West Bengal State Electricity Distribution Co. Ltd., Kolkata V. DCIT, Circle - 2(2), Kolkata , Kolkata

ITA 150/KOL/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0207 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-11-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 01-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR A K NAYAK
• Assessee Lawyers: N K PODDA R
• Keywords: Capital asset; Depreciation; Diversion of income; Additional depreciation; Earning of tax free income; Retrospective amendment; Capital receipt; TDS; Rule 8D
• Section: 143(3); 14A; 40(a)(ia); 32(1)(iia); 73; 13; 32

Judgement Text

I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND SHRI A.T. VARKEY, JUDICIAL MEMBER I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STATE ELECTRICITY DISTRIBUTION CO. LIMI TED,.................APPELLANT (FORMERLY WEST BENGAL STATE ELECTRICITY BOARD), BIDYUT BHAWAN, SECTOR-II, BLOCK-DJ, BIDHAN NAGAR, KOLKATA-700 091 [PAN:AAACW6953H] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,................. ............................RESPONDENT CIRCLE-2(2), KOLKATA, AAYAKAR BHAWAN, 7 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 ASSISTANT COMMISSIONER OF INCOME TAX,.............. .......................... .APPELLANT CIRCLE-2(2), KOLKATA, AAYAKAR BHAWAN, 7 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069 -VS.- WEST BENGAL STATE ELECTRICITY DISTRIBUTION CO. LIMI TED,................ RESPONDENT (FORMERLY WEST BENGAL STATE ELECTRICITY BOARD), BIDYUT BHAWAN, SECTOR-II, BLOCK-DJ, BIDHAN NAGAR, KOLKATA-700 091 [PAN:AAACW6953H] APPEARANCES BY: SHRI N.K. PODDAR, SR. ADVOCATE, FOR THE ASSESSEE DR. A.K. NAYAK, CIT (D.R.), FOR THE REVENUE DATE OF CONCLUDING THE HEARING : NOVEMBER 27, 2019 DATE OF PRONOUNCING THE ORDER : DECEMBER 31, 2019 I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 2 O R D E R PER SHRI P.M. JAGTAP, VICE-PRESIDENT :- THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEING I.T.A. NO. 150/KOL/2018 AND THE OTHER FILED BY THE REVENUE BEI NG I.T.A. NO. 386/KOL/2018 ARE CROSS APPEALS, WHICH ARE DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-1, KOLKAT A DATED 12.12.2017. 2. FIRST WE TAKE UP THE REVENUES APPEAL BEING I.T.A. NO. 386/KOL/2018 , WHEREIN THE FOLLOWING SUBSTANTIVE GROUND IS RAISE D BY THE REVENUE:- THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) HAS ERRED IN LAW BY DELETING OF ADDITIONS ON ACCOUNT (1) ADDITIONAL DEPRECIATION OF RS.77,78,79, 369/- , (2) ERPC CHARGES OF RS.15,00,000/- AND (3) DISALLOWANCE U/S 14A OF RS.97,37,654/- AND THEREBY HOLDING THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE AS WHATEVER EXPENSES CLAIMED BY THE APPELLANT ARE ALREADY DISALLOWED BY THE AO SEPARATE LY. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT EVEN THOUGH A SINGLE GROUND IS RAISED BY THE REVENUE IN ITS APPEA L, THE SAME INVOLVES THREE ISSUES RELATING TO THE DELETION BY THE LD. CI T(APPEALS) OF THE ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADDITIONAL DEPRECIATION, ERPC CHARGES AND DISALLOWANCE UNDER S ECTION 14A. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES , ALL THESE ISSUES ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THIS TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR A.Y. 2 010-11 AND 2011-12 VIDE ITS COMMON ORDER DATED OCTOBER 31, 2017 PASSED IN ITA NOS. 871, 872, 1001 & 1002/KOL/2015. A COPY OF THE SAID ORDER IS PLACED ON RECORD BEFORE US AND PERUSAL OF THE SAME SHOWS THAT THE IS SUE RELATING TO THE DELETION OF ADDITION ON ACCOUNT OF ADDITIONAL DEPRE CIATION WAS DECIDED BY I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 3 THE TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE PARAGRA PHS NO. 6 TO 9 OF ITS ORDER, WHICH READ AS UNDER:- 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. THE LEARNED COUNSEL FOR THE ASSESSEE HAS MADE A DETAILED SUBMIS SION IN SUPPORT OF THE ASSESSEES CASE ON THIS ISSUE BY RELYING ON VARIOUS JUDICIAL PRONOUNCEMENTS OF THE HONBLE SUPREME COURT AS WELL AS SEVERAL HIG H COURTS TO MAKE OUT A CASE THAT THE GENERATION OF ELECTRICITY IS AKIN TO MANUFACTURING A NEW PRODUCT. HE HAS ALSO RELIED ON THE DECISION OF MADR AS BENCH OF THIS TRIBUNAL IN THE CASE OF ECIT VS M. SATISH KUMAR (20 12) 19 ITR (TRIB.) 646 WHEREIN IT WAS HELD BY RELYING ON THE VARIOUS DECIS IONS OF THE HONBLE SUPREME COURT AS WELL AS HIGH COURTS THAT ELECTRICI TY FALLS WITHIN THE DEFINITION OF GOODS AND THE PROCESS OF GENERATION OF ELECTRICITY IS AKIN TO MANUFACTURE OF ARTICLE OR THING. IT WAS HELD THAT G ENERATION OF ELECTRICITY THUS IS A MANUFACTURING ACTIVITY AND THE ASSESSEE E NGAGED IN THE BUSINESS OF GENERATION OF ELECTRICITY WAS ENTITLED FOR ADDIT IONAL DEPRECIATION UNDER SECTION 32(1)(IIA). THE LEARNED COUNSEL FOR THE ASS ESSEE HAS ALSO POINTED OUT THAT THE EFFECT OF AMENDMENT MADE IN SECTION 32 (1)(IIA) WITH EFFECT FROM 01.04.2013, WHICH IS RELIED UPON BY THE LD. CI T (A) IN HIS IMPUGNED ORDER TO DECIDE THE ISSUE AGAINST THE ASSESSEE, WAS ALSO CONSIDERED BY THE TRIBUNAL IN THE CASE OF M. SATISH KUMAR (SUPRA) AND IT WAS HELD THAT THE SAID AMENDMENT GIVE IMPETUS TO THE VIEW THAT THE GE NERATION OF ELECTRICITY IS A MANUFACTURING PROCESS ELIGIBLE FOR THE BENEFIT UNDER SECTION 32(1)(IIA). 7. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RE LIED ON THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS HUTTI GOLD MINES CO. LTD. (2013) 26 ITR (TRIB.) 600 WHEREIN IT WAS HELD THAT THE POWER GENERATED BY THE WINDMILL WAS A PRODUCT BY TH E ASSESSEE COMPANY AND SINCE IT WAS COVERED UNDER THE WORDS ARTICLE OR THING WHICH WAS TRADABLE OR IDENTIFIABLE, THE PROCESS OF GENERATION OF ELECTRICITY WAS AKIN TO MANUFACTURE OF ARTICLE OR THING. IT WAS ALSO HELD THAT THE POWER GENERATED NEED NOT NECESSARILY BE USED IN THE PRODU CTION OF ASSESSEES OWN PRODUCTS AND THE USE OF ELECTRICITY IN MANUFACTURIN G ACTIVITY OF THE CORE BUSINESS OF THE ASSESSES WAS NOT A PRECONDITION FO R THE GRANT OF ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA). IT WAS FURTH ER HELD THAT THE AMENDMENT BROUGHT ABOUT IN SECTION 32(1)(IIA) BY TH E FINANCE ACT 2012 WITH EFFECT FROM 01.04.2013 TO INCLUDE THE BUSINESS OF GENERATION OF DISTRIBUTION OF POWER TO GIVE BENEFIT OF ADDITIONAL DEPRECIATION WAS ONLY CLARIFICATORY. AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF HUTTI GOLD MINES CO. LTD. (SUPRA) HAS BEEN UPHELD BY THE HONB LE KARNATAKE HIGH COURT (IT APPEAL NO 08 OF 2014 DATED 16.09.2014) BY HOLDING THAT SECTION 32(1)(IIA) OF THE INCOME TAX ACT, 1961 INCLUDES THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER TO AVAIL THE BENEFIT OF A DDITIONAL DEPRECIATION. I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 4 8. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RE LIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS HI TECH ARAI LTD. 321 ITR 477 WHEREIN THE ASSESSEE COMPANY HAD SET UP TWO WINDMILLS IN ADDITION TO ALREADY EXCEEDING FOUR WINDMILLS AND TH EREBY INCREASED ITS GENERATION ACTIVITY BY ABOVE 50%. THE ASSESSEE COMP ANY WAS ENGAGED IN THE BUSINESS BY MANUFACTURE OF OIL-SEEDS, MOULDED RUBBER PARTS ETC. AND IT WAS USING WIND ENERGY FOR GENERATING POWER FOR ITS CAPTIVE CONSUMPTION APART FROM SELLING SURPLUS POWER GENERATED TO TAMIL NADU ELECTRICITY BOARD. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE , ONE OF THE QUESTIONS RAISED BEFORE THE HONBLE MADRAS HIGH COURT FOR CON SIDERATION WAS WHETHER THE ENTIRE NEW MACHINERY OR PLANT PURCHASED FOR WINDMILLS WAS ELIGIBLE FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT OR ONLY THOSE PLANT AND MACHINERY PURCHASED AND USED I N ITS MAIN BUSINESS. WHILE ANSWERING THIS QUESTION IN FAVOUR OF THE ASSE SSEE, HONBLE MADRAS HIGH COURT HELD THAT SECTION 32(1)(IIA) DOES NOT ST ATE THE SETTING UP OF NEW MACHINERY OR PLANT, WHICH WAS ACQUIRED AND INST ALLED AFTER 31.03.2002, SHOULD HAVE ANY OPERATION CONNECTIVITY TO THE ARTICLE OR THING THAT WAS ALREADY BEING MANUFACTURED BY THE ASSESSEE . IT WAS HELD THAT THE CONTENTION THAT THE SETTING UP OF A WINDMILL HAS NO THING TO DO WITH THE POWER INDUSTRY, NAMELY, MANUFACTURE OF OIL-SEEDS TH US WAS TOTALLY NOT GERMANE TO THE SPECIFIC PROVISION CONTAINED IN SECT ION 32(1)(IIA) OF THE ACT AND THE ASSESSEE WAS ENTITLED FOR ADDITIONAL DEPREC IATION UNDER SECTION 32(1)(IIA) ON PLANT & MACHINERY INSTALLED IN WINDMI LLS. 9. KEEPING IN VIEW THE SUBMISSIONS MADE BY THE LEAR NED COUNSEL FOR THE ASSESSEE, WE FIND THAT THE ISSUE INVOLVED IN TH E PRESENT CASE RELATING TO THE ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION UN DER SECTION 32(1)(IIA) IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE INTER AL IA BY THE DECISION OF COORDINATE BENCHES OF THIS TRIBUNAL IN THE CASE OF M. SATISH KUMAR (SUPRA) AND HUTTI GOLD MINES CO. LTD. (SUPRA) AS WELL AS BY THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE HI TECH ARAI LTD. (SU PRA) AND THAT OF HONBLE KARNATAKA HIGH COURT GOLD CO. LTD. (SUPRA). THE LEARNED DR, ON THE OTHER HAND, HAS NOT BEEN ABLE TO BRING TO OUR N OTICE ANY JUDICIAL PRONOUNCEMENTS ON THIS ISSUE EITHER OF THE HONBLE JURISDICTIONAL HIGH COURT OR ANY OTHER HIGH COURT WHICH IS IN FAVOUR OF THE REVENUE. WE, THEREFORE, RESPECTFULLY FOLLOW THE AFORESAID JUDICI AL PRONOUNCEMENTS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WHICH ARE I N FAVOUR OF THE ASSESSEE AND DELETE THE DISALLOWANCE MADE BY THE AO AND CONF IRMED BY THE LD. CIT (A) ON ACCOUNT OF ASSESSEES CLAIM FOR ADDITIONAL D EPRECIATION UNDER SECTION 32(1)(IIA). GROUND NO 1 & 2 OF THE ASSESSEE S APPEAL FOR A.Y. 2011- 12 ARE ACCORDINGLY ALLOWED. 4. IT IS ALSO OBSERVED THAT THE ISSUE RELATING TO T HE DELETION BY THE LD. CIT(APPEALS) OF THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ERPC CHARGES WAS ALSO DECIDED BY THE TRIBUNAL DATED OCTOBER 31, 2017 IN I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 5 ITA NOS. 871, 872, 1001 & 1002/KOL/2015 IN FAVOUR O F THE ASSESSEE IN A.Y. 2010-11 VIDE PARAGRAPH NO. 13 AS UNDER:- 13. AS REGARDS THE ISSUE INVOLVED IN GROUND NO 2 O F THE REVENUES APPEAL FOR A.Y. 2010-11 RELATING TO THE DELETION BY THE LD. CIT (A) OF THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 40(A)(I A) ON ACCOUNT OF PAYMENT OF ERPC CHARGES WITHOUT DEDUCTION OF TAX AT SOURCE, IT IS OBSERVED THAT THE RELIEF ON THIS ISSUE WAS ALLOWED BY THE LD. CIT (A) TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION I.E. A.Y. 2010-11 BY RELYING ON THE ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR A.Y. 2008-09. AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH THE SIDES, T HE DECISION RENDERED BY THE LD. CIT (A) GIVING RELIEF TO THE ASSESSEE ON TH E SIMILAR ISSUE IN A.Y. 2008-09 HAS BEEN UPHELD BY THE TRIBUNAL VIDE ITS OR DER DATED 04.05.2016 PASSED IN ITA NO. 1428/KOL/2013. THIS ISSUE THUS NO W STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 AND RESPECTFUL LY FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT (A) DEL ETING THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 40(A)(IA) ON ACCOUNT OF PAYMENT OF ERPC CHARGES. GROUND NO 2 OF THE REVENUES APPEAL FOR A. Y. 2010-11 IS ACCORDINGLY DISMISSED. THE AFORESAID DECISION RENDERED FOR A.Y. 2010-11 WA S FOLLOWED BY THE TRIBUNAL TO DECIDE THE SIMILAR ISSUE INVOLVED IN AS SESSEES OWN CASE FOR A.Y. 2011-12. 5. AS REGARDS THE ISSUE RELATING TO DISALLOWANCE UN DER SECTION 14A OF THE ACT, IT IS OBSERVED THAT A SIMILAR ISSUE WAS AL SO INVOLVED IN ASSESSEES OWN CASE FOR A.Y. 2010-11 AND THE SAME WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE PARAGRAPH NO. 12 OF ITS ORDER DATED 31.10.2017 (SUPRA) WHICH READS AS UNDER:- 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILA BLE ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SU BMITTED THAT THE DIVIDEND INCOME OF RS.25,46,900/- WAS RECE IVED BY THE ASSESSEE ONLY BY ONE CHEQUE ON THE SHARES HELD IN NEW TOWN ELECTRICITY CO. LTD. HE HAS CONTENDED THAT THE RE WAS THUS NO EXPENDITURE WHATSOEVER INCURRED BY THE ASSE SSEE FOE EARNING THE SAID DIVIDEND INCOME AND THIS STAND OF THE ASSESSEE WAS NEVER DISPUTED WITHER BY THE A.O. OR B Y THE LD. CIT(A) BY RECORDING ANY DISSATISFACTION BEFORE MAKI NG DISALLOWANCE UNDER SECTION 14A READ WITH RULE 80. I N THIS I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 6 REGARD, HE HAS RELIED ON THE PROVISION OF SUB-SECTI ON (2) OF SECTION 14A WHICH STIPULATES THAT THE ASSESSING OFF ICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL I NCOME UNDER THE ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED (RULE 8D) IF THE ASSESSING OFFICER HAVIN G REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WI TH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OF FICER THUS WAS REQUIRED TO RECORD HIS DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME B EFORE INVOKING RULE 8D AND SINCE THERE WAS NO SUCH DISSAT ISFACTION RECORDED BY THE AO AS AGREED EVEN BY THE LD. DR, WE FIND MERIT IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE DISALLOWANCE UNDER SECTION 14A MA DE BY APPLYING RULE 8D IS NOT SUSTAINABLE. WE, THEREFORE, DELETE THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 14A REA D WITH RULE 8D AND SUSTAINED BY THE LD. CIT (A). GROUND NO . 3 OF THE ASSESSEE'S APPEAL IS ACCORDINGLY ALLOWED WHILE GROU ND NO 1 OF THE REVENUE'S APPEAL FOR A.Y. 2010-11 IS DISMISS ED. THE AFORESAID DECISION RENDERED FOR A.Y. 2010-11 WA S FOLLOWED BY THE TRIBUNAL TO DECIDE THE SIMILAR ISSUE INVOLVED IN AS SESSEES CASE FOR A.Y. 2011-12 VIDE ITS ORDER DATED OCTOBER 31, 2017 (SUPR A). 6. AS ALL THE THREE ISSUES INVOLVED IN REVENUES AP PEAL FOR THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FAC TS RELEVANT THERETO ARE SIMILAR TO THAT OF A.YS. 2010-11 AND 2011-12, WE RE SPECTFULLY FOLLOW THE ORDER OF THE COORDINATE BENCH OF THIS TRIBUNAL FOR THE SAID YEARS AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) G IVING RELIEF TO THE ASSESSEE ON THESE ISSUES. THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 7. NOW WE SHALL TAKE UP THE ASSESSEES APPEAL BEING ITA NO. 150/KOL/2018 . ALTHOUGH AS MANY AS SIX GROUNDS ARE RAISED BY THE ASSESSEE IN THIS APPEAL, THE COMMON SOLITARY ISSUE INVOLVED THEREIN I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 7 RELATES TO THE ADDITION OF RS.21,48,33,731/- MADE B Y THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF INTEREST ON FIXED DEPOSITS MADE BY THE ASSESSEE OUT OF CAPITAL SUBSID Y RECEIVED FROM THE GOVERNMENT OF INDIA UNDER RAJIV GANDHI GRAMIN VIDYU TIKARAN YOJANA (IN SHORT RGGVY). 8. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF ELECTRICITY. THE RE TURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 29.09.2 012 DECLARING TOTAL INCOME AT NIL. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS EARNED INTEREST OF RS.21,48,33,731/- ON THE BANK TERM DEPOSITS KEPT WI TH PUNJAB NATIONAL BANK AND UCO BANK AND EVEN THOUGH CREDIT FOR THE TA X DEDUCTED AT SOURCE AMOUNTING TO RS.2,14,83,373/- FROM THE SAID INTERES T WAS CLAIMED BY THE ASSESSEE, THE INTEREST EARNED WAS NOT OFFERED AS IN COME. IN THIS REGARD, IT WAS EXPLAINED BY THE ASSESSEE THAT THE GOVERNMENT O F INDIA HAD SANCTIONED A PROJECT UNDER RAJIV GANDHI GRAMIN VIDY UTIKARAN YOJANA FOR THE CONSTRUCTION OF CAPITAL ASSET IN THE RURAL AREA S OF WEST BENGAL. IT WAS SUBMITTED THAT THE GOVERNMENT OF INDIA HAD ALLOTTED FUNDS FOR THE SAID PROJECT AND AS PER THE TERMS AND CONDITIONS OF THE SCHEME, THE SAID FUNDS WERE TO BE UTILIZED EXCLUSIVELY FOR THE PROJECT. IT WAS FURTHER STIPULATED THAT THE UNUTILIZED FUNDS WERE TO BE KEPT TEMPORARI LY IN BANK FIXED DEPOSITS AND INTEREST EARNED ON THE SAID DEPOSITS W AS TO BE CREDITED TO RAJIV GANDHI GRAMIN VIDYUTIKARAN YOJANA PROJECT. IT WAS CONTENDED THAT THE SAID INTEREST THUS WAS IN THE NATURE OF FUNDS R ECEIVED BY THE ASSESSEE FROM THE GOVERNMENT OF INDIA UNDER THE SCHEME TO BE UTILIZED FOR THE PROJECT WORK AND THE SAME, THEREFORE, CONSTITUTED A CAPITAL RECEIPT, WHICH WAS NOT CHARGEABLE TO TAX. THIS STAND OF THE ASSESS EE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. ACCORDING TO H IM, THE ASSESSEE IN ORDER TO AVAIL THE CLAIM OF TDS WAS REQUIRED TO OFF ER THE CORRESPONDING I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 8 INCOME FOR TAXATION AND SINCE THE ASSESSEE HAD FAIL ED TO DO SO, HE BROUGHT TO TAX THE INTEREST AMOUNTING TO RS.21,48,33,731/- IN THE HANDS OF THE ASSESSEE IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE AN ORDER DATED 30.03.2015. 9. THE ADDITION MADE BY THE ASSESSING OFFICER AMOUN TING TO RS.21,48,33,731/- ON ACCOUNT OF INTEREST WAS CHALLE NGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS). DU RING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT(APPEALS), THE FOLLOWING SUBMISSION WAS MADE BY THE ASSESSEE IN WRITING IN S UPPORT OF ITS CASE ON THIS ISSUE:- 60. FOR CONSTRUCTION OF CAPITAL ASSET REQUIRED FOR ELECTRIFICATION IN THE RURAL AREAS, GOVERNMENT OF I NDIA SANCTIONED A PROJECT CALLED RAJIV GANDHI GRAMIN VID YUTIKARAN YOJANA (RGGVY). THIS IS PLAN SCHEME OF THE GOVERNME NT OF INDIA. 61. THE SAID SCHEME WAS INITIATED WHOLLY AND EXCLUS IVELY FOR DEVELOPMENT OF RURAL ELECTRICITY INFRASTRUCTURE AND HOUSEHOLD ELECTRIFICATION. THE MAIN EMPHASIS UNDER THE SCHEME WAS GIVEN TO EFFECT ELECTRICITY CONNECTION TO ALL RURAL HOUSE HOLD BELONGING TO BELOW POVERTY LINE (BPL). 62. RURAL ELECTRIFICATION CORPORATION LIMITED (RECL ) IS ACTING AS NODAL AGENCY OF THE PROJECT. STATE OWNED POWER U TILITIES AND CENTRAL PUBLIC SECTOR UNDERTAKINGS (CPSUS) ARE ACTI NG AS IMPLEMENTING AGENCIES OF THE RGGW PROJECT. 63. FUNDING OF THE PROJECT IS DONE BY GOVERNMENT OF INDIA THROUGH THE NODAL AGENCY RECL. 64. THE ENTIRE FUND OF THE PROJECT WAS AVAILABLE TO THE IMPLEMENTING AGENCIES FROM GOVERNMENT OF INDIA THRO UGH RURAL ELECTRIFICATION CORPORATION LIMITED (REEL). 65. 90% OF THE COST OF THE PROJECT IS AVAILABLE TO THE IMPLEMENTING AGENCIES AS CAPITAL SUBSIDY. 66. BALANCE 10% OF THE PROJECT COST IS AVAILABLE TO THE IMPLEMENTING AGENCIES AS LOAN FROM RECL. I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 9 67. AS PER THE TERMS ARID CONDITIONS OF THE SCHEME, FUNDS PROVIDED BY THE CENTRAL GOVERNMENT ARE REQUIRED TO BE UTILIZED WHOLLY AND EXCLUSIVELY FOR THE PROJECTS; AND UNUTIL IZED FUNDS ARE TO BE KEPT IN BANK FIXED DEPOSITS. THIS FACT IS EVIDENT FROM THE COPY OF LETTER DATED 25 TH SEPTEMBER, 2008 ADDRESSED BY THE GOVERNMENT OF INDIA, MINISTRY OF POWER, NEW DELHI T O THE PAY & ACCOUNTS OFFICER, NEW DELHI. A COPY OF THE SAID LET TER WAS DULY FILED BEFORE THE ASSESSING OFFICER IN COURSE OF IMP UGNED ASSESSMENT PROCEEDINGS FOR THE YEAR UNDER APPEAL. 68. IT MAY BE NOTED THAT ORIGINALLY IT WAS CLEARLY STIPULATED THAT THE INTEREST EARNED ON FIXED DEPOSITS, AS AFOR ESAID WOULD BE USED FOR THE PROJECT BY WAY OF ADJUSTMENT AGAINS T THE LAST INSTALMENT OF CAPITAL SUBSIDY TO BE RECEIVED FROM T HE GOVERNMENT OF INDIA. HOWEVER, SUBSEQUENTLY IN MAY, 2014, GOVERNMENT OF INDIA DECIDED THAT INTEREST EARNED BY THE PROJECT IMPLEMENTING AGENCY (PIA) ON DEPOSIT OF UNUTILIZED FUNDS WOULD BE REMITTED BACK TO THE DESIGNATED ACCOUNT OF THE GOVERNMENT OF INDIA. THIS FACT IS ALSO CORROBORATED FROM THE LETTER DATED 21 ST MAY, 2014 ADDRESSED BY MR. K.K. MISHRA, DEPUTY SECRETARY (RE), GOVERNMENT OF INDIA, MINISTR Y OF POWER, NEW DELHI TO THE CHAIRMAN AND MANAGING DIRECTOR OF THE APPELLANT ASSESSEE COMPANY, WHICH LETTER IS ALSO ON THE RECORDS OF THE ASSESSING OFFICER. 69. IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT C ASE, THE APPELLANT ASSESSEE COMPANY STATES AND RESPECTFULLY SUBMITS THAT THE INTEREST OF RS.21,48,33,731/- IS NOT THE R EAL INCOME OF THE APPELLANT ASSESSEE COMPANY, SINCE IT IS DIVERTE D AT THE VERY INCEPTION BY OVERRIDING TITLE IN FAVOUR OF THE GOVE RNMENT OF INDIA. ACCORDINGLY, NO PORTION OF THE SAID SUM OF I NTEREST OF RS.21,48,33,731/- CAN BE LAWFULLY INCLUDED IN THE T OTAL INCOME OF THE APPELLANT ASSESSEE COMPANY. RELIANCE IN THIS CONNECTION IS PLACED ON THE DECISION OF THE HONBLE CALCUTTA J URISDICTIONAL HIGH COURT IN CIT VS.- A. TOSH & SONS PVT. LIMITED (1987) 166 ITR 867 (CAL.), WHICH DECIDSION HAS ALREADY BEEN AC CEPTED BY THE CBDT; AND NO APPEAL THERE AGAINST WAS EVER PREF ERRED BEFORE THE HONBLE SUPREME COURT OF INDIA. 10. THE LD. CIT(APPEALS) DID NOT FIND MERIT IN THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND PROCEEDED TO CONFIRM THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST FOR THE FO LLOWING REASONS GIVEN IN HIS IMPUGNED ORDER:- I HAVE CONSIDERED THE MATERIAL BEFORE ME. IT IS OB SERVED THAT THERE IS NO DISPUTE ON THE FACT THE APPELLANT I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 10 COMPANY WAS MAINTAINING ITS ACCOUNTS ON MERCANTILE BASIS, AND THE IMPUGNED INTEREST INCOME OF RS.21,48,33,731/- HAD ARISEN AND ACCRUED TO THE APPELLANT FOR THE RELEVANT FINANCIAL YEAR ENDING 31.03.2012. THE APPELLANT HAS MAINLY ARGUED THAT TH E INTEREST INCOME WAS NOT TAXABLE BEING CAPITAL RECEI PTS IN ITS HANDS AND ALTERNATIVELY WAS NOT REAL INCOME ON ACCOUNT OF DIVERSION OF INCOME AT SOURCE. IT IS NOT IN DISPUTE THAT THE APPELLANT COMPANY HAD INVESTED THE AMOUNT OF GRANT RECEIVED BY IT IN FIXED DEPOSITS WI TH COMMERCIAL BANKS, ON WHICH INTEREST INCOME OF RS.21,48,33,731/- WAS RECEIVED/ACCRUED DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2012-13 UNDER CONSIDERATION. IN THE APPELLANTS CASE, NO MATERIAL WAS PLACED ON RECORD BY THE APPELLANT THAT THERE WAS AN Y SURRENDER OF THE IMPUGNED INTEREST INCOME TO THE CENTRAL GOVERNMENT OR THE SANCTIONING AUTHORITY BY THE COMPANY. THE APPELLANT HAS STATED THAT AS PER THE TERMS AND CONDITIONS OF THE RGGVY SCHEME, FUNDS PROVIDED BY T HE CENTRAL GOVERNMENT ARE REQUIRED TO BE UTILIZED WHOL LY AND EXCLUSIVELY FOR THE PROJECTS; AND UNUTILIZED FU NDS ARE TO BE KEPT IN BANK FIXED DEPOSITS. THE AO IN THIS R EGARD, OBSERVED THAT AS PER TERMS AND CONDITIONS OF THE S CHEME FUNDS ARE TO BE UTILIZED EXCLUSIVELY FOR THE PROJEC TS AND TEMPORARY UNUTILIZED FUNDS ARE TO BE KEPT IN BANK F IXED DEPOSITS. IT IS ALSO OBSERVED THAT THE ASSESSEE IS FOUND TO HAVE BEEN DEPOSITING THE AMOUNT OF SANCTIONED FOR A PROJECT CALLED RAJIB GANDHI GRAMIN VIDYUT YAYONA (RGGVY) BY THE CENTRAL GOVT AS FIXED DEPOSITS IN COMMERCIAL BANKS I.E PNB & SBI AND ENJOYING INTERES T INCOME THEREON AND HAS NOT BOTHERED TO PAY AMOUNT O F INTEREST TO THE CENTRAL GOVERNMENT OR THE SANCTIONI NG AUTHORITY, EXCEPT MAKING A PROVISION IN ITS BOOKS O F ACCOUNT TOWARDS LIABILITY FOR PAYMENT OF INTEREST T O THE CENTRAL GOVERNMENT. THE CENTRAL OR STATE GOVERNMENT HAVE ALSO NOT BOTHERED TO TREAT THE INTEREST ACCRUE D/ RECEIVED BY THE APPELLANT COMPANY ON THE AMOUNT OF GRANTS INVESTED IN FIXED DEPOSIT WITH COMMERCIAL BA NK AS ITS INCOME. ONCE THE CORPUS OF CAPITAL IS SANCTIONE D TO THE APPELLANT COMPANY AS GRANTS AND INTEREST IS EAR NED ON SURPLUS FUNDS, ON DAY-TO- DAY BASIS, THEN THE CE NTRAL GOVERNMENT HAS NO CONTROL OVER THE CORPUS OF THE ASSESSEE COMPANY. THE GOVERNMENT ORDER DATED I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 11 25.09.2008, CONTAINS GENERAL DIRECTION FOR BEING CA RRIED OUT BY THE RECIPIENTS OF THE GRANTS FOR THEIR UTILI ZATION. IT DOES NOT SPECIFICALLY REGULATE THE WORKING OF TH E ASSESSEE COMPANY. SIMILAR IS THE POSITION WITH REGA RD TO THE GOVERNMENT ORDER DATED 21.5.2014. THE AMOUNT OF INTEREST DOES NOT PARTAKE THE CHARACTERISTIC OF GRA NT-IN- AID AS THIS AMOUNT HAS NOT BEEN SANCTIONED BY THE CENTRAL GOVERNMENT AS GRANT-IN-AID NOR THERE IS ANY DECISION OR ORDER OF THE GOVERNMENT TO CONSIDER THE AMOUNT IN QUESTION AS GRANT- IN-AID GIVEN TO THE AS SESSEE COMPANY. IT IS PERTINENT TO THAT IN A CASE OF DIVER SION OF INCOME BY OVERRIDING TITLE THE PERSON IN WHOSE FAVO UR THE INCOME IS TO BE DIVERTED SHOULD BE AWARE ABOUT THE EXACT AMOUNT OF SUCH INCOME WHICH IT HAS EARNED. IN THE PRESENT CASE THERE IS NO MATERIAL BROUGHT ON RECORD TO ESTABLISH THAT THE CENTRAL GOVERNMENT WAS AT ANY PO INT OF TIME AWARE ABOUT THE INTEREST INCOME RECEIVED/ ACCRUED BY THE ASSESSEE COMPANY OVER WHICH IT CAN L AY ANY CLAIM. THESE GOVERNMENT ORDERS APPEAR TO HAVE BEEN ISSUED JUST TO TAKE OUT THE INTEREST INCOME EA RNED BY THE ASSESSEE FROM THE TAXATION UNDER THE INCOME TAX ACT. ON THE ISSUE OF DIVERSION OF INCOME, THE FACTORS TO BE CONSIDERED WERE ENUNCIATED BY THE HON'BLE APEX COUR T IN THE CASE OF MOTI LAL CHHADAMI LAL JAIN V. COMMISSIO NER OF INCOME-TAX IN [199.1] 56 TAXMAN 4A (SE), WHEREIN IT WAS HELD THAT, 'OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BU T IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISIVE FACT. THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PER SON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WHICH BY THE NATURE OF THE OBLIGATION CANNOT BE SAI D TO BE A PART OF THE INCOME OF THE ASSESSEE. WHERE BY T HE OBLIGATION INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE; BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION A FTER SUCH INCOME REACHES THE ASSESSEE, THE SAME CONSEQUE NCE, IN LAW, DOES NOT FOLLOW. IT IS THE FIRST KIND OF PA YMENT WHICH CAN TRULY BE EXCUSED AND NOT THE SECOND. THE SECOND PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTH ER A PORTION OF ONE'S OWN INCOME, WHICH HAS BEEN RECEIVE D AND IS SINCE APPLIED.' I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 12 THE APPELLANT HAS STATED THAT AS PER THE TERMS AND CONDITIONS OF THE RGGV SCHEME, FUNDS PROVIDED BY TH E CENTRAL GOVERNMENT ARE REQUIRED TO BE UTILIZED WHOL LY AND EXCLUSIVELY FOR THE PROJECTS AND UNUTILIZED FUN DS ARE TO BE KEPT IN BANK FIXED DEPOSITS. IT IS ALSO OBSER VED THAT THE ASSESSEE IS FOUND TO HAVE BEEN DEPOSITING THE AMOUNT OF SANCTIONED FOR A PROJECT CALLED RAJIB GAN DHI GRAMIN VIDYUT YAYONA (RGGVY) BY THE CENTRAL GOVT. A S FIXED DEPOSITS IN COMMERCIAL BANKS I.E PNB & SBI AN D ENJOYING INTEREST INCOME THEREON AND HAS NOT BOTHER ED TO PAY AMOUNT OF INTEREST TO THE CENTRAL GOVERNMENT OR THE SANCTIONING AUTHORITY , EXCEPT MAKING A PROVISI ON IN ITS BOOKS OF ACCOUNT TOWARDS LIABILITY FOR PAYMENT OF INTEREST TO THE CENTRAL GOVERNMENT. THE CENTRAL OR STATE GOVERNMENT HAVE ALSO NOT TREATED THE INTEREST ACCRU ED/ RECEIVED BY THE APPELLANT COMPANY ON THE ACCOUNT OF GRANTS INVESTED IN FIXED DEPOSIT WITH COMMERCIAL BA NK AS ITS INCOME DURING THE RELEVANT PERIOD UNDER CONSIDERATION. ONCE THE FUNDS ARE SANCTIONED TO THE APPELLANT COMPANY AS GRANTS ON DAY-TO-DAY BASIS THE N THE SANCTIONING AUTHORITY/ CENTRAL GOVERNMENT HAS N O CONTROL OVER THE CAPITAL/FUNDS OF THE ASSESSEE COMP ANY. THE GOVERNMENT ORDER DATED 25.09.2008, CONTAINS GENERAL DIRECTION FOR BEING CARRIED OUT BY THE RECI PIENTS OF THE GRANTS FOR THEIR UTILIZATION. IT DOES NOT SP ECIFICALLY REGULATE THE WORKING OF THE ASSESSEE COMPANY. THE A /R HAS ALSO RELIED UPON THE GOVERNMENT ORDER DATED 21.5.2014, WHICH IS FOUND TO HAVE BEEN PASSED AFTER THE END OF THE RELEVANT FINANCIAL YEAR NOR DOES IT HAVE RETROSPECTIVE EFFECT ON THE INTEREST ALREADY RECEIV ED BY THE APPELLANT COMPANY. HENCE, THE AMOUNT OF INTERES T INCOME IN QUESTION DOES NOT PARTAKE THE CHARACTERIS TIC OF GRANT-IN-AID AS THIS AMOUNT HAS NOT BEEN SANCTIO NED BY THE CENTRAL GOVERNMENT AS GRANT-IN-AID NOR THERE IS ANY DECISION OR ORDER OF THE GOVERNMENT TO CONSIDER THE AMOUNT IN QUESTION AS GRANT-IN-AID GIVEN TO THE ASS ESSEE COMPANY. IT IS PERTINENT TO THAT IN A CASE OF DIVER SION OF INCOME BY OVERRIDING TITLE, THE PERSON IN WHOSE FAV OUR THE INCOME IS TO BE DIVERTED SHOULD BE AWARE ABOUT THE EXACT AMOUNT OF SUCH INCOME WHICH IT HAS EARNED. IN THE PRESENT CASE, THE OBLIGATION TO DIVERT THE INCOME H AS ADMITTEDLY ARISEN AFTER THE INTEREST INCOME HAS REA CHED THE ASSESSEE AND NOT BEFORE AND WOULD THUS COMPRISE I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 13 APPLICATION OF THE SAID INTEREST INCOME AFTER IT WA S RECEIVED BY THE APPELLANT COMPANY. THE SAID GOVERNM ENT ORDERS APPEAR TO HAVE BEEN ISSUED JUST TO TAKE OUT THE INTEREST INCOME EARNED BY THE ASSESSEE FROM THE TAX ATION UNDER THE INCOME TAX ACT. THE A/R HAS RELIED UPON THE RATIO OF DECISION OF TH E CALCUTTA HIGH COURT IN CIT V. A. TOSH & SONS PVT. L TD. (1987) 166 ITR 867 (CAL), WHICH IS FOUND TO BE DISTINGUISHABLE AS THE FACTS OF THE SAID CASE ARE F OUND TO BE DISTINCT FROM THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE WHEREIN THE INTEREST EARNED ON FIX ED DEPOSIT MADE OUT OF SURPLUS LEFT WITH THE ASSESSEE OUT OF THE TAXES AND REBATE RAISED ON BEHALF OF FOREIGN BU YERS AND PAID TO THE GOVERNMENT WAS HELD AS NOT TAXABLE IN ITS HANDS. HOWEVER, IN THE APPELLANT'S CASE, THE IN TEREST INCOME HAS NOT BEEN PAID TO THE CENTRAL GOVERNMENT BY THE APPELLANT COMPANY. THUS, THE RATIO OF THE SAID DECISION IS FOUND TO BE NOT APPLICABLE TO THE APPEL LANT'S CASE. IN THE CASE OF CIT VS.- SUNIL J. KINARIWALA (2003) 259 ITR 10, THE APEX COURT, AFTER REFERRING TO THE DECI SIONS OF THE PRIVY COUNCIL IN THE CASE OF RAJA BEJOY SING H DUDHURIA VS. CIT (1933) 1 ITR 135 (PC) AND P.C. MULLICK VS.- CIT (1938) 6 ITR 206 (PC); OF THE APE X COURT IN THE CASE OF SITALDAS TIRATHDAS (SUPRA), K. A. RAMACHAR VS.- CIT (1961) 42 ITR 25 (SC); MOTILAL CHHADAMI LAL JAIN (SUPRA); CIT VS.- BAAGYALAKSHMI & CO. (1965) 55 ITR 660 (SC) AND MURLIDHAR HIMATSINGK A V. CIT (1966) 6.2-ITR 323 (SC), HAS HELD THAT IF A THIRD PERSON BECOMES ENTITLED TO RECEIVE AN AMOUNT UNDER AN OBLIGATION OF AN ASSESSEE EVEN BEFORE HE COULD CLAI M TO RECEIVE IT AS HIS INCOME, THERE WOULD BE A DIVERSIO N OF INCOME BY OVERRIDING TITLE, BUT WHEN AFTER RECEIPT OF THE INCOME BY THE ASSESSEE, THE SAME IS PASSED ON TO A THIRD PERSON IN DISCHARGE OF T4HE OBLIGATION OF THE ASSES SEE, IT WILL BE A CASE OF APPLICATION OF INCOME BY THE ASSE SSEE AND NOT OF DIVERSION OF INCOME BY OVERRIDING TITLE. THE PRINCIPLE WHICH EMERGES FROM THESE DECISIONS IS THAT IF A THIRD PERSON BECOMES ENTITLED TO RECEIVE AN AM OUNT UNDER AN OBLIGATION OF AN ASSESSEE EVEN, BEFORE HE COULD CLAIM TO RECEIVE IT AS HIS INCOME, THERE WOULD BE A I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 14 DIVERSION OF INCOME BY OVERRIDING TITLE, BUT WHEN A FTER RECEIPT OF THE INCOME BY THE ASSESSEE, THE SAME IS PASSED ON TO A THIRD PERSON IN DISCHARGE OF THE OBLIGATION OF THE ASSESSEE, IT WILL BE A CASE OF APPLICATION OF INCOM E BY THE ASSESSEE AND NOT OF DIVERSION OR INCOME BY OVERRIDI NG TITLE. MOREOVER, IN THE CASE OF STATE BANK OF TRAVANCORE, (1986) 158 ITR 102 (SC), THE HON'BLE SUPREME COURT HAS LAID DOWN THE FOLLOWING PROPOSITIONS: '(1) IT IS THE INCOME WHICH HAS REALLY ACCRUED OR A RISEN TO THE ASSESSEE THAT IS TAXABLE. WHETHER THE INCOME HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE MUST BE JU DGED IN THE LIGHT OF THE REALITY OF THE SITUATION. (2) T HE CONCEPT OF REAL INCOME WOULD APPLY WHERE THERE HAS BEEN A SURRENDER OF INCOME WHICH IN THEORY MAY HAVE ACCRUED BUT: IN THE REALITY OF THE SITUATION NO INC OME HAD RESULTED BECAUSE THE INCOME DID NOT REALLY ACCR UE. (3) WHERE A DEBT HAS BECOME BAD, DEDUCTION IN COMPLIANCE WITH THE PROVISIONS OF THE ACT SHOULD BE CLAIMED AND ALLOWED. (4) WHERE THE ACT APPLIES, THE CONCEPT OF REAL INCOME SHOULD NOT BE SO READ AS TO DEFEAT THE PROVISIONS OF THE ACT. (5) IF THERE IS ANY DIVE RSION OF INCOME AT SOURCE UNDER ANY STATUTE OR BY OVERRIDING TITLE, THEN THERE IS NO INCOME TO THE ASSESSEE. (6) THE CONDUCT OF THE PARTIES IN TREATING THE INCOME IN A PARTICULAR MANNER IS MATERIAL EVIDENCE OF THE FACT WHETHER INCOME HAS ACCRUED OR NOT. (7) MERE IMPROBABILITY OF RECOVERY, WHERE THE CONDUCT OF THE ASSESSEE IS UNEQUIVOCAL, CANNOT BE TREATED AS EVIDE NCE OF THE FACT THAT INCOME HAS NOT BEEN RESULTED OR ACCRU ED TO THE ASSESSEE. AFTER DEBITING THE DEBTORS ACCOUNT AN D NOT REVERSING THAT ENTRY BUT TAKING THE INTEREST MERELY IN SUSPENSE ACCOUNT CANNOT BE SUCH EVIDENCE TO SHOW TH AT NO REAL INCOME HAS ACCRUED TO THE ASSESSEE OR BEEN TREATED AS SUCH BY THE ASSESSEE. (8) THE CONCEPT OF REAL INCOME IS CERTAINLY APPLICABLE IN JUDGING WHETHER T HERE HAS BEEN INCOME OR NOT BUT, IN EVERY CASE, IT MUST BE APPLIED WITH CARE AND WITHIN WELL-RECOGNIZED LIMITS . IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. (1971) 82 ITR 363 (SE), THE HONBLE APEX COURT HAS HELD THAT WHET HER I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 15 THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERET O AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HI S RIGHTS; NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES ILL HIS BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE M ATTER. IN TILE CASE OF KEDARNATH JUTE MFG. CO. LTD. (SUPRA ) THE APEX COURT HAS HELD THE PROVISION OF LAW RELATING T HERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE O F HIS RIGHTS; NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN HIS BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE M THE MA TTER. THEREFORE, I AM OF THE VIEW THAT THERE IS NO OVERRI DING TITLE IN FAVOUR OF THE APPELLANT COMPANY MEMBERS BECAUSE THERE WAS NEITHER A PRIOR STATUTORY OBLIGAT ION NOR AN AGREEMENT WITH THE CENTRAL GOVT. OR SANCTION ING AUTHORITY FOR DEPOSITING THEIR FUND WITH THE BANK A ND FOR PASSING ON THE INTEREST TO THEM. THE APPELLANT HAS MERELY CLAIMED THAT IT WAS OBLIGED TO DO SO ON ACCO UNT OF LETTER FROM THE CENTRAL GOVERNMENT TO RECIPIENTS OF GRANTS, WHICH WAS FOUND TO BE ANTECEDENT TO THE REC EIPT OF THE IMPUGNED INTEREST INCOME IN THE APPELLANT'S HANDS. THUS, THIS CANNOT BE SAID TO BE EQUIVALENT T O AN OVERRIDING TITLE. THIS VIEW IS SUPPORTED BY THE DEC ISION OF HON'BLE ALLAHABAD HIGH COURT IN ADDL. CIT VS.- RAN I PRITAM KUMAR (1980) 125 ITR 102 (ALL.), WHEREIN IT WAS HELD THAT FOR DIVERSION OF INCOME AT SOURCE THROUGH AN OVERRIDING TITLE, IT IS NECESSARY THAT PAYMENT OR DIVERSION SHOULD BE UNDER SOME LEGAL OBLIGATION WHI CH SHOULD BE ATTACHED WITH THE SOURCE OF INCOME. IN OT HER WORDS, FOR SUCH A PAYMENT THERE SHOULD BE AN OVERRI DING CHARGE, WHICH IS EXACTED UNDER ANY LAW FOR THE TIME BEING IN FORCE, OR BY VIRTUE OF ANY COURT'S DECREE BY AN AGREEMENT, OR BY A VOLUNTARY SETTLEMENT, OR THE OBLIGATION SHOULD BE SUCH WHICH CAN BE ENFORCED IN A COURT OF LAW. IN THE INSTANT CASE, THESE FACTS ARE NOT PRESENT AND HENCE IT CANNOT BE SAID THAT THERE WAS DIVERSION AT SOURCE THROUGH AN OVERRIDING TITLE. NO CHARGE HAS BEEN CREATED ON THE INTEREST INCOME IN F AVOUR OF THE SANCTIONING AUTHORITY EITHER BY AN AGREEMENT , OR BY A COURT'S DECREE, OR BY OPERATION OF LAW OR BY A SETTLEMENT. HENCE, THE RATIO OF THE CASE LAWS CITED BY THE APPELLANT'S A.R ON THIS ISSUE ARE FOUND TO BE NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 16 IN VIEW OF THE ABOVE DISCUSSION, AND APPLYING THE PRINCIPLES LAID DOWN BY THE APEX/HIGH COURTS IN THE AFORESAID CASES TO THE FACTS OF THE PRESENT CASE, I T IS FOUND THAT NO MATERIAL HAS BEEN PLACED ON RECORD BY THE APPELLANT TO INDICATE THAT THERE WAS ANY STIPULATIO N THAT THE INTEREST EARNED ON SUCH GRANT/AID IF KEPT IN FI XED DEPOSIT IN COMMERCIAL BANK WOULD NOT ACCRUE TO THE APPELLANT BUT TO THE CENTRAL GOVERNMENT. MOREOVER, THERE IS ALSO NO MATERIAL ON RECORD TO INDICATE THA T THE INTEREST INCOME WAS TRANSFERRED OR PASSED ON TO A T HIRD PERSON BY THE APPELLANT COMPANY DURING THE FINANCIA L YEAR, UNDER AN EXISTING OBLIGATION. IN FACT, THE OR DERS ISSUED BY THE CENTRAL GOVERNMENT WERE FOR TREATING THE AMOUNT OF INTEREST AFTER ITS RECEIPT IN THE HANDS O F THE APPELLANT COMPANY. IN VIEW THEREOF, I AM OF THE OPI NION THAT THE APPELLANT'S ALTERNATIVE CLAIM OF THE THEOR Y OF REAL INCOME IS ALSO NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE INASMUCH AS THE INTEREST HAS ACCRUED T O THE APPELLANT WHICH IT HAD RETAINED AS INCOME IN ITS OW N HANDS, AND THE INTEREST INCOME HAS ARISEN FROM THE FIXED DEPOSITS ARE LIABLE TO BE TAXED AS INCOME IN THE HA NDS OF THE APPELLANT COMPANY AS HELD BY THE HON'BLE SUPREM E COURT IN. THE CASE OF STATE BANK OF TRAVANCORE, (SU PRA). THEREFORE, IT IS HELD THAT THE A.O WAS CORRECT IN T REATING THE IMPUGNED AMOUNT OF INTEREST INCOME RS.21,48,33,731/- AS REVENUE RECEIPTS IN THE HANDS OF THE APPELLANT COMPANY, AND ADDITION THEREOF IS CONFIRME D. THUS, GROUND NO. 5 & 6 ARE NOT ALLOWED. 11. THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR AT TENTION TO THE COPY OF LETTER DATED 25.09.2008 ISSUED BY THE GOVERNMENT OF INDIA, MINISTRY OF POWER WHILE RELEASING THE FUNDS TO RURAL ELECTRIFIC ATION CORPORATION LIMITED (REC) UNDER RAJIV GANDHI GRAMIN VAIDUTIKIRA N YOJONA (RGGVY) AND POINTED OUT THAT AS PER PARAGRAPH NO. 5 OF THE SAID LETTER, REC AND IMPLEMENTING AGENCIES WERE REQUIRED TO KEEP THE FUN DS IN INTEREST BEARING DEPOSITS OF NATIONALISED BANKS ONLY AND THE INTEREST EARNED ON SUCH DEPOSITS WAS TO BE ACCOUNTED FOR AND USED FOR COST OF THE PROJECT BY WAY OF ADJUSTMENT IN THE LAST INSTALMENT. HE CONTEN DED THAT THE ASSESSEE- COMPANY THUS HAD NO RIGHT OR TITLE IN THE INTEREST AMOUNT IN QUESTION I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 17 RECEIVED DURING THE YEAR UNDER CONSIDERATION ON THE DEPOSITS MADE IN THE BANKS OUT OF FUNDS RECEIVED UNDER RAJIV GANDHI GRAM IN VIDYUTIKARAN YOJANA (RGGVY) AND THE QUESTION OF TREATING THE SAM E AS THE INCOME OF THE ASSESSEE DOES NOT ARISE AT ALL. HE CONTENDED TH AT THIS POSITION GETS FURTHER FORTIFIED BY THE FACT THAT THE REC VIDE ITS LETTER DATED 26.12.2012 ASKED ALL THE IMPLEMENTING AGENCIES INCLUDING THE A SSESSEE TO REMIT THE AMOUNT OF SUCH INTEREST TO THE GOVERNMENT ACCOUNT I MMEDIATELY. HE INVITED OUR ATTENTION TO THE COPY OF THE SAID LETTE R PLACED AT PAGES NO. 65 TO 66 OF HIS PAPER BOOK AND ALSO TO THE LETTERS SUB SEQUENTLY ISSUED BY REC DATED 15.01.2013 AND 23.08.2013 REMINDING THE IMPLE MENTING AGENCIES TO REMIT BACK THE AMOUNT OF INTEREST TO THE GOVERNM ENT ACCOUNT IMMEDIATELY. HE SUBMITTED THAT ANOTHER LETTER DATED 20.11.2013 WAS SENT BY THE REC TO THE ASSESSEE (COPY AT PAGE NO. 70 OF THE PAPER BOOK) ASKING THE REMITTANCE OF THE INTEREST AMOUNT AND WHEN THE ASSESSEE STILL FAILED TO REMIT THE INTEREST AMOUNT, A LETTER DATED 02.05. 2014 (COPY AT PAGE NO. 71 OF THE PAPER BOOK) WAS RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT OF INDIA, MINISTRY OF POWER INFORMING THAT THE NON- REMITTANCE OF INTEREST WAS VIEWED SERIOUSLY BY THE MINISTRY AND ASKING FOR THE REMITTANCE OF THE INTEREST AMOUNT WITHIN TWO WEEKS TIME. HE SUBMITTED THAT THE ASSESSEE FINALLY PAID THE ENTIRE INTEREST AMOUNT RECEIVED UP TO 31 ST MARCH, 2014 AMOUNTING TO RS.73.54 CRORES TO THE GOVERNMENT ACCO UNT AND INFORMED REC ABOUT THE SAME VIDE ITS LETTER DATED 13.06.2014 (COPY AT PAGE NO. 73 OF THE PAPER BOOK). THE LD. COUNSEL FOR THE ASSESSE E CONTENDED THAT THIS ENTIRE CORRESPONDENCE IS SUFFICIENT TO ESTABLISH TH AT THE ASSESSEE NEVER HAD ANY RIGHT OR TITLE IN THE INTEREST AND THE INTE REST AMOUNT IN QUESTION WAS RECEIVED BY IT ON BEHALF OF THE GOVERNMENT OF I NDIA, WHICH WAS EARLIER LIABLE TO BE ADJUSTED AGAINST THE LAST PAYM ENT OF CAPITAL SUBSIDY AND LATTER WAS LIABLE TO BE REMITTED BACK TO THE GO VERNMENT ACCOUNT, WHICH WAS DULY DONE BY THE ASSESSEE. HE CONTENDED T HAT THE SAID INTEREST THUS WAS NOT IN THE NATURE OF INCOME EARNED BY THE ASSESSEE AND AS PER I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 18 THE SPECIFIC TERMS OF THE GOVERNMENT OF INDIA, IT W AS DIVERTED EVEN AT THE INCEPTION BY AN OVERRIDING CHARGE IN FAVOUR OF THE GOVERNMENT OF INDIA. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE DECISI ON OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS.- A. TOS H & SONS PVT. LIMITED [166 ITR 867], WHEREIN IT WAS HELD THAT WHEN IT WAS CLEAR UNDER THE AGREEMENTS THAT THE ASSESSEE WOULD BE ENTITLED TO R ECEIVE THE EXCISE DUTY REBATE AND CUSTOMS DUTY DRAWBACK ONLY ON THE ACCOUN T OF THE FOREIGN BUYERS AND NOT ON ITS OWN ACCOUNT AND THE ASSESSEE WAS ALSO UNDER AN OBLIGATION UNDER THE AGREEMENTS TO REMIT THE SAID A MOUNTS RECEIVED TO THE FOREIGN BUYERS, IT, FOLLOWED THAT THE SAID AMOU NTS NEVER REACHED THE HANDS OF THE ASSESESE AS ITS OWN RECEIPT OR INCOME AND THE ASSESSEE HAD RECEIVED THE SAME ON BEHALF OF ITS FOREIGN BUYERS. IT WAS HELD THAT THE SAID AMOUNTS WERE NEVER THE REAL INCOME OF THE ASSESSEE AS THEY WERE DIVERTED EVEN AT THE INCEPTION BY AN OVERRIDING TIT LE IN FAVOUR OF THE FOREIGN BUYERS. 12. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE ENTIRE CORRESPONDENCE OF THE MINISTRY OF POWER, GOVERNMENT OF INDIA AS WELL AS REC RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE IN SUPPORT OF THE ASSESSEES CASE ON THIS ISSUE REFERS TO THE IMPLEME NTING AGENCIES WHEREAS THE ASSESSEE-COMPANY IS AN EXECUTING AGENCY. HE POI NTED OUT FROM THE SAID CORRESPONDENCE THAT THERE IS A SPECIFIC MENTIO N OF IMPLEMENTING AGENCY ONLY AND THERE IS NO REFERENCE WHATSOEVER TO THE EXECUTING AGENCY. HE CONTENDED THAT THE SAID CORRESPONDENCE, THEREFORE, IS NOT A RELEVANT EVIDENCE FOR DECIDING THE CASE OF THE ASSE SSEE-COMPANY, WHICH IS AN EXECUTING AGENCY AND THE RELIANCE OF THE LD. COU NSEL FOR THE ASSESSEE ON THE SAME IS CLEARLY MISPLACED. HE CONTENDED THAT THE INTEREST IN QUESTION WAS NOT ONLY ACCRUED TO THE ASSESSEE BUT T HE SAME WAS ALSO RECEIVED BY THE ASSESSEE AND THAT IS WHY OTHER AGEN CIES WERE REMANDING BACK THE SAID INTEREST AMOUNT. HE STRONGLY RELIED O N THE IMPUGNED ORDER I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 19 PASSED BY THE LD. CIT(APPEALS) IN SUPPORT OF THE RE VENUES CASE THAT THERE WAS NO DIVERSION OF INTEREST INCOME BY OVERRIDING T ITLE AS CLAIMED ON BEHALF OF THE ASSESSEE. HE ALSO RELIED ON THE ACCOU NTING STANDARD-12 DEALING WITH ACCOUNTING FOR GOVERNMENT GRANTS AND C ONTENDED THAT THE INTEREST AMOUNT IN QUESTION NOT BEING HELD BY THE A SSESSEE-COMPANY AS TRUSTEE OR CUSTODIAN WAS CHARGEABLE TO TAX AS THE I NCOME EARNED. HE ALSO RELIED ON THE DECISION OF THE AHMEDABAD BENCH OF TH IS TRIBUNAL IN THE CASE OF NATIONAL DAIRY DEVELOPMENT BOARD VS.- ADDI TIONAL CIT [114 TTJ 145] TO CONTEND THAT INTEREST INCOME HAS TO ACCRUE TO SOMEBODY AND SINCE THE SAME HAD ACCRUED TO THE ASSESSEE-COMPANY IN THE PRESENT CASE, THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F SUCH INTEREST WAS RIGHTLY CONFIRMED BY THE LD CIT(APPEALS). 13. IN THE REJOINDER, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THERE IS NO DIFFERENCE BETWEEN THE EXECUTING AGENCY AND IMPLEMENTING AGENCY AS SOUGHT TO BE POINTED OUT BY THE LD. D.R. HE SUBMITTED THAT REC WAS THE NODAL AGENCY AND THERE WERE VARIOUS IMPLEME NTING AGENCIES INCLUDING THE ASSESSEE-COMPANY. TO SUPPORT AND SUBS TANTIATE THIS STAND, HE INVITED OUR ATTENTION TO THE LETTER DATED 20.11. 2013 ISSUED BY THE REC (COPY AT PAGE NO. 70 OF THE PAPER BOOK) AND THE LET TER DATED 02.05.2014 ISSUED BY THE GOVERNMENT OF INDIA, MINISTRY OF POWE R (COPY AT PAGE NO. 71 OF THE PAPER BOOK) AND POINTED OUT THAT THE SAID LE TTERS WERE SPECIFICALLY ADDRESSED TO THE ASSESSEE GIVING THE REFERENCE OF T HE EARLIER CORRESPONDENCE, WHICH IS SUFFICIENT TO SHOW THAT TH E ASSESSEE-COMPANY WAS INVOLVED IN THE PROJECT AS IMPLEMENTING AGENCY AND THE CORRESPONDENCE OF REC AND GOVERNMENT OF INDIA, MINI STRY OF POWER RELIED UPON BY HIM IS A RELEVANT EVIDENCE TO DECIDE THE IS SUE UNDER CONSIDERATION INVOLVED IN THE ASSESSEES CASE. I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 20 14. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE RURAL ELECTRIFICATION PROGRAMME WAS IMPLEMENTED BY THE GO VERNMENT OF INDIA, MINISTRY OF POWER THROUGH RURAL ELECTRIFICATION COR PORATION LIMITED (IN SHORT REC) CALLED RAJIV GANDHI GRAMIN VIDYUTIKARAN YOJANA AND FOR IMPLEMENTATION OF THE SAME, VARIOUS IMPLEMENTING AG ENCIES WERE APPOINTED BY THE REC INCLUDING THE ASSESSEE-COMPANY . WHILE RELEASING FUNDS FOR THE SAID PROGRAMME IN THE FORM OF CAPITAL SUBSIDY VIDE LETTER DATED 25.09.2008, IT WAS SPECIFICALLY STIPULATED BY THE GOVERNMENT OF INDIA, MINISTRY OF POWER THAT A SEPARATE ACCOUNT WI LL BE MAINTAINED IN RESPECT OF THE CAPITAL SUBSIDY AND REC AND IMPLEMEN TING AGENCIES WILL KEEP THE FUNDS IN INTEREST BEARING DEPOSITS OF NATI ONALISED BANKS TILL THE PAYMENTS ARE MADE TO THE CONTRACTING AGENCIES. IT W AS ALSO STIPULATED THAT THE INTEREST EARNED ON SUCH DEPOSITS WAS TO BE ACCOUNTED FOR AND USED FOR COST OF THE PROJECT BY WAY OF ADJUSTMENT I N THE LAST INSTALMENT. THE INTEREST SO EARNED THUS WAS RECEIVED BY REC AS WELL AS ALL THE IMPLEMENTING AGENCIES INCLUDING THE ASSESSEE-COMPAN Y FOR AND ON BEHALF OF THE GOVERNMENT OF INDIA, MINISTRY OF POWER AND S INCE THE SAME WAS TO BE USED FOR COST OF THE PROJECT BY WAY OF ADJUSTMEN T IN THE LAST INSTALMENT OF CAPITAL SUBSIDY, THE REC AS WELL AS ALL THE IMPL EMENTING AGENCIES INCLUDING THE ASSESSEE-COMPANY NEVER HAD ANY TITLE OR RIGHT IN THE INTEREST SO EARNED AS THEY WERE UNDER AN OBLIGATION TO USE THE AMOUNT OF INTEREST FOR COST OF THE PROJECT BY WAY OF ADJUSTME NT IN THE LAST INSTALMENT OF CAPITAL SUBSIDY RECEIVABLE FROM THE GOVERNMENT O F INDIA, MINISTRY OF POWER. IT IS THUS NOT A CASE WHERE THE INTEREST INC OME WAS EARNED BY THE ASSESSEE-COMPANY AND THE SAME WAS APPLIED TO DISCHA RGE ANY OBLIGATION AFTER SUCH INCOME REACHED THE ASSESSEE. ON THE OTHE R HAND, THE AMOUNT OF INTEREST IN QUESTION, GOING BY THE NATURE OF OBLIGA TION AS STIPULATED BY THE GOVERNMENT OF INDIA, MINISTRY OF POWER IN THE LETTE R DATED 25.09.2008 DID NOT FORM PART OF THE INCOME OF THE ASSESSEE AS THE SAME WAS LIABLE TO BE I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 21 USED FOR THE COST OF PROJECT BY WAY OF ADJUSTMENT I N THE LAST INSTALMENT OF CAPITAL SUBSIDY AND THE SAME THUS WAS IN THE NATURE OF CAPITAL RECEIPT BEING CAPITAL SUBSIDY RECEIVED FROM THE GOVERNMENT OF INDIA, MINISTRY OF POWER. 15. IN THE CASE OF MOTITAL CHHADAMILAL JAIN VS.- C IT [56 TAXMAN 4A(SC)(SUPRA) RELIED UPON BY THE LD. CIT(APPEALS) I N HIS IMPUGNED ORDER, IT WAS HELD BY THE HONBLE SUPREME COURT WHILE DECI DING THE ISSUE OF DIVERSION OF INCOME, THE NATURE OF THE OBLIGATION I S THE DECISIVE FACT AND WHERE BY THE OBLIGATION, INCOME IS DIVERTED BEFORE IT REACHES THE HANDS OF THE ASSESSEE, THE SAME IS NOT CHARGEABLE TO TAX. AS PER THE CONDITIONS STIPULATED BY THE GOVERNMENT OF INDIA, MINISTRY OF POWER, THE INTEREST AMOUNT IN QUESTION RECEIVED BY THE ASSESSEE WAS LIA BLE TO BE ADJUSTED AGAINST THE CAPITAL SUBSIDY RECEIVABLE UNDER THE PR OGRAMME AND SINCE THE ASSESSEE-COMPANY WAS UNDER AN OBLIGATION TO ADJUST THE INTEREST AMOUNT AGAINST THE CAPITAL SUBSIDY, THERE WAS AN OVERRIDIN G CHARGE, WHICH WAS ENFORCEABLE IN LAW. THIS POSITION GETS FURTHER FORT IFIED BY THE FACT THAT THE GOVERNMENT OF INDIA, MINISTRY OF POWER SUBSEQUENTLY DECIDED TO RECOVER THE AMOUNT OF INTEREST IN QUESTION EARNED BY THE RE C AS WELL AS THE IMPLEMENTING AGENCIES INCLUDING THE ASSESSEE-COMPAN Y AND THE SAME WAS INDEED REMITTED BACK BY THE ASSESSEE-COMPANY FINALL Y TO THE GOVERNMENT OF INDIA, MINISTRY OF POWER. 16. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. HAS CONTENDED THAT THE ASSESSEE-COMPANY WAS AN EXECUTING AGENCY AND NOT TH E IMPLEMENTING AGENCY. HOWEVER, AS RIGHTLY CONTENDED BY THE LD. CO UNSEL FOR THE ASSESESE, THERE IS NO DIFFERENCE BETWEEN THE IMPLEM ENTING AGENCY AND THE EXECUTING AGENCY AND BOTH OF THEM ARE ONE AND T HE SAME. MOREOVER THE FACT THAT THE RELEVANT CORRESPONDENCE MEANT FOR IMPLEMENTING AGENCIES WAS ADDRESSED BY THE MINISTRY OF POWER, GO VERNMENT OF INDIA AS I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 22 WELL AS REC SPECIFICALLY TO THE ASSESSEE-COMPANY CL EARLY ESTABLISHES THAT THE ASSESSEE-COMPANY WAS AN IMPLEMENTING AGENCY AND THE INTEREST IN QUESTION RECEIVED BY IT FOR AND ON BEHALF OF THE GO VERNMENT OF INDIA, MINISTRY OF POWER AND SUBSEQUENTLY REMITTED BACK WA S IN THE CAPACITY AS AN IMPLEMENTING AGENCY. 17. THE LD. D.R. HAS RELIED ON ACCOUNTING STANDARD 12 IN SUPPORT OF THE REVENUES CASE ON THE ISSUE UNDER CONSIDERATION. A CAREFUL PERUSAL OF THE SAID ACCOUNTING STANDARD, HOWEVER, SHOWS THAT THE E XACT SITUATION ARISING IN THE PRESENT CASE HAS NOT BEEN SPECIFICALLY DEALT WITH IN THE SAID ACCOUNTING STANDARD. MOREOVER, THE SAID ACCOUNTING STANDARD DEALS WITH THE ACCOUNTING TREATMENT TO BE GIVEN TO THE GOVERNM ENT GRANTS AND ITS DISCLOSURE IN THE FINAL ACCOUNTS. IT IS, THEREFORE, NOT RELEVANT TO DECIDE THE ISSUE RELATING TO THE TAXABILITY OF THE INTEREST RE CEIVED BY THE ASSESSEE ON THE SURPLUS FUNDS TEMPORARILY AVAILABLE ON ACCOUNT OF GOVERNMENT GRANTS AS INVOLVED IN THE PRESENT CASE. 18. THE LD. D.R. HAS ALSO RELIED ON THE DECISION OF AHMEDABAD BENCH OF THIS TRIBUNAL IN THE CASE OF NATIONAL DAIRY DEVELOP MENT BOARD (SUPRA) IN SUPPORT OF THE REVENUES CASE. IT IS OBSERVED THAT THE ASSESSEE IN THE SAID CASE HAD EARNED INTEREST ON THE DEPOSITS MADE OUT O F FUNDS RECEIVED FOR DIFFERENT PROJECTS. IN THE CASE OF FUNDS RECEIVED F OR THE FIRST PROJECT, NO DETAILS WERE SUBMITTED BY THE ASSESSEE EITHER BEFOR E THE REVENUE AUTHORITIES OR EVEN BEFORE THE TRIBUNAL AND IN THE ABSENCE OF THE SAID DETAILS, THE TRIBUNAL UPHELD THE ACTION OF THE REVE NUE AUTHORITIES IN ASSESSING THE INTEREST RELATABLE TO THE SAID PROJEC T. AS REGARDS THE FUNDS RECEIVED FROM THE SECOND PROJECT, THERE WAS NO SPEC IFIC CONDITION STIPULATED IN THE RELEVANT LETTER ABOUT THE ACCRUAL OF INTEREST AND THE TRIBUNAL, THEREFORE, FOUND IT FIT TO RESTORE THE MA TTER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY AS TO WHAT WOULD HAPPEN ED TO THE INTEREST I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 23 EARNED AND WHETHER IT WAS ACTUALLY REFUNDED TO THE AUTHORITY OF THE GOVERNMENT. AS REGARDS THE FUNDS RECEIVED FOR THE T HIRD PROJECT, THERE WAS A LETTER ISSUED BY THE CONCERNED GOVERNMENT DEP ARTMENT, WHEREIN IT WAS STIPULATED THAT THE FUNDS RELEASED BY GOVERNMEN T OF INDIA SHALL BE KEPT IN A SEPARATE ACCOUNT FOR THE DESIRED PURPOSE AND THE AMOUNT OF INTEREST EARNED BY THE ASSESSEE WAS TO BE REFUNDED TO THE GOVERNMENT OF INDIA. AS PER THE SAID STIPULATION, INTEREST WAS AC TUALLY REFUNDED BY THE ASSESSEE IN THE NEXT YEAR AND KEEPING IN VIEW THE S AME, IT WAS HELD BY THE TRIBUNAL THAT THE INTEREST MIGHT NOT HAVE ACCRUED T O THE ASSESSEE OR OTHERWISE IT SHOULD NOT HAVE REFUNDED IN THE SUBSEQ UENT YEAR. IT WAS HELD THAT THE INTEREST BELONGED TO GOVERNMENT OF INDIA A ND WAS DIVERTED AT SOURCE. IN OUR OPINION, THIS DECISION OF THE AHMEDA BAD BENCH OF THIS TRIBUNAL IN THE CASE OF NATIONAL DAIRY DEVELOPMENT BOARD (SUPRA) RELIED UPON BY THE LD. D.R. ACTUALLY SUPPORTS THE CASE OF THE ASSESSEE, INASMUCH AS, THE ASSESSEE-COMPANY AS PER THE LETTER DATED 25 .09.2008 ISSUED BY THE GOVERNMENT OF INDIA, MINISTRY OF POWER WHILE RELEAS ING THE FUNDS WAS UNDER AN OBLIGATION TO ADJUST THE INTEREST AMOUNT I N QUESTION AGAINST THE CAPITAL SUBSIDY RECEIVABLE FROM THE GOVERNMENT AND THE SAID INTEREST AMOUNT HAVING BEEN FINALLY REMITTED BACK BY IT ENTI RELY TO THE GOVERNMENT OF INDIA, MINISTRY OF POWER, IT CANNOT B E SAID TO HAVE ACCRUED TO THE ASSESSEE AS INCOME AND IT WAS A CASE OF DIVE RSION OF INTEREST INCOME AT SOURCE. 19. IT IS OBSERVED THAT THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS.- A. TOSH & SONS PVT. LIMITE D (SUPRA) RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE ALSO FULLY SUPPORT S THE CASE OF THE ASSESSEE. IN THE SAID CASE, THE ASSESSEE HAD EXPORT ED TEA TO FOREIGN COUNTRIES AND UNDER THE AGREEMENTS ENTERED INTO WIT H THE FOREIGN BUYERS, ANY REFUND OR REBATE OF TAXES AND DUTIES PAYABLE BY THE FOREIGN BUYERS WAS LIABLE TO BE REMITTED TO THEM BY THE LD. CIT(AP PEALS). IN THESE FACTS I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 24 AND CIRCUMSTANCES OF THE CASE, IT WAS HELD BY THE H ONBLE CALCUTTA HIGH COURT THAT THE AMOUNT OF REBATE AND DUTY DRAW BACK WAS RECEIVED BY THE ASSESSEE ON BEHALF OF ITS FOREIGN BUYERS AND SINCE THE FOREIGN BUYERS WERE ENTITLED TO THE SAME, THE SAME WERE NEVER THE REAL INCOME OF THE ASSESSEE AND THEY WERE DIVERTED EVEN AT THE INCEPTION BY AN OVERRIDING TITLE IN FAVOUR OF THE FOREIGN BUYERS. 20. KEEPING IN VIEW ALL THE FACTS OF THE CASE IN TH E LIGHT OF JUDICIAL PRONOUNCEMENT AS DISCUSSED ABOVE, WE ARE OF THE VIE W THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF INTEREST IN QUESTION BY TREATING THE SAM E AS INCOME OF THE ASSESSEE IS NOT SUSTAINABLE. WE ACCORDINGLY DELETE THE SAID ADDITION AND ALLOW THIS APPEAL OF THE ASSESSEE. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED, WHILE THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON DECEMBER 31, 2019. SD/- SD/- (A.T. VARKEY) (P.M. JAGTAP) JUDICIAL MEMBER VICE-PRESIDENT) KOLKATA, THE 31 ST DAY OF DECEMBER, 2019 COPIES TO: (1) WEST BENGAL STATE ELECTRICITY DISTRIBUTION CO. LI MITED, (FORMERLY WEST BENGAL STATE ELECTRICITY BOARD), BIDYUT BHAWAN, SECTOR-II, BLOCK-DJ, BIDHAN NAGAR, KOLKATA-700 091 (2) DEPUTY /ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(2), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069 (3) COMMISSIONER OF INCOME TAX (APPEALS)-1, KOLKAT A; I.T.A. NO. 150/KOL/2018 ASSESSMENT YEAR: 2012-2013 & I.T.A. NO. 386/KOL/2018 ASSESSMENT YEAR: 2012-2013 WEST BENGAL STA TE ELECTRICITY DISTRIBUTION CO. LIMITED (FO RMERLY WEST BENGAL STATE ELECTRICITY BOARD) 25 (4) COMMISSIONER OF INCOME TAX, KOLKATA- , KOLKATA; (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.