M/S. OMIL+JAS-(JV) KAMENG, KOTA V. DEPUTY COMMISSIONER OF INCOME TAX, JAIPUR

ITA 154/JPR/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6361 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 06-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI
• Assessee Lawyers: B V MAHESHWARI
• Keywords: Business income; Capital receipt
• Section: 80HHC; 115JB; 37; 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 154/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2013-14 M/S OMIL JSC (JV) KAMENG. KOTA CUKE VS. DY. CIT CIRCLE-2, CENTRAL REVENUE BUILDING STATUTE CIRCLE JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAAJO0083B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI B. V. MAHESHWARI (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI J. C. KULHARI (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 24/07/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 25/07/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-1, JAIPUR DATED 06.11.2017 FOR ASSESSMENT YE AR 2013-14 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND OF APPEAL: THAT LD. AO AS WELL AS LD. CIT(A) GROSSLY ERRED ON FACTS AND LAW IN NOT CONSIDERING THE INTEREST AS PART OF BUSI NESS INCOME OF THE COMPANY AND HAVE NOT CONSIDERED THE INTEREST ON INCOME TAX REFUND RS. 33,51,35/- AS PART OF BUSINESS INCOME & THERE BY DENIED TO ALLOW THE DEDUCTION U/S 80IE OF I.T. ACT, 1961. ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 2 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A JOINT VENTURE CONCERN ENGAGED IN MANUFACTURING, FABRICATI ON, ERECTION, COMMISSIONING OF PEN STOCK STEEL LINER, STEEL RADIA L GATES OF HYDRO- MECHANICAL WORKS/EQUIPMENTS IN THE STATE OF ARUNACH AL PRADESH. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DECL ARED GROSS TOTAL INCOME OF RS. 14,22,58,195/- AND THE SAME HAS BEEN CLAIMED AS EXEMPT U/S 80IE AND TOTAL INCOME HAS BEEN DECLARED AT NIL. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN INCOME UNDER THE HEAD OTHER SOURCES AMOUNTING TO RS. 4,47,166 WHICH CON SISTS OF INTEREST ON INCOME TAX REFUND AMOUNTING TO RS. 3,53,135/- AND M ISCELLANEOUS RECEIPTS OF RS. 94,031/-. AS PER ASSESSING OFFICER , IN ORDER TO CLAIM DEDUCTION U/S 80IE, THE PROFITS SHOULD HAVE BEEN DE RIVED BY THE UNDERTAKING FROM MANUFACTURE OR PRODUCTION OF ELIGI BLE ARTICLE OR THING. IT HAS BEEN HELD BY THE ASSESSING OFFICER THAT THER E MUST BE DIRECT NEXUS BETWEEN PROFIT AND MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNDERTAKING. THE INCOME FROM OTHER SOURCES MAY CONS TITUTE PROFIT OF BUSINESS U/S 28 BUT IT CANNOT BE CONSTRUED AS PROFI TS DERIVED BY THE INDUSTRIAL UNDERTAKING. ACCORDINGLY, THE AO HELD TH AT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 80IE IN RESPECT OF INCOME FROM OTHER SOURCES AMOUNTING TO RS. 4,47,165/-. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO FOLLOWING THE DECISION OF THE CO -ORDINATE BENCHES IN THE EARLIER YEARS ALLOWED PARTIAL RELIEF TO THE ASS ESSEE IN RESPECT OF MISCELLANEOUS RECEIPT WHICH IS IN THE NATURE OF PRO VISION MADE IN THE ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 3 EARLIER YEARS WHICH WERE WRITTEN BACK AMOUNTING TO RS. 94,031/-. HOWEVER, AS FAR AS INTEREST ON INCOME TAX REFUND WA S CONCERNED, THE ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT(A) AN D HIS RELEVANT FINDING ARE CONTAINED AT PARA-2 WHICH IS REPRODUCED AS UNDER:- (II) THE AO HAS ALSO DISALLOWED DEDUCTION U/S 80IE OF THE ACT ON ACCOUNT OF INTEREST AMOUNTING TO RS. 3,35,135/- REC EIVED BY THE APPELLANT ON INCOME TAX REFUND BY TREATING THE SAME AS INCOME NOT DERIVED FROM THE BUSINESS OF THE UNDERTAKING. THE C ONTENTION OF THE APPELLANT THAT ADVANCE TAX OR SELF ASSESSMENT TAX I S TO BE DEPOSITED BY AN ASSESSEE ON SUO-MOTO BUT TDS IS DEDUCTED AND THU S EARNING OF INTEREST INCOME ON INCOME TAX REFUND, IS DIRECTLY R ELATED WITH THE BUSINESS OF THE COMPANY AND THE RECEIPTS ARE PART A ND PARCEL OF BUSINESS INCOME AND IS DIRECTLY DERIVED FROM BUSINE SS IS DEVOID OF ANY MERIT. I FAIL TO UNDERSTAND HOW THE INTEREST ON TAX REFUND CAN BE SAID TO BE DERIVED FROM THE MANUFACTURING BUSINESS OF THE U NDERTAKING UNDER CONSIDERATION. THEREFORE, IT IS HELD THAT THE AO WA S JUSTIFIED IN NOT ALLOWING DEDUCTION U/S 80 IE OF THE ACT ON THE AMOU NT OF INTEREST RECEIVED BY THE APPELLANT ON INCOME TAX REFUND. 5. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THE ENTIRE INCOME OF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/ S 80IE OF THE ACT. IT WAS SUBMITTED THAT NEEPCO HAS DEDUCTED TDS @ 2% IN AY 2012-13 WHICH WAS REFUNDED BY THE INCOME TAX DEPARTMENT SIN CE THERE WAS NO TAX LIABILITY AND THE TDS WAS REFUNDED ALONG WITH I NTEREST. IT WAS SUBMITTED THAT IF THE SAID TDS WOULD NOT HAVE BEEN DEDUCTED, IN THAT CASE, THE FINANCIAL EXPENSES SUCH AS INTEREST EXPEN SES WOULD HAVE BEEN ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 4 REDUCED OR THE INCOME WOULD HAVE BEEN INCREASED. IT WAS SUBMITTED THAT THE SAID SURPLUS FUND WOULD HAVE GIVEN EXTRA I NCOME TO THE ASSESSEE WHICH WOULD HAVE BEEN TAXABLE AS BUSINESS INCOME ELIGIBLE FOR DEDUCTION U/S 80IE OF THE ACT. 6. IT WAS FURTHER SUBMITTED THAT INTEREST ON INCOME TAX REFUND IN THE CASE OF THE ASSESSEE WHICH IS ELIGIBLE FOR DEDUCTIO N U/S 80IE IS BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES. THE AMOUN T OF REFUND AGAINST TDS OR EXCESS TAX PAID IS A CAPITAL RECEIPT , THEREFORE STATUTORY ACCRETION TO THE SAME SHOULD ALSO BE CONSIDERED AS CAPITAL RECEIPT OR IF THE BUSINESS FUNDS ARE INVESTED IN TDS, THEN IT IS IN THE NATURE OF BUSINESS INCOME. 7. IN SUPPORT RELIANCE, THE LD AR PLACED ON THE D ECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF HUBLI ELECTRICITY S UPPLY CO. VS. DCIT (2018) 404 ITR 462 (KAR) WHEREIN IT WAS HELD THAT I NTEREST INCOME ON FIXED DEPOSITS WAS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. IT WAS ACCORDINGLY SUBMITTED THAT THE ASSESSEE EARNED INTE REST ON THE TDS AMOUNT WHICH OTHERWISE WOULD HAVE BEEN AVAILABLE TO THE ASSESSEE AND WHICH WOULD HAVE YIELDED BUSINESS INCOME. THEREFORE , INTEREST REFUND IS RECEIVED IN VIEW OF THE BUSINESS INCOME AND IT IS E LIGIBLE FOR DEDUCTION U/S 80IE OF THE ACT. 8. THE LD DR IS HEARD WHO HAS RELIED ON THE ORDER O F THE LOWER AUTHORITIES. IT WAS FURTHER SUBMITTED BY THE LD. D R THAT THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IS DISTINGUISHABLE ON FACTS AND NOT APPLICABLE IN THE INSTANT CASE. ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 5 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSED THE MATERIAL AVAILABLE ON RECORD. THE LIMITED ISSUE UNDER CONSI DERATION RELATES TO WHETHER INTEREST ON INCOME TAX REFUND IS ELIGIBLE F OR DEDUCTION UNDER SECTION 80IE OF THE ACT. THE CONTENTION OF THE ASS ESSEE IS THAT IT HAS ONLY ONE BUSINESS UNDERTAKING AND THE ONLY BUSINESS OF THE UNDERTAKING IS THAT OF MANUFACTURING ACTIVITY AND ANY INCOME DE RIVED BY THE UNDERTAKING, INCLUDING THE INTEREST INCOME, CAN ONL Y BE DERIVED BY THE UNDERTAKING WHOLE OF WHICH IS ELIGIBLE FOR DEDUCTIO N UNDER SECTION 80IE OF THE ACT. IT WAS ACCORDINGLY CONTENDED THAT ANY INTEREST EVEN IF THE SAME HAS ACCRUED ON ACCOUNT OF EXCESS DEDUCTION OF TAXES AT SOURCE, THE SAME WOULD BE IN NATURE OF BUSINESS INCOME AN D NOT INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 10. IN THIS REGARD, USEFUL REFERENCE CAN BE DRAWN T O THE DECISION OF THE COORDINATE BENCH IN CASE OF ATRIA POWER CORPORATION LTD. V. DCIT [2011] 128 ITD 322 (BANG.) WHEREIN SIMILAR CONTENTIONS HAVE BEEN ADVANCED ON BEHALF OF THE ASSESSEE AND IT WAS HELD THAT THE INTEREST EARNED ON INCOME-TAX REFUNDS WAS NOT ASSES SABLE AS PART OF THE PROFITS AND GAINS OF THE POWER GENERATION BUSINESS ELIGIBLE FOR DEDUCTION U/S SECTION 80-IA(4)(IV) AND INTEREST WAS ASSESSABL E UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE RELEVANT FINDINGS ARE REPRODUCED AS UNDER:- 9. WE MUST NOW TURN TO THE OTHER ARGUMENT WHICH IS THAT THE INTEREST INCOME OF RS. 9,82,050 MUST BE CONSIDERED AS PART O F THE PROFITS AND GAINS OF THE BUSINESS AND IS ENTITLED TO THE RELIEF UNDER SECTION 80- ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 6 IA(4)(IV). THIS ARGUMENT IS AN ALTERNATIVE TO THE A RGUMENT REFERRED TO IN THE PRECEDING PARAGRAPHS AND WHICH WE HAVE NOT BEEN ABLE TO ACCEPT. THE ALTERNATIVE ARGUMENT PROCEEDS THIS WAY. IT IS C ONTENDED THAT THE INTEREST INCOME IS REALLY DERIVED BY THE UNDERTAKIN G FROM THE ELIGIBLE BUSINESS AND IS, THEREFORE, ENTITLED TO THE DEDUCTI ON. IT IS POINTED OUT THAT SECTION 80-IA(1) USES THE PHRASEOLOGY 'ANY PRO FITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4)' AND THE SAME IS CONTRASTED W ITH THE PHRASEOLOGY EMPLOYED IN SECTION 80HH(1), SECTION 80HHA(1), ETC. , WHERE THE PHRASEOLOGY USED IS 'ANY PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING' AND 'ANY PROFITS AND GAINS DERIVED FRO M A SMALL SCALE INDUSTRIAL UNDERTAKING' RESPECTIVELY, THE ARGUMENT BEING THAT THE ONLY BUSINESS OF THE UNDERTAKING IS THAT OF POWER GENERA TION AND ANY INCOME DERIVED BY THE UNDERTAKING, INCLUDING THE INTEREST INCOME, CAN ONLY BE DERIVED BY THE UNDERTAKING AND IT IS NOT NECESSARY FOR THE UNDERTAKING TO ALSO SHOW THAT THE INTEREST INCOME IS TRACEABLE TO THE UNDERTAKING. IT IS SUBMITTED THAT ANY INCOME DERIVED BY THE UNDERTA KING FROM THE BUSINESS OF POWER GENERATION IS ELIGIBLE FOR THE DE DUCTION AND THE INTEREST INCOME FALLS UNDER THIS CATEGORY. IT IS AL SO POINTED OUT THAT THE INCOME-TAX IS PAID BY THE UNDERTAKING AND NOT THE A SSESSEE. IN CONTRAST, THE ARGUMENT OF THE REVENUE IS THAT THE I NTEREST RECEIVED BY THE ASSESSEE IS ON ACCOUNT OF FIXED DEPOSITS WITH B ANK AND INCOME-TAX REFUND AND THESE TWO ITEMS OF INCOME HAVE NOTHING T O DO WITH THE BUSINESS OF THE UNDERTAKING, WHICH IS THAT OF POWER GENERATION AND, THEREFORE, THE INTEREST CANNOT BE CONSIDERED AS PRO FITS DERIVED BY THE UNDERTAKING FROM THE ELIGIBLE BUSINESS. BOTH SIDES HAVE DRAWN OUR ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 7 ATTENTION TO CERTAIN AUTHORITIES WHICH WE SHALL REF ER AT THE APPROPRIATE STAGE. 10. IT IS NECESSARY TO NOTICE THAT THE INTEREST INC OME OF RS. 9,82,050 CONSISTS OF THE FOLLOWING : (A) INTEREST FROM FIXED DEPOSITS FROM BANKS 6,00,547 (B) INTEREST ON INCOME-TAX REFUND 3,81,501 THE CASE OF THE ASSESSEE IS THAT THE ENTIRE INTERES T QUALIFIES FOR THE DEDUCTION. HOWEVER, IT WAS AGREED BY ALL CONCERNED THAT EVEN IF ONE OF THE TWO ITEMS OF THE INTEREST INCOME IS HELD NOT EL IGIBLE FOR THE DEDUCTION THEN IT WOULD FALL TO BE ASSESSED AS INCO ME FROM OTHER SOURCES, WITH THE RESULT THAT THERE WOULD SOME TAX PAYABLE IN RESPECT OF THE TOTAL INCOME COMPUTED UNDER THE NORMAL PROVISIO NS OF THE ACT WHICH WOULD BE AVAILABLE FOR COMPARISON WITH THE BO OK PROFIT TAX PAYABLE UNDER SECTION 115JB AND, THEREFORE, IT WOUL D NOT BE POSSIBLE FOR THE ASSESSEE TO CONTEND THAT THE SAID SECTION CANNO T BE APPLIED TO ITS CASE. HAVING REGARD TO THIS POSITION, ARGUMENTS WER E ADDRESSED ON BEHALF OF THE ASSESSEE WITH REGARD TO THE INTEREST OF RS. 3,81,501 WHICH WAS RECEIVED IN RESPECT OF THE INCOME-TAX REFUND. T HE CONTENTION WAS THAT IT WAS THE UNDERTAKING WHICH CARRIED ON THE PO WER GENERATION BUSINESS WHICH SUFFERED THE OUTFLOW OF FUNDS BY PAY MENT OF INCOME-TAX AND THAT BUT FOR SUCH OUTFLOW THE FUNDS WOULD HAVE BEEN AVAILABLE TO BE USED IN THE BUSINESS OF THE UNDERTAKING AND WOULD H AVE PROBABLY RESULTED IN HIGHER PROFITS AND IN SUCH A SITUATION, IT CANNOT BE SAID THAT THE PAYMENT OF INCOME-TAX AND THE CONSEQUENT INTERE ST ON THE REFUND HAD NOTHING TO DO WITH THE ELIGIBLE BUSINESS. IT WA S CONTENDED THAT IN THE AFORESAID SITUATION, THE INTEREST INCOME ACTUAL LY AROSE OUT OF THE ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 8 POWER GENERATION BUSINESS AND SINCE THE INCOME WAS DERIVED BY THE UNDERTAKING, IT WAS ELIGIBLE FOR THE DEDUCTION. THE CONTENTION OF THE REVENUE, SUCCINCTLY PUT, WAS THAT PAYMENT OF INCOME -TAX IS ALWAYS A PERSONAL OBLIGATION AND CAN NEVER BE LINKED TO THE BUSINESS AND, THEREFORE, WHATEVER INCOME IS RECEIVED BY WAY OF IN TEREST ON THE EXCESS TAX PAYMENT CAN NEVER BE CONSIDERED AS BUSINESS INC OME. IT IS SUBMITTED THAT THE INTEREST IS ALWAYS TO BE ASSESSE D UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. OUR ATTENTION WAS ALSO DRAWN TO SECTION 40(A)( II) OF THE ACT WHICH PROHIBITS ANY ALLOWANCE BEING GIVEN FOR ANY SUM PAID ON ACCOUNT OF INCOME-TAX PAID BY THE ASSES SEE ON HIS PROFITS. IT IS CONTENDED THAT THE RATIONALE OF THIS PROHIBIT ION IS THE PRINCIPLE THAT PAYMENT OF INCOME-TAX IS NOT A BUSINESS OBLIGATION, BUT A PERSONAL OBLIGATION. 11. THE DIFFERENCE IN THE PHRASEOLOGY BETWEEN SECTI ON 80-IA(1) ON THE ONE HAND AND SECTIONS 80HH(1) AND 80HHA(1) ON THE O THER HAND, IN OUR OPINION, DOES NOT MAKE ANY DIFFERENCE TO THE PO SITION THAT THE INTEREST ON INCOME-TAX REFUND CANNOT BE ASSESSED UN DER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. WE ARE CONCERNED O NLY WITH THE QUESTION WHETHER THE INTEREST INCOME DERIVED BY THE UNDERTAKING CAN BE CONSIDERED AS INCOME DERIVED BY THE SAID UNDERTAKIN G FROM THE BUSINESS OF POWER GENERATION. FOR THIS PURPOSE, WHICH IS THE RELEVANT ENQUIRY TO BE CARRIED OUT UNDER SECTION 80-IA(1), IT IS NOT NE CESSARY TO EXAMINE WHETHER THE DIFFERENCE IN THE PHRASEOLOGY BETWEEN T HE AFORESAID SUB- SECTION AND SECTIONS 80HH(1) AND 80HHA(1) WOULD MAK E ANY DIFFERENCE TO THE PRINCIPLE. EVEN IN A CASE WHERE THE ASSESSEE CONTENDS THAT THE INTEREST ON THE INCOME-TAX REFUND IS ELIGIBLE FOR D EDUCTION UNDER SECTION 80HH OR 80HHA, IT WOULD BE RELEVANT TO EXAMINE WHET HER THE SAID ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 9 INTEREST CAN BE CONSIDERED AS PART OF THE PROFITS A ND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING OR A SMALL SCALE INDUSTRI AL UNDERTAKING. IN ALL THE THREE CASES, IT WOULD BE A NECESSARY ENQUIRY TO FIND OUT IF SUCH INTEREST CAN BE CONSIDERED AS PART OF THE PROFITS A ND GAINS OF THE ELIGIBLE BUSINESS. EVEN IF WE ARE WRONG IN THIS VIEW THE POS ITION THAT WOULD STILL REMAIN IS THAT IT IS NECESSARY FOR US, WHILE DEALIN G WITH THE CASE OF DEDUCTION UNDER SECTION 80-IA, TO EXAMINE WHETHER T HE INTEREST ON THE INCOME-TAX REFUND CAN BE CONSIDERED AS INCOME DERIV ED BY THE UNDERTAKING FROM THE ELIGIBLE BUSINESS (I.E., POWER GENERATION). 12. WE MAY FIRST PROCEED TO EXAMINE THE NATURE OF T HE INCOME-TAX PAYMENT. THE LEADING CASE IN ENGLAND IS THAT OF ATT ORNEY GENERAL V. ASHTON GAS CO. [1904] 2 CH. 621. IN THIS CASE, IT W AS OBSERVED THAT INCOME-TAX IS PART OF THE PROFITS WHICH THE 'REVENU E IS ENTITLED TO TAKE OUT OF THE PROFITS. . . . BUT A PROPORTIONATE PART OF THE PROFITS PAYABLE TO THE REVENUE IS NOT THE DEDUCTION BEFORE ARRIVING AT , BUT A PART OF THE PROFITS THEMSELVES'. THIS CASE WAS AFFIRMED BY THE HOUSE OF LORDS WHERE THE EARL OF HALSBURY L.C. OBSERVED THAT '. . . YOU MUST ASCERTAIN WHAT IS THE PROFIT THAT IS MADE BEFORE YOU DEDUCT T HE TAX - YOU HAVE NO RIGHT TO DEDUCT THE INCOME-TAX BEFORE YOU ASCERTAIN WHAT THE PROFIT IS. I CANNOT UNDERSTAND HOW YOU CAN MAKE THE INCOME-TAX P ART OF THE EXPENDITURE'. IN ALLEN V. FARQUHARSON [1932] 17 TAX CASES 59, IT WAS HELD THAT YOU HAVE TO ARRIVE AT THE CORRECT COMPUTA TION OF THE PROFITS AND THEN THEY HAVE TO BE SHARED OUT AND IN SO SHARI NG, 'THERE IS ONE COMPULSORY PAYMENT, THE CROWNS SHARE ; THEY HAVE G OT TO GET THAT ...'. IN INDIA, PROBABLY THE FIRST CASE ON THIS QUESTION, I.E., THE NATURE OF INCOME-TAX PAYMENT WAS THE DECISION OF THE MADRAS H IGH COURT IN CHIEF CIT V. EASTERN EXTENSION AUSTRALASIA & CHINA TELEGR APH CO. LTD. [1921] ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 10 1 ITC 120 , A JUDGMENT RENDERED UNDER THE INCOME-TAX ACT OF 1 918 BY A FULL BENCH OF THE COURT HEADED BY SIR JOHN WALLIS, THE HONBLE CHIEF JUSTICE AT THAT TIME. ALL THE THREE LEARNED JUDGES DELIVERED SEPARATE BUT CONCURRING JUDGMENTS ON 14-2-1921. HONBLE JUSTICE KUMARASWAMI SASTRI WHILE DELIVERING HIS JUDGMENT APPLIED THE JU DGMENT OF ASHTON GAS CO.S CASE (SUPRA) AND HELD THAT : '. . . SO FAR AS PROFITS MADE IN INDIA ARE CONCERNE D, IT IS CLEAR THAT INCOME-TAX PAID DURING THE PREVIOUS YEAR OR LIKELY TO BE ASSESSED DURING THE CURRENT YEAR CANNOT BE DEDUCTED. SECTION 9 OF THE ACT WHICH RELATES TO INCOME DERIVED FROM BUSINESS AND P ROVIDES FOR THE MODE BY WHICH SUCH INCOME SHALL BE COMPUTED, SPECIF IES THE DEDUCTIONS THAT CAN LEGALLY BE MADE, AND IT IS CLEA R THAT INCOME-TAX PAID FOR THE PREVIOUS YEAR CANNOT BE DEDUCTED TO AR RIVE AT AN ESTIMATE OF THE PROFITS ON WHICH INCOME-TAX IS TO B E ASSESSED.' THESE DECISIONS HAVE BEEN REFERRED TO BY THE PATNA HIGH COURT IN THE PROVINCE OF BIHAR V. RAI SHAMBULAL BOSE [1947] 15 I TR 176. IN THIS CASE, HONBLE JUSTICE MANOHAR LALL, SPEAKING FOR A DIVISION BENCH OF THE COURT STATED THE LAW AS FOLLOWS : 'ON GENERAL PRINCIPLES AND IN ACCORDANCE WITH THE P RACTICE WHICH PREVAILS IN ENGLAND, IT IS WELL-SETTLED THAT INCOME -TAX PAID BY AN ASSESSEE CANNOT BE ALLOWED TO BE DEDUCTED OUT OF TH E ASSESSABLE INCOME. THE REASON FOR THIS PRACTICE IS THAT INCOME -TAX IS A SHARE OF THE CROWN IN THE INCOME OF THE ASSESSEE AND CANNOT BE TREATED AS AN EXPENDITURE NECESSARY TO EARN THAT INCOME.' IN SMT. PADMAVATHI JAIKRISHNA V. ADDL. CIT [1987] 166 ITR 176 1 , THE SUPREME COURT OBSERVED AS UNDER AT PAGE 179 : ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 11 'WE ARE INCLINED TO AGREE WITH THE HIGH COURT THAT SO FAR AS MEETING THE LIABILITY OF INCOME-TAX AND WEALTH-TAX IS CONCE RNED, IT WAS INDEED A PERSONAL ONE AND PAYMENT THEREOF CANNOT AT ALL BE SAID TO BE EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF EARNING INCOME.' THESE OBSERVATIONS WERE MADE WITH REFERENCE TO SECT ION 57(III) OF THE ACT BUT IT MAKES NO DIFFERENCE TO OUR VIEW BECAUSE THE RATIO OF THE JUDGMENT IS THAT INCOME-TAX PAYMENT IS A PERSONAL O BLIGATION. THE FOLLOWING GENERAL PRINCIPLES EMERGE OUT OF THE ABOV E AUTHORITIES : (A)THAT INCOME-TAX IS AN APPROPRIATION OF THE PROFI TS AND IS PAID OUT AFTER THE PROFITS ARE EARNED; (B)THAT IT IS THE STATES SHARE OF THE PROFITS OF T HE ASSESSEE; (C)THAT IT IS A PERSONAL OBLIGATION OF THE ASSESSEE TO PAY INCOME-TAX AND IT HAS NOTHING TO DO WITH THE BUSINESS; AND (D)THAT IT IS NOT DEDUCTIBLE IN THE COMPUTATION OF THE PROFITS BECAUSE IT REPRESENTS AN APPROPRIATION OF THE PROFITS AFTER TH EY HAVE BEEN EARNED AND NOT IN THE COURSE OF OR FOR THE PURPOSE OF EARNING SUCH PROFITS. IT IS IN VIEW OF THE AFORESAID PRINCIPLES THAT INCO ME-TAX PAID IS NOT ALLOWED AS A DEDUCTION IN COMPUTING THE PROFITS OF THE BUSINESS. SECTION 10(4) OF THE 1922 ACT PROHIBITED THE ALLOWANCE OF I NCOME- TAX PAYMENT AS A DEDUCTION IN COMPUTING THE PROFITS OF THE BUSI NESS. THE PRESENT SECTION 40(A)( II) IS THE SUCCESSOR OF THE ABOVE SU B-SECTION. IN OUR OPINION, IF INCOME-TAX PAYMENT IS A PERSONAL OBLIGA TION AND NOT THE OBLIGATION OF THE BUSINESS, THEN IT FOLLOWS THAT TH E PAYMENT OF TAX, ALBEIT OUT OF THE COFFERS OF THE BUSINESS, HAS TO BE DIVOR CED FROM BUSINESS ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 12 CONSIDERATIONS AND IT FOLLOWS FURTHER THAT ANY INTE REST RECEIVED ON EXCESS PAYMENT OF INCOME-TAX CAN NEVER BE CONSIDERE D AND ASSESSED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. 13. IN THE COURSE OF THE ARGUMENTS, WE PUT IT TO TH E ASSESSEE WHETHER THE JUDGMENT OF THE MADRAS HIGH COURT IN SMT. B. SE SHAMMA V. CIT [1979] 119 ITR 314 WHERE IT WAS HELD THAT THE INTEREST RECEIVED ON EXCESS PAYMENT OF ADVANCE TAX WAS ASSESSABLE AS 'IN COME FROM OTHER SOURCES' LAID DOWN ANYTHING AGAINST THE CONTENTION BEING ADVANCED BEFORE US NOW. THE LEARNED REPRESENTATIVE FOR THE A SSESSEE AFTER GOING THROUGH THE JUDGMENT SOUGHT TO DISTINGUISH THE SAME . HE CONTENDED THAT IN THAT CASE, THE ONLY QUESTION ARGUED WAS WHE THER THE INTEREST WAS A CAPITAL RECEIPT. IT WAS POINTED OUT THAT THE ARGUMENT BEFORE THE MADRAS HIGH COURT ON BEHALF OF THE ASSESSEE WAS THA T SINCE INCOME-TAX WAS A PERSONAL OBLIGATION THE INTEREST PAID ON THE EXCESS OF ADVANCE TAX WAS IN THE NATURE OF A PERSONAL COMPENSATION AND, H ENCE, CAPITAL IN NATURE AND IT WAS THIS ARGUMENT THAT WAS REPELLED B Y THE HIGH COURT WHICH RELIED ON THE SUPREME COURT JUDGMENTS IN DR. SHAMLAL NARULA V. CIT [1964] 53 ITR 151 (MAD.), T.N.K. GOVINDRAJU CHETTY V. CIT [1967] 66 ITR 465 (SC) AND CHANDROJI RAO V. CIT [1970] 77 ITR 743 (SC) AND THAT IT WAS NEVER THE CASE OF THE ASSESSEE THAT THE INTEREST PARTOOK THE CHARACTER OF PROFITS OF THE BUSINESS. IT IS SUBMITT ED THAT THE CASE HAS TO BE UNDERSTOOD IN THE LIGHT OF THE CONTROVERSY FOR D ECISION WHICH WAS ONLY WHETHER THE INTEREST WAS CAPITAL RECEIPT. IT W AS FURTHER SUBMITTED THAT THOUGH AT PAGE 321, THE MADRAS HIGH COURT HELD THAT THE INTEREST MAY NOT BE AN INCOME ARISING FROM AN ACTIVITY, BU SINESS OR INVESTMENT, IT WOULD COME UNDER THE HEAD 'OTHER SOURCES', THESE OBSERVATIONS HAVE TO BE UNDERSTOOD ONLY IN THE CONTEXT OF THE PRECISE CONTROVERSY WHICH ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 13 WAS BEFORE THE COURT. WHILE IT MAY BE TRUE THAT THE JUDGMENT OF THE MADRAS HIGH COURT (SUPRA) DID NOT DEAL WITH THE PRE CISE CONTROVERSY THAT HAS ARISEN FOR DECISION BEFORE US AND THE OBSE RVATIONS MADE THEREIN HAVE TO BE UNDERSTOOD ONLY TO THE EXTENT TH AT THE INTEREST RECEIVED ON INCOME-TAX REFUND WOULD FALL TO BE CONS IDERED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND WHERE A CONTEN TION IS ADVANCED THAT SUCH INTEREST HAVING ARISEN BECAUSE OF DEPLOYM ENT OF THE BUSINESS FUNDS IN THE PAYMENT OF TAX, THE SAME IS ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF THE BUSINESS', THE JUDGMENT C ANNOT BE RELIED ON TO REJECT THE CONTENTION, THE OTHER AUTHORITIES TO WHI CH WE HAVE ALLUDED HAVE CLEARLY HELD THAT PAYMENT OF INCOME-TAX IS A P ERSONAL OBLIGATION AND CANNOT BE DEDUCTED IN THE COMPUTATION OF THE BU SINESS PROFITS. IT FOLLOWS THAT THE DEPLOYMENT OF THE FUNDS OF THE POW ER GENERATION BUSINESS FOR PAYMENT OF INCOME-TAX MUST BE VIEWED D E HORS BUSINESS CONSI-DERATIONS AND PURELY AS A DISCHARGE OF A PERS ONAL OBLIGATION. IF BUSINESS CONSIDERATIONS HAVE TO BE EXCLUDED IT FURT HER FOLLOWS THAT THE INCOME ARISING FROM THE DEPLOYMENT OF THE FUNDS IN PAYMENT OF TAXES CANNOT BE VIEWED AS BUSINESS INCOME ASSESSABLE UNDE R THE HEAD 'PROFITS AND GAINS OF THE BUSINESS'. 14. REFERENCE WAS MADE ON BEHALF OF THE ASSESSEE TO THE JUDGMENT OF THE SUPREME COURT IN CIT V. WILLIAMSON FINANCIAL SE RVICES [2008] 297 ITR 17 1 . IT WAS HELD IN THIS CASE THAT THE WORD 'DERIVED' USED IN THE EXPRESSION 'PROFITS DERIVED FROM EXPORTS' IN SECTIO N 80HHC WOULD MEAN DERIVED FROM THE SOURCE AND THAT SOURCE HAS TO BE I N SECTION 14 AND SINCE AGRICULTURAL INCOME WHICH IS NOT CHARGEABLE T O TAX DOES NOT FALL IN SECTION 14, IT CANNOT FALL UNDER THE VARIOUS COMPUT ATION PROVISIONS OF SECTIONS 15 TO 59. WE HAVE CAREFULLY STUDIED THE DE CISION BUT FIND THAT IT ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 14 IS OF NO ASSISTANCE TO THE ASSESSEE BEFORE US. THE PRESENT ASSESSEE CAN SUCCEED IN THE APPEAL ONLY IF IT IS ABLE TO GAIN AC CEPTANCE OF ITS CONTENTION THAT TAX PAYMENT THROUGH THE FUNDS GENER ATED BY THE POWER GENERATION BUSINESS IS AN ACTIVITY WHICH IS PART OF THE SAID BUSINESS. WE HAVE ALREADY SEEN THAT SUCH A PROPOSITION CANNOT BE ACCEPTED. AT THIS JUNCTURE, IT IS NECESSARY TO REFER TO A SOMEWHAT RE CENT JUDGMENT OF THE SUPREME COURT IN BHARAT COMMERCE & INDUSTRIES LTD. V. CIT [1998] 230 ITR 733 2 . IN THIS CASE, THE CLAIM WAS THAT THE INTEREST PA ID ON AMOUNTS BORROWED FOR PAYMENT OF TAX IN INSTALMENTS AND WITH INTEREST WAS DEDUCTIBLE UNDER SECTION 36(1)(III) OF THE ACT. ANO THER CLAIM WAS THAT THE INTEREST PAID ON DELAYED FILING OF RETURNS WAS ALLOWABLE AS DEDUCTION UNDER SECTION 37. SO FAR AS THIS ISSUE IS CONCERNED , THE SUPREME COURT OBSERVED THAT IF PAYMENT OF INCOME-TAX ITSELF IS NO T A PERMISSIBLE DEDUCTION, ANY INTEREST PAYABLE FOR DELAY IN FILING THE RETURN, WHICH IS CALCULATED WITH REFERENCE TO THE TAX ON THE INCOME CANNOT BE ALLOWED AS A DEDUCTION. AS REGARDS THE CLAIM UNDER SECTION 36( 1)(III), IT WAS CLAIMED BY THE ASSESSEE THAT THIS WAS AN EXPENSE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND WAS INCURRED FOR THE PURPOSE OF PRESERVING AND PROTECTING THE ASSESSEES BUSINESS SINCE OTHERWISE, IT WAS CONTENDED, THE ASSETS OF THE BUSI NESS WOULD HAVE BEEN OPEN TO RECOVERY ACTION BY THE INCOME-TAX AUTH ORITIES. THE SUPREME COURT REJECTED THE PLEA BASED ON SECTION 37 ON THE GROUND THAT THE INTEREST PAYMENT WAS NOT IN ANY WAY CONNEC TED TO THE ASSESSEES BUSINESS OR INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF THE BUSINESS. IT WAS OBSERVED THAT THE TAX IS PA YABLE ON THE ASSESSEES INCOME AFTER THE INCOME IS DETERMINED AN D, THEREFORE, THE INTEREST CANNOT BE CONSIDERED AS EXPENDITURE FOR TH E PURPOSE OF EARNING ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 15 THE PROFITS. THIS JUDGMENT ALSO SHOWS THAT PAYMENT OF TAX OR INTEREST ON MONIES BORROWED FOR PAYMENT OF TAX HAS NOT BEEN VIE WED AS SOMETHING CONNECTED TO THE BUSINESS OPERATIONS OF THE ASSESSE E AND THE COURTS HAVE BEEN INCLINED TO TAKE THE VIEW THAT PAYMENT OF TAX IS A PERSONAL OBLIGATION NOT CONNECTED WITH THE BUSINESS. THE DEP LOYMENT OF FUNDS OF THE BUSINESS OF POWER GENERATION IN MAKING TAX PAYM ENTS CANNOT, THEREFORE, BE CONSI-DERED AS SOMETHING CONNECTED TO THE ASSESSEES BUSINESS SO THAT IT CAN BE SUCCESSFULLY CONTENDED T HAT THE INTEREST ON EXCESS PAYMENT OF TAX WILL PARTAKE THE CHARACTER OF BUSINESS INCOME. 15. FOR THE AFORESAID REASONS, WE ARE UNABLE TO ACC EPT THE CONTENTION OF THE ASSESSEE THAT THE INTEREST EARNED ON INCOME- TAX REFUNDS WAS ASSESSABLE AS PART OF THE PROFITS AND GAINS OF THE POWER GENERATION BUSINESS. IN OUR VIEW, THE INTEREST WAS ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AS RIGHTLY ASSESSED BY THE ASSESSING OFFICER. IF THAT IS SO, SOME TAX IS PAYABLE ON THE INTEREST INCOME OF RS. 3,81,501 WHICH WOULD BE ADMITTEDLY LESS THAN THE BO OK PROFIT TAX PAYABLE UNDER SECTION 115JB. THE ASSESSEE IS, THERE FORE, LIABLE TO PAY BOOK PROFIT TAX UNDER THE SECTION AS DEMANDED BY TH E ASSESSING OFFICER. 16. THE APPEAL OF THE ASSESSEE IS, ACCORDINGLY, DIS MISSED WITH NO ORDER AS TO COSTS. 11. THE DECISION OF THE HONBLE KARNATAKA HIGH COUR T REFERRED SUPRA IS DISTINGUISHABLE ON FACTS AND NOT APPLICABLE IN T HE INSTANT CASE AS THE ISSUE IS REGARDING INTEREST ON INCOME TAX REFUND AS AGAINST INTEREST ON FIXED DEPOSITS WHICH WERE PLACED ON ACCOUNT OF BUSI NESS EXIGENCY. ITA NO. 154/JP/2018 M/S OMIL +JSC-(JV) KAMENG. VS. M/S DCIT, JAIPUR 16 12. IN LIGHT OF ABOVE DISCUSSIONS AND FOLLOWING TH E COORDINATE BENCH DECISION REFERRED SUPRA, INTEREST ON INCOME TAX REF UND IS HELD NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IE OF THE AC T AND THE ACTION OF THE LD CIT(A) IS HEREBY CONFIRMED. IN THE RESULT, SOLE GROUND OF APPEAL IS DISMISSED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/07/2018. SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 25/07/2018 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S OMIL + JSC-(JV) KAMENG, KOTA 2. IZR;FKHZ@ THE RESPONDENT- M/S DCIT, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 154/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR