INDIAN MEDICINES PHARMACEUTICALS CORPORATION LTD.,ALMORA V. DCIT, CIRCLE-2, KASHIPUR

ITA 4831/DEL/2018

AI Insights

The case involves the Indian Medicines Pharmaceuticals Corporation Limited, a Central Public Sector Enterprise under the Ministry of Ayush, which appealed against the order of the Learned Commissioner of Income Tax (Appeals), Haldwani. The dispute centered on the taxability of interest earned on Fixed Deposits made from share capital infused by the Ministry of Ayush for renovation and modernization of the corporation's manufacturing unit. The interest, amounting to Rs.1,29,00,837, was initially treated as income and taxed, which the corporation contested, arguing it was a capital receipt. The tribunal agreed with the corporation's stance, noting that the interest was to be used for capital expenses and was treated as share capital contribution by the Central Government.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470528 (ITAT-DEHRADUN)
• Duration Of Justice: 6 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-09-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 05-07-2018
• Other Referred Cases: Kedarnath Jute Mfg Co. Ltd Vs Commissioner of Income Tax (Central), Calcutta, Commissioner of Income Tax vs Pandian Chemicals Limited
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APPELLANT ASSESSEE; AMAR PAL SINGH
• Assessee Lawyers: P AVAN KUMAR NATH
• Keywords: Set aside; Capital receipt
• Section: 264; 80IC; 80IC

Judgement Text

"ITA NO.4831/Del/2018 Indian Medicines Pharmaceuticals Corporation Limited IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH: ‘DB’ DEHRADUN BEFORE SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No. 4831/DEL/2018 Assessment Year: 2012-13 INDIAN MEDICINES PHARMACEUTICALS CORPORATION LIMITED, MOHAN VIA RAMNAGAR, DISTT-ALMORA, UTTARAKHAND-244714 Vs. DCIT, CIRCLE-2, KASHIPUR PAN :AABCI2243R (Appellant) (Respondent) ORDER PER VIMAL KUMAR, JUDICIAL MEMBER The appeal of the assessee is against order dated 28.03.2018 of the Learned Commissioner of Income Tax(Appeals), Haldwani, (hereinafter referred to as ‘Ld.CIT(A)’) arising out of assessment order dated 15.12.2016 of the Deputy Commissioner of Income Tax, Circle-2, Kashipur,(hereinafter referred to as ‘Learned A.O.’) for the Assessment Year 2012-13. Assessee by Shri Pavan Kumar Nath, Advocate Department by Shri Amar Pal Singh, JCIT, DR Date of hearing 10.09.2024 Date of pronouncement 22.11.2024 2 Page2 2. Brief facts of the case are that the appellant/assessee is a Central Public Sector Enterprises(CPSE) under the administrative control of the Ministry of Ayush(Statement of Facts), Government of India, New Delhi, engaged in business of manufacturing Ayurvedic and Unani Medicines at its unit at Village-Mohan Via Ramnagar, Distt- Almora, Uttarakhand. In the FY 2010-11 and 2011-12 the Ministry of Ayush, Government of India, made a Share Capital infusion of Rs.34.00 crores in the Corporation for “Renovation and Modernization of the existing facilities” of the Assessee’s Manufacturing Unit situated at Village Mohan- Ramnagar-Uttarakhand. During the assessment year, the Appellant- Assessee earned an interest of Rs.1,29,00,837/- on the said Share Capital- as the expansion was done in a phased manner and the Share Capital amount was deposited in the Time Deposits with the bank. Interest earned on Time deposits, was to be utilized for the purpose for which it was sanctioned, and to be treated as the Central Government Share Capital contribution. That for the instant year the Assessee filed its return of Income on 13.02.2013, declaring Gross Total Income of Rs.1,59,22,271/- (including the interest earned on the Time deposits aforesaid) and claimed deduction of Rs.1,58,96,017/- from profit u/s 80IC of the Act. During the year under consideration sales from manufacturing was shown at Rs.23,86,70,676/- upon which gross profit of Rs.5,46,55,925/- has been disclosed giving the GP rate at 22.90% against the GP rate of 22.84% upon the gross sales of Rs.24,41,45,936/- in the immediate preceding year. The assessment order dated 27.02.2015 passed at assessed income of Rs.1,36,38,090/-. The assessee preferred application before the Principal Commissioner of Income Tax under Section 264 of the Act. Learned PCIT vide order dated 31.03.2016 rejected stand of the assessee on two issues i.e. (a) 3 Page3 Garden Produce income and (b) Rent received from bank and remaining two issues i.e. (c) interest income on FDRs and (d) Scrap Sales were restored back to the Learned A.O. Learned Assessing Officer vide order dated 15.12.2016 made additions of Rs. 1,29,00,837/- on account of disallowance of interest income under Section 80IC of the Act and of Rs.5,77,910/- on account of disallowance of deduction claimed under Section 80IC on Scrap Sales. 3. Appellant/Assessee filed appeal before Learned CIT(A) which was dismissed vide order dated 28.03.2018. 4. Being aggrieved appellant/assessee preferred present appeal. 5. Learned authorized representative for appellant/assessee submitted that Learned CIT(A) erred in confirming addition of Rs.1,29,00,837/- on account of interest earned on Fixed deposit held by the corporation- as custodian, on account of Grant-in-Aid sanctioned for Capital expenses. Learned CIT(A) erred in relying upon entries in the books of accounts maintained by assessee. It is well settled proposition of law that the entries made in the books of account are not relevant for computing total income. Reference to judgment of Hon’ble Supreme Court in Kedarnath Jute Mfg Co. Ltd Vs Commissioner of Income Tax (Central), Calcutta reported in 1971 82 ITR 363(supra) was made. Learned CIT(A) wrongly relied upon the judgment of the Hon’ble High Court of Madras in Commissioner of Income Tax vs Pandian Chemicals Limited 233 ITR 497; regarding interest earned on own free deposits by the company, whereas in the present case the interest was earned on encumbered share capital provided by the Central Government. The very nature of interest earned on time deposits is not of Revenue Receipts but of Share Capital Receipts. The 4 Page4 assessee has no discretion as to the end use of the interest earned on the share capital money except as directed by the Central Government. The interest earned on the time deposits was a part of the share capital of the Central Government and is of the nature of capital receipt, therefore is not part of the assessee’s income. Letter dated 29.12.2015 mentions “the interest earned, if any, shall either be refunded or utilized with prior permission of the Government.” 6. Learned authorized representative for Department of Revenue submitted that departmental authorities have passed reasoned orders. 7. From examination of records in light of aforesaid rival contention it is crystal clear that the appellant/assessee has challenged disallowance of deduction under Section 80IC of the Act on interest of Rs. 1,29,00,837/-. FDR was made out of capital contributed by the Ministry of Ayush, Ayush Bhavan, New Delhi which specifically granted to the Corporation for “Renovation and Modification of its existing facilities.” Letter dated 29.12.2015 stated “the interest earned, if any, shall either be refunded or utilized with prior permission of the Government.” Moreover, the interest so earned was used for capital expenses- as mandated by the Ministry of Ayush, New Delhi and whole of the interest earned was later on converted as Share Capital Contribution of the Central Government as per letter dated 18.01.2016 issued by the Ministry of Ayush, Government of India, New Delhi. The interest on time deposits was treated as share capital infusion and that permission to issue share against interest of Rs.5.20 crores was accorded by the Ministry. The assessee had made fixed deposit and earned interest which belonged to Central Government of India and was utilized as capital receipt with the prior approval of the Central 5 Page5 Government. So, it is a glaring fact that the Central Government of India had an overriding title over the interest on FDR made from capital. Therefore, the interest earned on FDR was not part of income of the appellant. 8. Learned CIT(A) has relied on interest having been shown by assessee as income from other sources. As per ratio of judgment in Kedarnath Jute Mfg Co. Ltd Vs Commissioner of Income Tax (Central), Calcutta’s case(supra) it is well settled that the entries made in books of accounts are not relevant for computing total income. Learned CIT(A) relied on ratio of judgment CIT vs Pandian Chemicals Limited’s case (supra) relating to interest earned on own free deposits by the company which was not in the present case. Therefore reliance on judgment in Commissioner of Income Tax vs Pandian Chemicals Limited was not proper. In view of above material facts and well settled principles of law the impugned orders are not sustainable and are set aside. 9. Hence, the appeal filed by the assessee is allowed. Order pronounced in the open court on 22nd November , 2024. Sd/- sd/- (S RIFAUR RAHMAN) ACCOUNTANT MEMBER (VIMAL KUMAR) JUDICIAL MEMBER DP/SPS Dated: 22nd November, 2024 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi "