M/s Roads & Bridges Development Corporation Of Kerala Ltd, Cochin V. ACIT, Ernakulam

CO 35/COCH/2007

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7597 (ITAT-COCHIN)
• Duration Of Justice: 5 year(s) 1 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 08-08-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 05-07-2007
• Court: TRIBUNAL
• Department Lawyers: VANI RAJ
• Assessee Lawyers: VIVEK C GOVIND
• Keywords: Business income; Salary income; Revenue expenditure
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 353/COCH/2006 & 479/COCH/2007 ASSESSMENT YEARS: 2002-03 & 2003-04 THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(3), ERNAKULAM. VS. ROADS & BRIDGES DEVELOPMENT CORPORATION OF KERALA LTD., PALARIVATTOM, KOCHI-682 025. [PAN: AABCR 7841Q] (REVENUE-APPELLANT) (ASSESSEE-RE SPONDENT) C.O. NO. 35/COCH/2007 (ARSG. OUT OF I.T.A. NO. 353/COCH/2006) ASSESSMENT YEAR: 2002-03 ROADS & BRIDGES DEVELOPMENT CORPORATION OF KERALA LTD., PALARIVATTOM, KOCHI-682 025. [PAN: AABCR 7841Q] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(3), ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) REVENUE BY MS. VANI RAJ, JR. DR ASSESSEE BY SHRI VIVEK C. GOVIND, CA DATE OF HEARING 09/08/2012 DATE OF PRONOUNCEMENT 27/08/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A)-II, KOCHI AND THEY RELATE TO THE ASSESSMENT YEARS 2002-03 AND 2003-04. THE ASSESSEE HAS FILED CROSS OBJECTION FOR THE ASSESSME NT YEAR 2002-03. SINCE ONE OF THE ISSUES URGED IN THESE APPEALS ARE IDENTICAL IN NATU RE, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A. NOS. 353/COCH/2006 & 479/COCH/2007 & C.O. NO. 35/COCH/2007 2 2. THE COMMON ISSUE URGED BY THE REVENUE IN BOTH TH E YEARS RELATES TO THE DETERMINATION OF THE NATURE OF INTEREST RECEIVED BY THE ASSESSEE FROM BANK DEPOSITS AND TREASURY DEPOSITS, I.E., WHETHER THEY FORM PART OF BUSINESS INCOME OR NOT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. IN THE ASSESSMENT Y EAR 2003-04, THE FOLLOWING THREE ISSUES ARE ALSO URGED BY THE REVENUE IN WHICH THE E LIGIBILITY OF DEDUCTION U/S 80IA IS ALSO REQUIRED TO BE CONSIDERED:- A) NATURE OF THE INTEREST RECEIVED ON MOBILISA TION ADVANCE, I.E. THE SAID INTEREST FORM PART OF BUSINESS INCOME OR NOT. B) WHETHER THE AUCTION INCOME FORM PART OF BU SINESS INCOME OR NOT. C) WHETHER THE DEFERRED REVENUE EXPENDITURE C LAIMED BY THE ASSESSEE IS REQUIRED TO BE TREATED AS BUSINESS INCOME OR NOT. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE-COMPANY IS A WHOLLY OWNED GOVERNMENT OF KERALA UNDERTAKING, WHIC H WAS INCORPORATED WITH THE OBJECT OF GIVING THRUST TO DEVELOPMENT OF ROADS AND BRIDGES IN THE STATE OF KERALA. THE ASSESSEE FILED ITS RETURN OF INCOME FOR BOTH THE YE ARS UNDER CONSIDERATION, DECLARING NIL INCOME AFTER CLAIMING DEDUCTION OF ITS ENTIRE INCOM E U/S. 80IA OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS RELATING TO THE AS SESSMENT YEAR 2002-03, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS REC EIVED INTEREST FROM BANK DEPOSITS AND TREASURY DEPOSITS AND HE TOOK THE VIEW THAT THE Y DO NOT FORM PART OF BUSINESS PROFITS. ACCORDINGLY, HE ASSESSED THESE INTEREST R ECEIPTS UNDER THE HEAD INCOME FROM OTHER SOURCES. SIMILARLY FOR THE ASSESSMENT YEAR 2003-04, THE ASSESSEE HAD RECEIVED INTEREST INCOME FROM BANK DEPOSITS AND TREASURY DEP OSITS AND ALSO RECEIVED INTEREST FROM THE MOBILISATION ADVANCES GIVEN TO THE CONTRAC TORS. IN THAT YEAR ALSO, THE ASSESSING OFFICER ASSESSED THE INTEREST RECEIPTS CI TED ABOVE UNDER THE HEAD INCOME FROM OTHER SOURCES. CONSEQUENT THERE-TO, THE ASSE SSEE WAS DENIED DEDUCTION U/S. 80IA OF THE ACT IN RESPECT OF THE ABOVE SAID INTERE ST INCOME, SINCE THE SAID DEDUCTION IS ALLOWABLE ON THE PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. 4. IN THE ASSESSMENT YEAR 2003-04, THE AO NOTICED THAT THE ASSESSEE HAD AUCTIONED THE DEBRIS COLLECTED ON THE DEMOLITION OF BUILDING, STANDING TREES, OTHER STRUCTURES ETC., I.T.A. NOS. 353/COCH/2006 & 479/COCH/2007 & C.O. NO. 35/COCH/2007 3 WHICH WERE EXISTING ON THE LAND ACQUIRED BY IT FOR CONSTRUCTION OF ROADS AND BRIDGES. THE AMOUNT OF RS.8,85,000/- COLLECTED ON SUCH AUCTI ON WAS FOUND ADJUSTED AGAINST LAND ACQUISITION ADVANCE. THE AO TOOK THE VIEW THAT THE AUCTION INCOME CANNOT BE TREATED AS PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSI NESS AND ACCORDINGLY ASSESSED THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE HAD INCURRED A SUM OF RS.25,14,839/- FOR ISSUING BONDS IN ORDER TO RAISE RESOURCES IN THE EARLIER YEARS. IT SEEMS THAT THE COMPANY HAD DECIDED TO WRITE OFF THE SAID EXPENSES IN FIVE ANNUAL INSTALMENTS AND ACCORDINGLY CLAIMED 1/5 TH OF THE BOND ISSUE EXPENSES AMOUNTING TO RS.5,02,967/- AS DEDUCTION DURING THE YEAR. THE AO TOOK THE VIEW THAT THE CONCEPT OF DEFERRED REVENUE EXPENDITURE IS NOT RECOGNISED UN DER THE INCOME TAX ACT AND ACCORDINGLY DISALLOWED THE SAID CLAIM, BUT ASSESSED THE SAID DISALLOWANCE UNDER THE HEAD INCOME FROM OTHER SOURCES. 5. THE ASSESSEE CHALLENGED THE DECISIONS OF THE ASSESSING OFFICER DISCUSSED ABOVE BEFORE THE LD. CIT(A), WHO SET ASIDE THE DECISIONS OF AO IN RESPECT OF THE INTEREST RECEIPTS, AUCTION INCOME AND DISALLOWANCE OF DEFERR ED REVENUE EXPENSES. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) , THE REVENUE IS IN APP EAL BEFORE US. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE ISSUE REGARDING THE NATURE OF INTEREST RECEIVED FROM MOBILISATION ADVAN CES HAS BEEN CONSIDERED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES O WN CASE IN I.T.A. NO. 1013 & 1014/COCH/2008 RELATING TO THE ASSESSMENT YEARS 200 2-03 AND 2004-05 AND THE TRIBUNAL, VIDE ITS ORDER DATED 31-05-2010, HAS HELD THAT THE INTEREST ON MOBILISATION ADVANCE IS A REVENUE RECEIPT. THE TRIBUNAL PLACED RELIANCE ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMI CALS AND FERTILIZERS LTD (227 ITR 172); PANDIAN CHEMICALS LTD VS. CIT (262 ITR 278) A ND ALSO THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. COCHIN SHI PYARD LTD. (2000)(158 CTR (KER) 208) IN TO ARRIVE AT ITS DECISION. HENCE THE QUEST ION THAT ARISES NOW IS WHETHER THE INTEREST RECEIVED FROM BANK DEPOSITS, TREASURY DEPO SITS AND MOBILISATION ADVANCES CONSTITUTE BUSINESS INCOME OR NOT. I.T.A. NOS. 353/COCH/2006 & 479/COCH/2007 & C.O. NO. 35/COCH/2007 4 7. THE LD. DR, BY PLACING RELIANCE ON THE FOLLOWING DECISIONS, SUBMITTED THAT INTEREST INCOME EARNED BY THE ASSESSEE CANNOT BE CO NSIDERED AS PROFITS AND GAINS DERIVED FROM AN UNDERTAKING OR ENTERPRISE. I) ACIT VS. SUTLEJ MOTORS LTD. (2007) 112 TTJ (ASR .) 874 II) LUPIN AGROCHEMICAL (I) LTD. VS. DCIT ( 2001) 70 TTJ (MUMBAI) 723 : 75 ITD 278 (MUMBAI). III) VARINDRA AGRO CHEMICAL LTD. VS. DCIT (2006) 1 00 TTJ (CHD) 1114. 8. WE HAVE CAREFULLY CONSIDERED THE DECISION RELIED UPON BY LD D.R. IN THE CASE OF SUTLEJ MOTORS LTD., SUPRA, THE AMRITSAR BENCH OF TH E TRIBUNAL HAS CONSIDERED THE DECISION OF SPECIAL BENCH (DEL.) IN THE CASE OF DCI T VS. ALLIED CONSTRUCTION (2007) (106 TTJ (DEL) (SB) 595) AND HELD THAT INTEREST INCOME E ARNED FROM FIXED DEPOSITS WOULD BE LIABLE TO BE ASSESSED UNDER THE HEAD INCOME FROM OT HER SOURCES AND CONSEQUENTLY, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80IA OF THE ACT IN RESPECT OF INTEREST ON FDRS. FOR THE SAKE OF CONVENIENCE, WE EXTRACT THE FOLLOWING RELEVANT OBSERVATIONS MADE IN THIS REGARD. 7.2 WE ALSO WISH TO MENTION THAT RECENTLY TRIBUNA L, SPECIAL BENCH DELHI IN THE CASE OF DY.CIT VS. ALLIED CONSTRUCTION (2007) 106 TTJ (DEL) (SB) 595 HAS CONSIDERED THE ISSUE OF INTEREST ON FIXED DEPOSITS OFFERED AS SECURITY FOR VARIOUS FACILITIES AVAILED BY THE AS CARRYING ON BUSINESS OF BUILDING CONTRACTOR. THE FACTS OF THAT CASE WERE THAT THE ASSESSEE HAD TAKEN LOAN BY PLEDGING FIXED DEPOSITS AS SECURITY. THE ASSESSEE CLAIMED THAT INTEREST EARN ED ON FDRS FORMED PART OF THE CONTRACT BUSINESS. HOWEVER, THE STAND OF THE DEPA RTMENT WAS THAT INTEREST EARNED ON FDRS WAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS PROFIT. THE SPECIAL BENCH OF TRIBUNAL AFTER RELYING UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASES OF PANDIAN C HEMICALS LTD. VS. CIT (SUPRA) AND TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997) 141 CTR (SC) 387; (1997) 227 ITR 172 (SC) AND THE JUDGMENT OF PRIVY COUNCIL IN THE CASE OF CIT VS. RAJA BAHADUR KAMAKHAYA