TMI Blog2023 (4) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Bangalore, thereby assessee carrying on the activity of railway transport of passengers and this is an independent corporation managed by a Board of Directors. The assessee corporation was enjoying monopoly i.e it was the only organisation involved in transport of passengers through rail in and around Bangalore. The assessee has been carrying on the transport of the passengers through rail in and around Bangalore by charging for tickets. The ticket price has been fixed by the corporation not at cost to cost price and it has been fixed with an element of profit. The assessee is not functioning under the policy of no profit and no loss. On the other, it is a profit oriented organisation and no profit no loss has not been the policy of the corporation and the assessee also a monopoly corporation in this field. In our opinion, the activity of transporting the passengers through rail in and around Bangalore to be considered as a business activity and the activity carried on by the assessee is nowhere different from that one carried on by private entrepreneurs and it is always by business activity of the assessee company with profit motive. In our view, the control or directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure or reimbursement of revenue expenditure, the charge to the P L account same to be considered as revenue receipt. Accordingly, this issue is remitted to the file of AO for fresh consideration in all these assessment years. This ground of appeals allowed for statistical purposes. Disallowance in respect of gift and donation given to third parties - AO noted that the assessee had claimed as expenditure under the head donations and gifts but the same was not added back in the computation - HELD THAT:- The main thrust is that the expenditure should have been incurred wholly and exclusively for the purpose of business or profession and it should not be capital expenditure or personal expenditure of the assessee. If the condition laid down above is not satisfied, the expenditure cannot be allowed. Before us, ld. A.R. submitted that the above expenditure incurred for the purpose of business in view of the commercial expediency - we find that the above expenditure is not incurred wholly and exclusively for the purpose of business specifically donation to Red Cross Society and Japan Relief Fund nowhere contributed to the business of assessee. It is just like a donation or in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 (1) TMI 653 - KARNATAKA HIGH COURT] The income generated through above impugned interest should be converted into state s equity towards the project. If it fails so same to be considered as income of the BMRCL. Accordingly, the issue is remitted to the file of AO to decide the issue in the light of judgement of Hon ble Karnataka High Court cited (supra). The ground of appeal of the revenue is partly allowed for statistical purposes. - ITA No.1112/Bang/2019 And ITA No.1048/Bang/2019 And ITA Nos.1113 to 1116/Bang/2019 - - - Dated:- 6-4-2023 - Shri N.V. Vasudevan, Vice President And Shri Chandra Poojari, Accountant Member For the Appellant : Shri Srihari Kutsa, A.R. For the Respondent : Shri Sankar Ganesh K., D.R. ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: ITA No.1112/Bang/2019 ITA No.1048/Bang/2019 are cross appeals for the assessment year 2011-12 directed against order of CIT(A) dated 26.2.2019. Other appeals in ITA Nos.1113 to 1116/Bang/2019 are appeals by assessee for assessment year 2012- 13 to 2015-16 directed against different orders of CIT(A) dated 26.2.2019. For brevity purpose, we will decide ground wise in a consolidated manner. Firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nistration may, for efficient performance of its functions under this Act, appoint such officers and other employees as it considers necessary on such terms and conditions of service as may be determined by regulation. 2.7 Thus, the assessee was constituted based on the above provisions of metro railways act. A perusal of the provisions of the statute reveal that the act governs all primary aspects of administration of metro railways viz., functions of the metro railway administration (Chapter III), appointment of commissioner for metro railway safety (Chapter IV), Procedure for opening up of metro railway (Chapter V), Working of metro railway (Chapter VI), Fare Fixation (Chapter VII), Procedure in the event of any accident, claims arising and liabilities (Chapter VIII to X), Offences and Penalties for violations on Metro railways (Chapter XI). 2.8 Two things become absolutely clear from the above. Firstly, that the management of the assessee company do not have the discretion as regards the day to day administration of the company and they are completely bound by the provisions of the Metro Railways Act. Secondly and more importantly, the assessee company does not have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncidental to the ordinary functions of the Government. 2.11 Clause (3) provides that exemption from union taxation shall not apply to a business or trade which is incidental to the ordinary functions of the government. In order to examine if the assessee is entitled to protection given under Article 289(3) of the constitution, it is important to appreciate if the activity of the assessee falls within the ambit of business that is incidental to the ordinary functions of the government. 2.12 The activity in question is metro rail service which falls under sole domain of the central government. It is well known that Indian Railways is a business activity carried out by the central government and the Indian Railways enjoys exemption under clause (3) of the Article 289 of constitution. The Parliament in order to expedite the process of setting up railway infrastructure across the country in the metropolitan areas provided for creation of metro rail corporations in cooperation with the state government. It is noteworthy that the Metro Railways Act vide section 4 provides for general superintendence and control of the government metro railway in the hands of general manager appointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to make profits commercially in a manner alike to any other private corporation, then such enterprise/corporation are not eligible to claim exemption under clause (1). Thus it is important to examine if the activity of the assessee can be said to be covered within the meaning of business or trade, as envisaged under clause (2) of Article 289 read with the Income Tax Act. 2.16 The word business has been explained by the Hon ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT reported in 101 ITR 234 (SC) 2.17 The other word used is trade. The meaning of the word trade has been explained by the Hon ble Supreme Court in the case of State of Punjab v. Bajaj Electricals Ltd. reported in 70 ITR 730 (SC) 2.18 Thus the ld. A.R. submitted that it is clear from the above, that the word business indicates the motive behind the carrying on of an activity to make profits. It is pertinent to point out at this point that the assessee in the present form exists solely for the purpose of implementation of the metro rail project in phases 1, 2, 2A, 2B and metro line to Kempegowda International Airport. Thereafter the company structure will undergo substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been validly constituted unless atleast one nominee each of Government of India and Government of Karnataka are present. 2.23 The ld. A.R. submitted that in pursuance to the powers vested in them vide the Articles of Association, the Government of India and Government of Karnataka has accordingly nominated the following persons as its nominees to the Board. Government of India Government of Karnataka 1 Secretary, Ministry of Urban Development, Government of India, New Delhi Principal Secretary to Government, Urban Development Department, Government of Karnataka 2 Director, Delhi Metro Rail Corporation Limited, New Delhi Additional Chief Secretary to Government, Government of Karnataka 3 Ex-Officio Joint Secretary, Ministry of Urban Development, Government of India, New Delhi Principal Secretary to Chief Minister, Government of Karnataka 4 Executive Director Works (Planning) Railway Board, Ministry of Railways, Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in any way and that the assessee shall at all times have full freedom and discretion to develop and use the land, subject to zoning and rezoning of the land; To ensure electric power is made available to the project on a no-profit-no-loss basis; To subscribe to the equity share capital and also to provide Subordinate debt for utilization of the assessee and to release the same before the Senior term debt is drawn to the extent possible with the objective of minimizing the interest burden on the project; To share with Government of India any cost escalation as may be approved by the Empowered Committee and Empowered Group of Ministers at Government of India level; To initiate or amend any law, rule, order or notification necessary or desirable for the implementation of the project; To finance cash losses, if any, during the operational phase in case the same cannot be provided by the assessee; To bear the cost of procurement of additional rolling stock required for the passenger traffic more than the DPR estimates, if the same cannot be provided by the assessee; To repay the Senior term debt as and when it becomes due on account of cash losses, in case the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt will be the Chairman of the Board and the Managing Director shall always be the nominee of the Government of Karnataka; Subject to the policies and principles approved by the Board, the Managing Director shall be vested with the powers of general management of the business of the Company and shall have the power and authority on behalf of the assessee to enter into all contracts and do all other things as are necessary 2.32 The ld. A.R. submitted that it is clear from the very preamble of the MOU supra that the sole purpose of establishment of the assessee was to carry out the essential service of providing affordable rail based rapid transportation facilities to the people of the Bangalore city to travel through the city. The constitution of the board of the assessee company proves beyond doubt that it is the Government of Karnataka jointly with Government of India that is actually controlling and running the assessee Company. . 2.33 The clause 6.1 referred supra particularly mentions the assessee to be a mere executing agency and the sole purpose of establishing it is to act as a special purpose vehicle for the purpose of implementation of the project. Thus it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an instrumentality or agency of the State is further proven vide Clause 12.14 that the State through the High Power Committee will be granting all necessary approvals, consents, clearances etc., for the smooth and timely implementation of the project and further undertakes to itself resist or resolve any obstacles to the implementation of the project. 2.39 The ld. A.R. submitted that the Government of Karnataka has undertaken to provide electrical energy from BESCOM on a no-profitno- loss basis and further undertakes to amend any law that acts as an obstacle for the functioning of the assessee company and, to place the State Government officers, if required, on deputation to BMRCL, further lend credence to the submission that the assessee is an instrumentality or agency of the state. It is to be further noted that the general management of the business of the assessee company shall be in the hands of the Managing Director who shall be appointed by the Government of Karnataka. 2.40 The ld. A.R. submitted that it is essentially to reap the benefits of better management, control and to foster expedition of work, that the Government of Karnataka has chosen to implement the proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een provided to be acting as a special purpose vehicle for the Government of Karnataka with the assistance of Government of India and that the company has been provided to be a board governed company and not any public sector undertaking, further drive home point that the assessee satisfies the requirement of Article 289(1) of the Constitution of India. 2.45 The ld. A.R. submitted that the assessee is an instrumentality and an agency of State Government and as a result it functions as an extended arm of the Government. The law of agency contained in sections 182, 212, 213, 222, 223 and 226 of the Indian Contract Act throw light on the relationship between the principal and his agent. The principal always indemnifies the agent for the loss incurred in the course of the business. The agent is required to act in the interest of the principal with due diligence. He is to give accounts of dealings with other principals to his principals. The assessee submits that all the ingredients of relationship between principal and agent are present in its case. 2.46 Therefore, the above referred facts viz., - that the State Government has undertaken to reimburse the state taxes, - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om such activity. This observation of the Supreme Court squarely applies to assessee. The assessee being formed for the sole purpose of establishing and providing rail based rapid transport system to the people of Bangalore, there is no motive to make profits and profits that may arise in future, if any, would only be incidental to the activity and would not represent the intention to make profits as such. 2.49 The ld. A.R. relied on the ratio of the decision of the Constitution Bench of the Apex court in the case of Ujjam Bhai v. State of Uttar Pradesh reported in AIR 1962 SC 1621 at Page 1678: In the first place, it has to be pointed out that the definition is only inclusive, which itself is apt to indicate that besides the Government and the Legislature there might be other instrumentalities of State action which might be comprehended within the expression State . Again, Art. 12 winds up the list of authorities falling within the definition by referring to other author ties within the territory of India which cannot, obviously be read as ejusdem generis with either the Government and the Legislatures or local authorities. The words are of wide amplitude and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 722 : We may point out that it is immaterial for this purpose whether the corporation is created by a statute or under a statute. The test is whether it is an instrumentality or agency of the Government and not as to how it is created. The inquiry has to be not as to how the juristic person is born but why it has been brought into existence. The corporation may be a statutory corporation created by a statute or it may be a Government Company or a company formed under the Companies Act, 1956 or it may be a society registered under the Societies Registration Act, 1860 or any other similar statute. Whatever be its genetical origin, it would be an authority within the meaning of Article 12 if it is an instrumentality or agency of the Government and that would have to be decided on a proper assessment of the facts in the light of the relevant factors. The concept of instrumentality or agency of the Government is not limited to a corporation created by a statute but is equally applicable to a company or society and in a given case it would have to be decided, on a consideration of the relevant factors, whether the company or society is an instrumentality or agency of the Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner-company unequivocally establishes that it is a company, the share capital of which is wholly subscribed by the Government- both the Central and the State of Karnataka equally. That, according to the Hon ble Supreme Court, goes a long way towards indicating that the corporation is an instrumentality or agency of the Government. (b) The second test is of 'existence of deep and pervasive State control' which, according to the Hon ble Supreme Court, gives an indication that the corporation is a State agency or instrumentality, is also fully satisfied. All the shares were owned by the State Government until 2006 and after the sanction was obtained by the Central Government for the project, Central Government contributed equity capital and became equal share holder along with the Government of Karnataka. The board consists of ten members, five appointed by the Government of India and five appointed by the Government of Karnataka. The board of directors is required to carry out the directions issued by the Government from time to time in the management of the affairs of the company towards achieving the object for which the company has been incorporated. Even the audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meaning of Article 12 of the Constitution. 2.57 The ld. A.R. submitted that over a hundred writ petitions have been filed on the assessee on the assessee and the jurisdictional High Court has admitted such petitions. 2.58 The ld. A.R. further submitted that the Supreme Court in V.P. Avas Evam Vikas Parishad v. Friends Coop. Housing Society Ltd , 1996 AIR 114 : 1995 SCC Supl. (3) 456, has held that right to shelter is a fundamental right, which springs from the right to residence assured in Art.19(1)(e) and right to life under Article 21 of the Constitution. The State Government is expected to provide housing facilities to the public and create housing infrastructure ensuring planned urban development. In W.B. Housing Board v. Brijendra Prasad Gupta (1997) 6 SCC 207, the Supreme Court held that the public purpose is not lost, if the State or Housing Board earns any profit. In Gulam Mustafa vs. The State of Maharashtra (1976) 1 SCC 800, the Supreme Court held that the excess land acquired by the Municipal Committee, when sold in plots for housing colony, it served public purpose. Similarly, the Supreme Court in State of Gujarat v. Sankalchand Khodidas Patel , ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O, and held that the latter is an agent of the State Government. 2.62 Wherefore in view of the above it is finally submitted that since the assessee is state carrying on the functions of the State Government and its income is income of the state, and accordingly in view of the Article 289 of the Constitution, its income is not liable to income tax. 2.63 The above submissions were made by the ld. A.R. before the CIT(A) and the CIT(A) at Para 5 of the order for the A.Y. 2011-12 expressed his disagreement with the contentions of the assessee by holding that it is nothing but a company that intends to make profits. 2.64 The ld. A.R. submitted that if this ground is allowed, then all other grounds do not arise for consideration. 3. The ld. D.R. submitted that the assessee is nothing but a company that intends to make profits. Merely because there are no private individuals in the management or because the government nominees are appointed, does not give the assessee a ground to claim exemption from income tax. That the Central Govt or the State Govt have participation in management of company and therefore no income tax should be charged would mean all the government owned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by Government of India and 50% held by Government of Karnataka and the companies u/s 617 of the Companies Act and Article 57 of the Articles of Association of the assessee corporation permits the Central Government as well as State Government to appoint 5 persons as Directors of the Board of the company and as per Article 58 one of the above nominees would be appointed as a MD of the company and no meeting shall be deemed to have been held unless atleast one nominee of each of Government of India and Government of Karnataka are present in the meeting. Thus, crux of the argument of the assessee s counsel is that the assessee is wholly and fully controlled by the Central Government as well as by State Government. As such, assessee s income is immune from Union Taxation. At this point it is appropriate to refer the observation made by Hon ble Supreme Court in the caes of Andhra Pradesh State Road Transport Corporation Vs. ITO 52 ITR 524, wherein held as under: It may be that the statute under which a notification has been issued constituting the appellant Corporation may provide expressly or by necessary implication that the income derived by the Corporation from its trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial Development Corporation, Ahmedabad is entitled or is not en titled to exclude its income from liability under the 1922 Act, we are clearly of the opinion that from their total income, no exclusion could be made on the ground that it is a State, as contemplated by article 289(1). The State is entirely different from the corporations, which are created by laws which are enacted either by the Parliament or by the State Legislatures for different and distinct purposes. They are separate entities in law. They sue and are sued in their own capacities and for any contractual liability of the corporation, no person can sue the State because every corporation in itself is not the State but a separate legal entity. Under these circumstances, our opinion on the first question would be in the affirmative, and we hold that the decision of the Tribunal is right. Therefore, this point is decided in favour of the revenue and against the assessee. 5.5 We also place reliance on the decision of Bombay High Court rendered in the case of Vidarbha Housing Board V/s ITO (1973) (92 ITR 430). Identical view has been expressed by Pune Bench of ITAT in the case of Goa, Daman and Diu Industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our view, the control or directions issued by the State Government would not change the character of business activity . We are of the view that activity carried out by the assessee should be examined independently and the fact that assessee is being regulated by the State Government would not make any difference. In our view, ownership of the Corporation and activities of the Corporation are two different aspects and the ownership cannot be considered or taken into account to determine the character or nature of the activities carried on by the Corporation. 5.9 The next argument of the ld. A.R. is that the capital required by the assessee company have been contributed by the Central Government as well as the State Government of Karnataka as such it is a wing of the State Government. This argument holds no merits. The assessee being separate personality of its own, incorporated under Companies Act for carrying on the business activity and the profit or loss arising there from are the profit and loss of the Corporation itself. The income derived from the Corporation from the business activities cannot be said to be income of the Karnataka State Government under Article 289. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enumerated in the Explanation, which does not include an authority such as the appellant. At the same time Section 10 (20A) which related to income of an authority constituted in India by or under any law enacted for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, which before the amendment was not included in computing the total income, was omitted. Consequently, the benefit conferred by (20A) on such an authority was taken away. .. 8. A mere perusal of Article 289(1) discloses that a claim of exemption under it must proceed on the foundation that the exemption is claimed in respect of property and income of a State. Once it is held that the property and income is that of the State, a question may well arise whether it is still taxable in view of the provision of Clause (2) of Article 289 which dominantly is in the nature of a proviso. Clause (2) empowers the Union to impose any tax to such extent as Parliament may by law provide, in respect of a trade or business of any kind carried on by, or on behalf of, the Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by the State Legislature by issuance of a Notification by the Government thereunder. 10. According to Basu's Commentary on the Constitution of India (Sixth Edition, page 50, volume 'L') Articles 285 and 289 are analogous to each other inasmuch as while Article 285 exempts Union property from State taxation, Article 289 exempts the State property from taxation. While clause (1) of Article 289 exempts from Union taxation any income of a State, derived from governmental or non-governmental activities, clause (2) provides an exception, namely, that income derived by a State from trade or business will be taxable, provided a law is made by Parliament in that behalf. Clause (3) of Article 289 is an exception of the exception prescribed by clause (2) of Article 289 and it provides that income derived from particular trade or business may be made immune from Union taxation if Parliament declares such trade or business as incidental to the ordinary functions of Government (emphases supplied). The reason is obvious. Under the constitution, the State has no power to tax any income other than agricultural income. Under the Constitution, power to tax income is vested onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed in the paper-book compilation as Annexure - 7. The ld. A.R. submitted that since the transaction is basically one of extension of loan by the Government of Karnataka to the Appellant which is repayable in the future, the same is capital in nature and not exigible to tax under any circumstances. The said amount does not come under the purview of income under the provisions of the Act. 6.3 The ld. A.R. submitted that even in cases where subsidy is received from Governments to Government managed corporations/bodies with a specific direction as to the purpose of such subsidy, the said subsidies are held to be out of realms of taxation (Ref: Sahney Steel Press Works Ltd v. CIT 228 ITR 253 (SC), ClT v. Ponni Sugar and Chemical Limited 306 ITR 392 (SC) Bihar Agricultural Produce Marketing Board v. CIT 205 Taxman 378 (Patna). Therefore, since the impugned amount of Rs.50 crores is a loan which is repayable in the future, the question of treating the same as income does not arise at all. 6.4 The ld A.R. submitted that the above submission may be taken on record and the said addition of Rs.50 crores may be deleted for the advancement of substantial cause of justice. 6.5. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or ease of reference Sanction is accorded to release Rs.50.00 crore (Rupees Fifty Crore only) under the Head of Account 6217-60-800-04- 394 towards Subordinate debts to Bangalore Metro Rail Project during the financial year 2010-11 towards the land acquisition and utility shifting purpose. The Managing Director, BMRCL shall draw the amount through payee receipt duly countersigned by the Joint Director (Planning), Urban Development Department, Government of Karnataka. This order is issues with the concurrence of the Finance Department vide its U. O. Note No. FD 530 Exp 9/2010, dated 10/08/2010. 7.2 The ld. A.R. submitted that in the accounts for the financial year 2010-11 the same was accounted as sub-ordinate debt released by Government of Karnataka, under the major Head Account 6217- 60-800-04-394 , in pursuance to its commitment for funding the Metro Rail project. 7.3 The ld. A.R. further submitted that since the transaction is basically one of extension of loan by the Government of Karnataka to the assessee which is repayable in the future, the same is capital in nature and not exigible to tax under any circumstances. The said amount does not come under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt to be considered as capital receipt and cannot be taxed. In other words, if the receipt has been given to meet the actual expenses of the assessee corporation in the revenue field, the same to be considered as a revenue receipt and to be taxed. These facts to be examined by the AO in all these years and if he finds the receipt is to meet the capital cost of the assessee company as per the sanction letter of the State Government, the same shall not be brought to tax. On the other if the receipt has been received by the assessee to meet the revenue expenditure or reimbursement of revenue expenditure, the charge to the P L account same to be considered as revenue receipt. Accordingly, this issue is remitted to the file of AO for fresh consideration in all these assessment years. This ground of appeals in AY 2011-12 to AY 2015-16 is allowed for statistical purposes. 10. Ground No.3 is common in assessment years 2012-13 2013- 14 which is with regard to disallowance in respect of gift and donation given to third parties. 10.1 Facts of the case are that the learned AO noted that the assessee had claimed as expenditure under the head donations and gifts but the same was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not chargeable to tax. Further, the assessee ought to have made the claim by way of return of income and a mere claim before the AO or before the CIT(A) by way of letter is not maintainable. Accordingly, this ground of appeal was dismissed by the ld. CIT(A). Against this assessee is in appeal before us. 12. The ld. A.R. submitted before the CIT(A) that the disallowance is not sustainable in law for the reason that the details in respect of the said gifts/donations were never called for by the Assessing Officer. Had the same been called for, the assessee would have submitted the details. 12.1 The ld. A.R. submitted that the impugned addition is not sustainable in law, as it amounts to making an addition without even making a basic enquiry regarding the same and therefore not sustainable in law as it is in violation of principles of natural justice. 12.2 Without prejudice, the assessee however submitted that the said amount of Rs.1,03,83,156/- basically consists of the following: Particulars Amount (Rs.) Donation to Red Cross Society, Japan Relief Fund on account of Tsunami in Japan 1,00,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not being expenditure of nature described in section 30 to 36 of the Act not being in the nature of capital expenditure or personal expenditure of the assessee laid out are expended wholly and exclusively for the purpose of business or profession and the assessee shall be allowed in computing the income chargeable under the head profit and gains of business or profession . The main thrust is that the expenditure should have been incurred wholly and exclusively for the purpose of business or profession and it should not be capital expenditure or personal expenditure of the assessee. If the condition laid down above is not satisfied, the expenditure cannot be allowed. Before us, ld. A.R. submitted that the above expenditure incurred for the purpose of business in view of the commercial expediency. However, we find that the above expenditure is not incurred wholly and exclusively for the purpose of business specifically donation to Red Cross Society and Japan Relief Fund nowhere contributed to the business of assessee. It is just like a donation or in the nature of gift, which cannot be allowed u/s 37 of the Act. However, we make it clear that if the assessee produce necessary det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce sheet is an item of expenditure under s. 37(1). Reliance is further placed on the decision of the Hon ble Apex Court in Calcutta Co. Ltd., v. CIT reported in 37 ITR 1 (SC) and Bharat Earth Movers Limited v. CIT reported in 245 ITR 428 (SC) where the Apex Court held that deduction for a business liability which has arisen during a particular year should be allowed in that year in its entirety. The ld. A.R. submitted that the learned AO therefore erred in disallowing the same and he prayed that the said disallowance may be deleted as the same is allowable on the facts and circumstances of the case. 17. The ld. D.R relied on the order of the lower authorities. 18. We have heard the rival submissions and perused the materials available on record. The main contention of the ld. A.R. is that this forward contract is relating to acquisition of capital asset. In our opinion, forward contract entered into for the purpose of payment of capital liability with reference to acquisition of asset outside India, then such amount will be governed under section 43A of the Act. However, if the contract entered into for the purpose of capital liability with reference to the acquisition of cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongly offered as revenue receipt. 20. Facts of the case are that the assessee raised a claim before the AO during the course of assessment proceedings that the interest amount received during the year is not taxable and was erroneously offered to tax. The AO has rejected the claim of the assessee. The assessee contended during the course of appeal proceedings that the claim may be allowed as the interest is not taxable in view of the decision of the jurisdictional Tribunal in its own case for the A.Y. 2007-08 2008-09. The ld. CIT(A) considered the submission of the assessee and observed that the claim is not maintainable as according to the assessee the commercial operations have commenced during the financial year 2011-12 and therefore it is not possible to hold that the interest amount is not chargeable to tax. Further, the assessee ought to have made the claim by way of return of income and a mere claim before the AO or before the CIT(A) by way of letter is not maintainable. Accordingly, this ground of appeal was dismissed by the ld. CIT(A). 21. The ld. A.R. submitted that in the return of income filed for the A.Y.2012-13, the Assessee offered interest income of Rs.38,52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Apex Court in the case of CIT Vs. Kanpur Coal Syndicate, Reported in 53 ITR 225 in which their lordship have held, the relevant paragraph is reproduced for the purpose of clarity in disposing of such an appeal the Appellate Assistant Commissioner may in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) therefore he may set aside the assessment and direct the Income-Tax Officer to make fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he failed to do .. . 21.6 The ld A.R. further submitted that following the decision of the Hon ble Apex Court in the case of Kanpur Coal Syndicate, various High courts and for that matter even the Hon ble Apex Court in various cases has held that the appellate commissioner has plenary powers and the scope of his power is coterminous with that of the Income-tax Officer. The appellate commissioner can do what the Income-tax Officer can do and also direct him to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital expenditure and does not partake the character of income for the purpose of taxation. The assessee has relied on the decision of the Hon'ble Supreme Court in CIT v. Bokaro Steel Ltd., reported in 236 ITR 315 (SC) in support of its submissions. It was also submitted that the jurisdictional Tribunal in the assesee's own case for the A.Ys, 2007-08 2008-09 has held in ITA No. 1070 1071/Bang/2011 that interest income of identical nature was held to be not taxable and accordingly the same ratio would apply to the present appeals also. 24.1 The ld. CIT(A) after considering the submissions of the assessee has observed that since the assessee has not initiated commercial operations during the year, therefore the incidental receipts during the construction of capital assets before the commencement of the business/commercial operations should go to reduce the value of capital asset in the books, thereby reducing the depreciation claim in the future years. The ld. CIT(A) opined that the decision of the Supreme Court in case of Bokaro Steel is squarely applicable to the facts of the case and accordingly this ground of appeal was allowed and the addition made was deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. If the company, even before it commences business, invests the surplus fund in its hand for purchase of land or house property and later sells it at profit, the gat, i made by the company will be assessable under the head `Capital gains'. Similarly, if a company purchases a rented house and gets rent, such rent will be assessable to tax under s. 22 as income from house property. Likewise, a company may have income from other sources. It may buy shares and get dividends. Such dividends will be taxable under s. 56 of the Act. The company may also, as in this case, keep the surplus fund in short-term deposits in order to earn interest. Such interests will be chargeable under s. 56 of the Act. 14. The co-ordinate bench of this Court in the case of KUIDFC 1(2009) 315 ITR 301], supra, has held thus:- An identical question had come up for consideration before a Division Bench of this Court in (CIT v. Karnataka Urban Infrastructure Development and F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only acting as a nodal agency of the Central Government for implementation of these projects. It is not the case of the Revenue that the assessee was carrying on any business or activities of its own while implementing the scheme in question. The unutilised money, during which the project could not he fully implemented, is deposited in a bank to earn interest. That interest earned is also again utilised for the implementation of the mega city scheme which is also permitted under the scheme. Therefore, in computing the total income of the assessee for any previous year the interest accrued on the bank deposits cannot be treated as an income of the assessee as the interest is earned out of the money given by the Government of India for the purpose of implementation of the mega city scheme. Therefore, we do not find any error in the conclusion reached by the Tribunal that there was no income earned by way of interest by the assessee and setting aside the order of the Assessing Officer which is 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, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus we are of the view that the facts and circumstances of the present case is squarely covered by Bokaro Steel Ltd.,(supra) and it is not the case of the Revenue that the said interest earned on these fixed deposits was utilized by the Company for any other purpose other than the purpose for which the grants were made by the State Government. Even if we peruse the preamble to the Government Order dated January 23, 2007, by which the grant of Rs.10 crores is made by the Government of Karnataka it is clear that in view of the National Horticultural Machine Programme 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 vim., procurement centres, grading, washing, waxing, packing units, refrigerated transport, precooling 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 eff ..... X X X X Extracts X X X X X X X X Extracts X X X X
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