per the directions of the Government of India, the Board of the assessee was to be reconstituted with ten Directors with each promoter nominating five Directors. The Chairman was to be The Secretary, Ministry of Urban Development, Government of India. Appointment of the Managing Director was at the option of the Govt. of Karnataka, with the prior consent of the Govt. of India. The entire operation of the assessee in implementation of the project was subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon'ble Karnataka High Court relied upon by the Assessee in the case of KUIDFC was distinguished by the AO by pointing out that KUIDFC after implementation of urban infrastructure would not commercially exploit the infrastructure developed whereas the Assessee would after creation of BMRCL would commercially exploit the facility by charging for travel from the commuters. The AO also observed that in the case of KUIDFC there was no profit motive. According to the AO though the ultimate goal of the Assessee is to develop infrastructure, the said infrastructure facility will be ultimately used for commercial purpose. According to the AO after completing the project passenger will necessarily have to purchase the ticket and commute. The revenue so earned will result in profit. So a comparison cannot be drawn between a company which would utilize the fund for welfare schemes and the company which would be using the fund for commercial purposes. The AO also observed that from the facilities like sewerage boards or water supply systems which M/s KUIDFC would develop, a nominal fee will be charged on the consumers. Whereas, M/s BMRCL would issue tickets and run the facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years prior to the assessment year 2007-08, there was no reason for the appellant to take a different stand with respect to the assessability of the income to tax. For the same reasons, I confirm the assessment under appeal and confirm the AO's action in bringing to tax the sum of Rs.29,85,34,673/-." 10. Aggrieved by the order of the CIT(A), the assessee has filed appeal before the Tribunal. 11. As far as the application for condoning delay in filing this appeal is concerned, it has been submitted in an affidavit in support of the application for condonation of delay that the assessee was subjected to wrong professional advice on the matter that no relief may be expected in the appellate forum and therefore no appeal may be preferred, and the disputed taxes may be remitted. The assessee followed the professional advice. The order of the CIT(A) for the preceding A.Ys.2007-08 & 2008-09 were challenged before this Hon'ble Tribunal. The Hon'ble 'A' Bench of this Tribunal vide its order in ITA No. 1070 & 1071/Bang/2011 dated 31/10/2014 held that income earned on investments made out of surplus funds are not taxable in the case of the assessee. When the then Counsel ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was changed and thereafter, the Chartered Accountant took a decision to prefer the appeal and though papers were sent for signature was not signed and appeal was not filed. What is to be seen in such matters is that, the appellant was negligent and by not filing the appeal within time, whether there is any valuable right of the appellant, which would be taken away by not condoning the delay in the matters arising under the Income-tax Act, ultimately the question is, what is the tax payable under law. It is not an adversary litigation. An assessee cannot be charged without statutory authority. [emphasis supplied] 14. Reliance was also placed on the following decisions wherein it has been held that for the purpose of condoning the delay in filing of appeal, the appellate authority/court have to take a lenient view and dispose-off the matter based on the merits of the matter and not on the basis of technicalities. (i) Collector, Land Acquisition vs. MST. Katiji and Others (1987) 167 ITR 471 (SC); (ii) Concord of India Insurance Co. Ltd., vs. Smt. Nirmala Devi and Others 118 ITR 507 (SC); (iii) Radha Krishna Rai vs. Allahabad Bank & Others [2009] 9 SCC 733; (iv) CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in ITA Nos.117 and 118 of 2015 and the Hon'ble Karnataka High Court by its judgment dated 23.11.2021 affirmed the order of the Tribunal. It was submitted that the pendency of appeals by the Revenue against Tribunal order dated 31.10.2014 was another reason why the assessee was in a dilemma whether to file appeal before Tribunal for Assessment Year 2009- 10 and it was only on subsequent concrete advise of the Counsel that a firm decision was taken to file appeal for Assessment Year 2009-10 before the Tribunal. 17. We have carefully considered the rival submission. At the outset, we observe that the Hon'ble Supreme Court, in the case of Mst. Katiji (supra), has explained the principles that need to be kept in mind while considering an application for condonation of delay. The Hon'ble Apex Court has emphasized that substantial justice should prevail over technical considerations. The Court has also explained that a litigant does not stand to benefit by lodging the appeal late. The Court has also explained that every day's delay must be explained does not mean that a pedantic approach should be taken. The doctrine must be applied in a rational common sense and pragmatic manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel appearing for the parties and perused the material on record. In Tuticorin Alkali Chemicals and Fertilizers Ltd., supra, the facts were that M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd., which was incorporated on 03.12.1971 for the purpose of, inter alia, manufacturing heavy chemicals such as ammonium chloride and soda ash, begun its production during June. 1982. The term loans taken from various banks and financial institutions for the purpose of setting up the factories, which was not immediately required by the company, were kept invested in short-term deposits with banks, which was specifically permitted by the Memorandum and Articles of Association of the Company. Interest earned by the company from the various loans given by the company and also from the bank deposit:; which were considered by the departmental authorities as income and brought to tax was the subject matter of the tax reference case before the Hon'ble Apex Court. The following question of law was referred to the Court for the decision:- "Whether, on the .facts and in the circumstances of the case, interest derived by the assessee from the borrowed funds which were invested in. short-terrn de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in the relevant paragraph as under (page 584): "The material on record shows that the very purpose of constitution of the assessee was to act as a nodal agency for implementation of the 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 directly to the specialised institutions/nodal agencies as grant and the nodal agency will constitute a revolving fund with the help of Central and State shares out of which finance could be provided to various agencies such as water, sewerage boards, municipal corporations, etc. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and, therefore, the assessee is a nodal agency formed/ created by the Government of Karnataka as per the guidelines; there is no profit moive as the entire fund entrusted and the interest accrued therefrom on deposits in bank though in the name of the assessee has to be applied only for the purpose of welfare of the nation/ States as provided in the guidelines ; the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us the Hon'ble SSJ was a member) following the judgments in the case of KUIDFC [(2006) 284 ITR 582], Tuticorin Alkali Chemicals and Fertilizers Ltd., supra, as well as Bongaigaor Refinery and Petrochemicals Ltd., vs. Commissioner of Income-tax reported in (2001) 251 ITR 329 (SC) and Commissioner of Inconte-tax vs. Jokaro Steel Ltd., reported in (1999) 236, ITR 315 (SC), has held thus:- "in the light of the judgments referred to above, we have examined the case on hand. It is clear that the assessee has received the grant of Rs.10 crores from the Government of Karnataka for a particular project i.e., for improvement of infrastructure and to promote export of horticultural produce. Before the said grant was utilized for the specific purpose it was parked in fixed deposits and the interest was earned and by the subsequent additional evidence produced by the assessee before the Tribunal, it is further made clear that the State Government has categorically specified that any interest earned on those grants originally granted has to be considered as an additional grant and not an income of the assessee-Company. As explained by the Apex Court, in Bongaigaon Refinary and Petroche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fund belongs to the State exchequer and the assessee has to channelise them to achieve the objects of centrally sponsored scheme of infrastructural development as specified in the Government Order. Hence, interest on all these fixed deposits are considered to be capitalized and not revenue receipts to treat it as an income. The Tribunal considering these aspects and more particularly, following the judgment of this Court in KUIDC case has held that the interest earned on these grants is not an income, which we do not find fault with." 16. As could be seen from the Government Order dated 25.03.2008 now placed on record, it is ex-facie apparent that the unutilized funds of the project, before the commencement of the functional operation of the project, was invested by the assessee in fixed deposits and mutual funds as per the directions of the Government. It is apt to refer to the said Government Order, the relevant portion of which reads thus:- "The income generated out of earlier release of State Government to BMRC1., before the commencement of BMRCL, project would have to be converted into State's equity towards the project and therefore cannot be counted as income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Bokaro Steel Ltd., on which the Commissioner (Appeals) relied on, is distinguishable as the decision in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd., has directly dealt with the pre commencement expense and receipts. We are of the view that the order of the Assessing Officer bringing the receipt as income from other sources is perfectly justified and the deletion of the same by the Commissioner (Appeals) is not in accordance with law. We therefore set aside the order of the Commissioner (Appeals) and restore that of the Assessing Officer." 7. In Tuticorin Alkali Chemicals & Fertilizers case (supra), the issue before the Supreme Court was whether interest earned from borrowed capital, lying idle, should be treated as income from other sources or capital s in nature. In the facts of the said case, the Supreme Court was of the view that the company had surplus funds in its hands and in order to earn income out of the surplus funds, it invested the amounts for the purpose of earning interest and, therefore, held that it is revenue in nature and has to be taxed accordingly. The relevant portion is extracted hereinbelow for better clarity:- "In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court and, finally it was held that the receipts were capital receipts and not income of the assessee from any independent source. The relevant portion of the decision of the Supreme Court is extracted hereinbelow for better appreciation :- "In the case of Addl. CIT v. Indian Drugs and Pharmaceuticals Ltd. (1983 (141) ITR 134), the Delhi High Court considered a case where the work of construction of the factory of the assessee was in progress and production had not commenced. Receipts from sale of tender forms and supply of water and electricity to the contractors engaged in construction as also receipts on account of sale of stones, boulders, grass and trees were held to be receipts not from independent sources but were considered as inextricably linked with the process of setting up of business. These were directly related to the capital structure of business and were held to be capital in nature. We agree with this view taken by the Delhi High Court." 9. A reading of the order of the CIT (Appeals) as also the Tribunal would reveal that the CIT (Appeals) has relied on the decision of the Supreme Court in Bokaro Steel case (supra), more particularly, para- 6, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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