NARAYAN SINGH & ORS. (SUPRA ) HAS HELD THAT INTEREST INCOME FROM FDRS WAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. AND NOT AS PART OF THE CONTRACT BUSINESS . THE TRIBUNAL, FURTHER, HELD THAT IT COULD NOT BE SAID THAT INTEREST PAID TO TH E BANK WAS INCURRED FOR THE PURPOSE OF EARNING INTEREST INCOME ON FDRS AND, TH EREFORE, IT COULD NOT BE ALLOWED AS DEDUCTION. THUS, NETTING OF INTEREST W AS NOT ALLOWED. NOW, IF THE INTEREST INCOME ON THE FDRS OFFERED AS SECURITY FO R VARIOUS FACILITIES AVAILED BY THE ASSESSEE WAS HELD TO BE INCOME FROM OTHER SO URCES, HOW COULD THE SAME I.T.A. NOS. 353/COCH/2006 & 479/COCH/2007 & C.O. NO. 35/COCH/2007 5 BE HELD AS PROFIT DERIVED FROM AN INDUSTRIAL UNDER TAKING ENTITLED TO DEDUCTION UNDER SEC. 80-IA. 7.3 THE LEARNED AUTHORISED REPRESENTATIVE HAS RELI ED ON THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ISHER DASS MAHAJAN & SONS (SUPRA) WHERE IT WAS HELD THAT INTEREST ON FDRS BE ING INCIDENTAL TO THE NORMAL BUSINESS ACTIVITY OF ASSESSEE, THE SAME QUALIFIED FOR DEDUCTION U/S. 80HHC. THIS JUDGMENT IS NOT APPLICABLE TO DEDUCTION U/S. 80-IA FOR THE SIMPLE REASON THAT FOR THE PURPOSE OF DEDUCTION UNDER THIS SEC. THE PROFI T MUST BE DERIVED FROM AN INDUSTRIAL UNDERTAKING, WHICH MEANS THERE MUST BE DIRECT NEXUS BETWEEN THE PROFIT AND THE INDUSTRIAL UNDERTAKING. THE MERE F ACT THAT SUCH ACTIVITY IS INCIDENTAL TO BUSINESS IS NOT ENOUGH. MOREOVER, T HE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IS WITH REFERENCE TO PROVISIO NS OF S. 80HHC AND NOT S. 80- IA. SEC. 80HHC IS MATERIALLY DIFFERENT FROM S. 80 -I. FURTHER, IT IS DT. 16 TH JULY, 2001. THE JUDGMENT OF HONBLE SUPREME COURT IN TH E CASE OF PANDIAN CHEMICALS LTD. VS. CIT (SUPRA) IS DT. 24 TH APRIL, 2003. THEREFORE, THE HONBLE PUNJAB & HARYANA HIGH COURT HAD NO OCCASION TO REFER TO SUC H JUDGMENT. IT MAY FURTHER, BE MENTIONED THAT HONBLE PUNJAB & HARYANA HIGH C OURT IN ITS RECENT JUDGMENT IN THE CASE OF LIBERTY INDIA VS. CIT (2007) 207 CT R (P&H) 243 BY REFERRING TO THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF STERLING FOODS VS. CIT (SUPRA) HAS HELD THAT DUTY DRAWBACK RECEIVED BY TH E ASSESSEE IS NOT A PROFIT DERIVED FROM AN INDUSTRIAL UNDERTAKING AND, THEREF ORE, NO ENTITLED TO DEDUCTION UNDER SEC. 80-IA. IN YET ANOTHER JUDGMENT IN THE CASE OF LIBERTY SHOES LTD. VS. CIT (2007) 207 CTR (P&H) 181, THE HONBLE JURISDIC TIONAL HIGH COURT OF PUNJAB & HARYANA HAS HELD THAT PROFIT DERIVED FROM SALE OF GOODS MANUFACTURED BY OTHER CONCERNS, THOUGH BUSINESS INCOME, WAS NOT A PROFIT DERIVED FROM AN INDUSTRIAL UNDERTAKING. HENCE, ASSESSEE WAS NOT ENTITLED TO D EDUCTION UNDER S. 80IA. THUS, IT IS CLEAR FROM THESE JUDGMENTS THAT FOR THE PURP OSE OF CLAIMING DEDUCTION U/S. 80-IA, THERE MUST BE A DIRECT NEXUS BETWEEN THE AC TIVITIES OF INDUSTRIAL UNDERTAKING AND THE PROFIT DERIVED AND SUCH NEXUS SHOULD NOT BE INCIDENTAL. IF THE NEXUS IS INCIDENTAL, SUCH INCOME WOULD NOT QUA LIFY FOR DEDUCTION U/S. 80-IA. IN THIS VIEW OF THE MATTER, RELIANCE OF THE ASSESS EE ON THIS JUDGMENT IS OF NO HELP. 7.4 WE ARE NOT IMPRESSED WITH THE SUBMISSIONS OF T HE ASSESSE THAT AMOUNT KEPT IN THE FDRS AS MARGIN MONEY FOR OBTAINING LOANS CO NSTITUTE PROFIT FROM AN INDUSTRIAL UNDERTAKING FOR THE REASON THAT THE SOU RCE OF INTEREST IS THE BANK AND NOT THE BUSINESS ACTIVITIES OF AN INDUSTRIAL UNDER TAKING. FURTHER, EVEN IF THE BUSINESS OF AN INDUSTRIAL UNDERTAKING IS CLOSED, T HE ASSESSEE WOULD CONTINUE TO EARN INTEREST ON THE FDRS IN THE BANK AND SUCH INT EREST INCOME WOULD BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THUS, PROFIT EARNED FROM THE BUSINESS ACTIVITIES OF AN INDUSTRIAL UNDERTAKING I S INDEPENDENT AND NOT THE SAME THING AS INTEREST EARNED ON THE FDRS. SIMILARLY, IF THE SURPLUS FUNDS OR PROFIT FROM THE BUSINESS IS INVESTED IN THE FDRS, THE SAM E DOES NOT BECOME PROFIT DERIVED FROM THE BUSINESS SIMPLY BECAUSE FUNDS HAV E BEEN INVESTED FROM PROFITS OF AN INDUSTRIAL UNDERTAKING. INTEREST EARNED ON THE FDR WOULD BE INCOME FROM I.T.A. NOS. 353/COCH/2006 & 479/COCH/2007 & C.O. NO. 35/COCH/2007 6 OTHER SOURCES AND NOT BUSINESS INCOME BECAUSE THE SAME DOES NOT CONSTITUTE REGULAR BUSINESS ACTIVITY OF THE ASSESSEE. FOR EX AMPLE, IN A CASE WHERE SALARIED EMPLOYEE SAVED MONEY AND INVESTED IN FDRS IN THE B ANK, SUCH INTEREST INCOME WOULD BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, EVEN THOUGH FUNDS INVESTED IN THE FDRS WERE OUT OF SAVINGS FRO M SALARY INCOME. INTEREST EARNED WOULD NOT FORM PART OF THE SALARY INCOME OF THE ASSESSEE. EVEN IF THE ASSESSEE CEASED TO BE EMPLOYEE, HE WOULD STILL CON TINUE TO EARN INTEREST ON FDRS. THUS, BOTH ARE INDEPENDENT SOURCES OF INCOM E. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT INTEREST EARNED ON FDRS IN THE BANK WHETHER KEPT AS A MARGIN MONEY OR INVESTED OUT OF SURPLUS FUNDS WOUL D BE LIABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. IN ANY CASE, TH E SAME IS NOT A PROFIT DERIVED FROM AN INDUSTRIAL UNDERTAKING. 8. THUS, IN THE LIGHT OF THESE FACTS AND CIRCUMSTA NCES OF THE CASE, THE LEGAL POSITION DISCUSSED ABOVE AND BY FOLLOWING THE RATI O OF THE VARIOUS JUDGMENTS REFERRED TO ABOVE, WE HOLD THAT THE ASSESSEE IS N OT ENTITLED TO DEDUCTION U/S. 80- IA IN RESPECT OF INTEREST ON FDRS. THEREFORE, WE SET ASIDE THE ORDERS OF THE CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. ACCORDINGLY, THE GROUNDS OF APPEALS OF THE REVENUE ARE ALLOWED FOR ALL THE ASS ESSMENT YEARS. 9. IN THE CROSS OBJECTION, THE ASSESSEE HAS TAKEN A STAND THAT THE INTEREST INCOME EARNED BY THE ASSESSEE IS NOT ASSESSABLE IN ITS HAN DS AT ALL, SINCE THE ASSESSEE IS ONLY AN IMPLEMENTING AGENCY FOR CONSTRUCTION AND DEVELOP MENT OF ROADS AND BRIDGES FOR THE GOVERNMENT OF KERALA. IT IS FURTHER SUBMITTED THA T ANY INTEREST INCOME EARNED OR INTEREST EXPENDED ARE DONE TO THE ACCOUNT OF THE GO VERNMENT OF KERALA AND THE ASSESSEE DOES NOT HAVE ANY RIGHT OF APPROPRIATION O F SUCH INTEREST. FOR THE SAID CONTENTIONS, THE ASSESSEE HAS PLACED RELIANCE ON TH E DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. KARNATAKA URBAN INFRAS TRUCTURE DEVELOPMENT AND FINANCE CORPORATION (2006)(284 ITR 582). THE LD CIT(A), WH ILE DECIDING THIS ISSUE IN THE ASSESSMENT YEAR 2003-04, HAS PLACED RELIANCE ON THI S DECISION OF HONBLE KARNATAKA HIGH COURT. 10. WE HAVE GONE THROUGH THE DECISION RENDERED IN THE CASE OF KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT AND FINANCE CORPORATION, REFERRED SUPRA. WE SHALL BRIEFLY EXPLAIN THE FACTS PREVAILING THEREIN. THE ASSESSEE THEREIN WAS APPOINTED AS A NODAL AGENCY FOR THE IMPLEMENTATION OF THE MEGA CITY SCHEME WOR KED OUT BY THE PLANNING COMMISSION OF THE MINISTRY OF URBAN AND EMPLOYMENT F OR DEVELOPMENT OF URBAN I.T.A. NOS. 353/COCH/2006 & 479/COCH/2007 & C.O. NO. 35/COCH/2007 7 INFRASTRUCTURE TO BANGALORE CITY. IN THE SAID CASE , THE TRIBUNAL HAD GIVEN A FINDING, WHICH WAS EXPLAINED BY THE HONBLE KARNATAKA HIGH C OURT IN THE FOLLOWING WORDS:- THE TRIBUNAL LOOKED INTO THE GUIDELINES WHICH PROV IDED THE BACKGROUND OF THE SCHEME. THE TRIBUNAL ALSO LOOKED INTO THE TERMS OF THE SCHEME. THEREFORE, THE TRIBUNAL PROCEEDED TO HOLD THAT THE ASSESSEE IS NOTHING BUT A TRUSTEE OF FUNDS ENTRUSTED TO CARRY OUT THE OBJECTS OF THE GOV ERNMENT WHILE IMPLEMENTING THE SCHEME. THE ASSESSEE IN FACT ACTED AS AN AGENT OF THE SCHEME OF THE GOVERNMENT. THIS BEING FACTUAL POSIT ION, THE LOWER AUTHORITIES COMMITTED A SERIOUS ERROR IN TREATING THE INTEREST AS INCOME OF THE ASSESSEE AND BRINGING THE SAME TO TAX. THUS, IN THE ABOVE SAID CASE, THE ASSESSEE THEREIN HAS ACTED AS AN AGENT AND IT WAS HOLD THE FUNDS AS TRUSTEE. HENCE, UNDER THOSE CIRC UMSTANCES, THE HIGH COURT UPHELD THE VIEW OF THE TRIBUNAL THAT THE INTEREST INCOME I S NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE THEREIN. HOWEVER, IN THE INSTANT CASE, NO RECORD WAS BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE HEREIN HAS ACTED AS A NODAL AGENCY ONLY AND FURTHER IT HAS ACTED AS A TRUSTEE OF FUNDS ENTRUSTED TO IT TO CARR Y OUT THE OBJECTS OF THE GOVERNMENT WHILE IMPLEMENTING THE SCHEME. ON THE CONTRARY, WE NOTICE THAT THE ASSESSEE COMPANY WAS INCORPORATED WITH THE FOLLOWING OBJECTS:- (A) TO CONSTRUCT HIGH WAYS, BRIDGES, ROADS, BYPASSES, O VER BRIDGES, CULVERTS, EXPRESSWAYS ON THE PROPERTY ENTRUSTED TO AND VESTED WITH THE COMPANY BY THE GOVERNMENT OF KERALA OR ANY OTHER GOVERNMENT OR VARIOUS GOVERNMENTAL AGENCIES, STRENGTHENING OF ROAD NET WORK AS CORE NE TWORK AND TO REGULATE, CONTROL THE USE OF ROADS VESTED IN, OR ENTRUSTED TO IT. (B) TO UNDERTAKE CONSTRUCTION AND MAINTENANCE OF SUCH F ACILITIES AS HIGHWAYS, BRIDGES, ROADS, BYPASS, OVER BRIDGES, ETC. FOR AND ON BEHALF OF ANY GOVERNMENT ON CONTRACT, AGENCY, TURNKEY, BUILD OWN TRANSFER OR ANY OTHER BASIS AND TO COLLECT TOLL ETC. (C) TO RAISE FUNDS SUBJECT TO THE PROVISIONS OF SECTION 58A OF THE COMPANIES ACT 1956 AND RESERVE BANK OF INDIA GUIDELINES ISSUED FR OM TIME TO TIME FOR CONSTRUCTION, IMPROVEMENT AND OPERATION OF HIGHWAYS , ROADS, CULVERTS BY WAY OF ISSUE OF SHARES, DEBENTURE AND THROUGH BONDS , LOANS, GRANTS, BORROWINGS FROM GOVERNMENT, FINANCIAL INSTITUTIONS INCLUDING INTERNATIONAL FINANCIAL INSTITUTIONS, MARKET BORROWINGS AND FUND, PROVIDE LEND, ADVANCE OR GIVE CREDIT OF AMOUNTS TO GOVERNMENT/GOVERNMENTAL O RGANISATION OR AGENCIES, CORPORATIONS AND OTHER BODIES FOR CONSTRU CTION OF HIGHWAYS, ROADS, BRIDGES, BYE PASSES, DOCKS AND OTHER INFRASTRUCTURA L FACILITIES. I.T.A. NOS. 353/COCH/2006 & 479/COCH/2007 & C.O. NO. 35/COCH/2007 8 THESE OBJECTS CLEARLY SHOW THAT THE ASSESSEE COMPAN Y IS FUNCTIONING INDEPENDENTLY WITH CLEAR OBJECTIVES. WE ALSO NOTICE THAT THE ASS ESSEE HAS RAISED FUNDS BY ISSUING BONDS. HENCE, UNDER THIS FACTUAL SITUATION, WE ARE OF THE VIEW THAT THE ASSESSEE COULD NOT PLACE RELIANCE ON THE DECISION OF HONBLE KARNA TAKA HIGH COURT IN THE CASE OF KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT AND FINA NCE CORPORATION, REFERRED SUPRA, AS THE FACTS PREVAILING THEREIN ARE ENTIRELY DIFFER ENT. 11. IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILISERS LTD., THE HONBLE SUPREME COURT HAS HELD THAT THE INTEREST INCOME EARNED PRIO R TO COMMENCEMENT OF BUSINESS IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S. IN THE CASE OF PANDIAN CHEMICALS LTD, THE HONBLE APEX COURT HELD THAT THE INTEREST EARNED ON DEPOSITS MADE WITH THE ELECTRICITY BOARD COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DER IVED BY THE UNDERTAKING FOR THE PURPOSE OF THE SPECIAL DEDUCTION U/S 80HH. HENCE, WE ARE OF THE VIEW THAT THE INTEREST EARNED BY THE ASSESSEE FROM BANK DEPOSITS, TREASURY DEPOSITS AND MOBILISATION ADVANCES CANNOT BE CONSIDERED AS PROFITS OR GAINS D ERIVED FROM THE ELIGIBLE BUSINESS AND FURTHER THE SAID INTEREST INCOME IS LIABLE TO B E ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. HENCE THE ASSESSEE IS NOT ENTI TLED TO CLAIM DEDUCTION U/S 80IA OF THE ACT ON THE SAID INTEREST INCOME. 12. THE NEXT ISSUE RELATES TO THE NATURE OF AUC TION INCOME. AS NOTICED EARLIER, THE ASSESSEE HAS AUCTIONED THE DEBRIS COLLECTED ON THE DEMOLITION OF STRUCTURES, TREES ETC THAT WERE EXISTING ON THE LAND ACQUIRED BY THE ASSE SSEE. ACCORDING TO THE ASSESSEE, THE SAID AUCTION INCOME IS ASSESSABLE UNDER THE HEAD I NCOME FROM BUSINESS. HOWEVER, THE AO ASSESSED THE SAME UNDER THE HEAD INCOME FRO M OTHER SOURCES. THE LD CIT(A), HOWEVER, ACCEPTED THE CLAIM OF THE ASSESSEE . THERE CANNOT BE ANY DOUBT THAT THE BUSINESS OF THE ASSESSEE IS CONSTRUCTION OF ROA DS AND BRIDGES. THE AUCTIONING OF OBSTRUCTING STRUCTURES IS NOT THE BUSINESS ACTIVITY OF THE ASSESSEE. HENCE, WE FIND MERIT IN THE VIEW OF THE AO. IN OUR VIEW ALSO, THE INCOM E EARNED ON THE AUCTIONING OF DEBRIS, TREES ETC. IS REQUIRED TO BE ASSESSED UNDER THE HEA D INCOME FROM OTHER SOURCES ONLY. I.T.A. NOS. 353/COCH/2006 & 479/COCH/2007 & C.O. NO. 35/COCH/2007 9 FOR A MOMENT, EVEN IF IT IS CONSIDERED AS BUSINESS INCOME, THE ASSESSEE WOULD NOT BE ENTITLED TO BENEFIT OF DEDUCTION U/S 80IA, SINCE TH E SAID INCOME CANNOT BE CONSIDERED AS THE PROFITS OR GAINS DERIVED FROM THE ELIGIBLE BUSI NESS, AS PER THE RATIO OF THE HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. , SUPRA. 13. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF CLAIM OF DEFERRED REVENUE EXPENSES. ACCORDING TO THE ASSESSEE, THE DISALLOWANCE SO MADE WOULD GO TO INCREASE THE BUSINESS INCOME AND HENCE THE AMOUNT SO DISALLOWED SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. WE FIND MERIT IN THE CONTE NTION OF THE ASSESSEE. HOWEVER, THE QUESTION HERE IS WHETHER THE ASSESSEE IS ENTITL ED TO CLAIM DEDUCTION U/S 80IA IN RESPECT OF THE AMOUNT SO DISALLOWED. THE AO DID NO T HAVE THE OPPORTUNITY TO CONSIDER THIS QUESTION, SINCE HE HAD ASSESSED THE DISALLOWED AMOUNT UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, WE ARE OF THE VI EW THAT THIS QUESTION REQUIRES EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE MODIFY THE ORDER OF LD CIT(A) ON THIS POINT AND RESTORE THE SAME TO THE FILE OF THE AO, WHO IS DIRECTED TO EXAMINE WHETHER THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 80IA IN RESPECT OF THE AMOUNT OF BOND ISSUE EXPENSES (DEFERRED REVENUE EXPENSE) DISA LLOWED BY HIM. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2002-03 IS ALLOWED AND THE APPEAL FILED FOR ASSESSMENT YEAR 20 03-04 IS TREATED AS ALLOWED. THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY O N 27-08-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 27TH AUGUST, 2012 GJ I.T.A. NOS. 353/COCH/2006 & 479/COCH/2007 & C.O. NO. 35/COCH/2007 10 COPY TO: 1. ROADS & BRIDGES DEVELOPMENT CORPORATION OF KERAL A LTD., PALARIVATTOM, KOCHI-682 025. 2.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE- 1(3), ERNAKULAM. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI . 4.THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN