Berco Undercarriages (India) Private Limited, Hyderabad V. Income Tax Officer, Ward 1(1), Hyderabad

ITA 1678/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2870 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 12-11-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Business income; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1678/HYD/2012 : ASSESSMENT YEAR 200 9-10 M/S. BERCO UNDERWRITINGS (INDIA) PVT. LTD. CHERLAPALLY (V), HYDERABAD (PAN AADCB 5412 B ) V/S INCOME-TAX OFFICER, WARD 1(1), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SISTLA VENKATESWARLU, AR RESPONDENT BY : SHRI K.J.RAO, DR DATE OF HEARI NG 10.06.2013 DATE OF PRONOUNCEMENT 17.06.2013 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) II, HYDERABAD D ATED 21.9.2012 FOR THE ASSESSMENT YEAR 2009-10. 2. GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WIT H REGARD TO THE ACTION OF THE ASSESSING OFFICER IN TREATING THE INTEREST INCOME RECEIVED ON FIXED DEPOSITS AS INCOME FROM OTHER SOURCES, AS AGAINST THE CLAIM OF THE ASSESSEE THAT IT IS INEXTRICABLY LINKED WITH SETTING UP OF THE INFRASTR UCTURE FOR THE PROJECT AND THEREFORE, IS A CAPITAL RECEIPT LIABLE TO BE SET OF F AGAINST THE PRE-OPERATIVE EXPENSES. ITA NO.1678/HYD/ 12 M/S. BERCO UNDERWRITINGS (INDIA) PVT. LTD. CHERLAPALLY (V), HYDERABAD 2 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSI NG OFFICER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION WAS THE PRE-COM MENCEMENT PERIOD OF THE ASSESSEE IN ITS BUSINESS OPERATIONS AND DURING THE YEAR, ASSESSEE RECEIVED FOREIGN REMITTANCES TOWARDS SHARE CAPITAL. OUT OF THE FUNDS RECEIVED, RS. 11 CRORES WAS KEPT IN FIXED DEPOSITS WITH HSBC BANK AN D EARNED INTEREST OF RS.29,16,878, WHICH WAS SET OFF AGAINST PRE-OPERATI VE EXPENSES OF RS.29,92,158, AND ACCORDINGLY, A FIGURE OF NET LOSS OF RS.75,280 WAS ARRIVED AT. THE ASSESSING OFFICER, PLACING RELIANCE ON THE DECISION OF THE AP EX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. (227 ITR 172), PROPOSED TO TREAT THE SAID INTEREST RECEIVED AS INCOME FROM OTHER SOURCES. T HE OPPOSED THE SAID PROPOSAL OF THE ASSESSING OFFICER, STATING THAT DUE TO TEMPO RARY DELAY IN SECURING THE LAND AND CONSEQUENT DEVELOPMENT OF INFRASTRUCTURE, IT HA D PARKED THE MONEY IN THE BANK FIXED DEPOSITS AND THE INTEREST INCOME WAS INE XTRICABLY LINKED WITH THE SETTING UP OF THE ASSEMBLING UNIT AND AS SUCH, SUCH INTEREST INCOME IS ELIGIBLE TO BE ADJUSTED AGAINST PREOPERATIVE EXPENSES. IT WAS ALSO SUBMITTED THAT THE DEPOSITS AMOUNTS WERE NOT SURPLUS FUNDS, BUT INITIA L AMOUNTS SET APART TO PURCHASE LAND AND DEVELOP INFRASTRUCTURE. IN SUPPO RT OF HIS CONTENTIONS, THE ASSESSEE ALSO PLACED RELIANCE ON THE DELHI HIGH COU RT DECISION IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM V/S. ITO(181 TA XMANN 249). HOWEVER, THE ASSESSING OFFICER, OBSERVING THAT THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE IN SUPPORT OF ITS CLAIM THAT THE ASSESSEE COMPANY FAC ED LEGAL HASSLES TO PURCHASE THE LAND, AND THE CONSIDERATION FOR THE PURCHASE OF LAND WAS NOT REQUIRED TO BE PAID AT ONE TIME, AND WAS TO BE PAID IN INSTALMENTS AND THE COMPANY HAD SURPLUS FUNDS IN ITS HANDS, BEING MONIES NOT IMMEDIATELY RE QUIRED FOR THE PURCHASE OF LAND OR CONSTRUCTION, AND SINCE THE ASSESSEE WANTED TO INVEST IT FRUITFULLY, THE SURPLUS CAPITAL IN FIXED DEPOSITS, HELD THAT THE I NTEREST INCOME GENERATED FROM THE FIXED DEPOSITS HAD TO BE CONSIDERED AS INCOME F ROM OTHER SOURCES. ITA NO.1678/HYD/ 12 M/S. BERCO UNDERWRITINGS (INDIA) PVT. LTD. CHERLAPALLY (V), HYDERABAD 3 4. ON APPEAL, THE CIT(A), CONFIRMED TH E RODER OF THE ASSESSING OFFICER AND DISMISSED THE APPEAL OF THE ASSESSEE. 5 AGGRIEVED BY THE ORDER OF THE CIT(A), ASSESSEE IS IN SECOND APPEAL BEFORE US. 6. THE LEARNED AUTHORISED REPRESENTATIVE SUBMIT TED THAT THE ASSESSEE COLLECTED THE SHARE CAPITAL AND THERE WAS DELAY IN THE COMMENCEMENT OF THE BUSINESS ON ACCOUNT OF DELAY IN THE PROCURING THE LAND, DUE TO LEGAL HASSLES. THE FUNDS WERE DEPOSITED IN THE BANK IN THE MEANWHILE A ND IN THE CIRCUMSTANCES, INTEREST WAS RECEIVED AS INEXTRICABLY LINKED WITH S ETTING UP OF PLANT, AND THEREFORE, IT IS A BUSINESS INCOME, THOUGH IT IS A CAPITAL RECEIPT. HE EMPHASIZED THAT THE INTEREST IN QUESTION, IN THE CIRCUMSTANCES OF THE CASE, IS A CAPITAL RECEIPT NOT LIABLE TO TAX. IN SUPPORT OF HIS SUBMISSIONS, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE FOLLOWING JUD GMENTS (A) INDIAN OIL PANIPAT POWER CONSORTIUM LTD. V/S. ITO ( 315 ITR 255)-DEL. (B) CIT V/S. BOKARO STEEL LTD. (236 ITR 315)-SC (C) NTPC SAIL POWER COMPANY (P)LTD. V/S. CIT(210 TAXMAN 358)-DEL. 7. ON THE OTHER HAND, THE LEARNED DEPA RTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE CIT(A), AND PLACED FURTH ER RELIANCE ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF TUTICORIN ALKALI C HEMICALS & FERTILISERS LTD. V/S. CIT (227 ITR 172) 8. WE HEARD BOTH SIDES AND PERUSED THE MATERIAL ON RECORD. THE ONLY DISPUTE INVOLVED IN THIS APPEAL IS THE NATURE OF RE CEIPT BY WAY OF INTEREST IN THE HANDS OF THE ASSESSEE, VIZ. WHETHER IT IS A BUSINES S RECEIPT, BUT OF CAPITAL NATURE TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES AS CLA IMED BY THE ASSESSEE, OR AN ITEM OF INCOME FROM OTHER SOURCES, AS HELD BY THE A SSESSING OFFICER AND ITA NO.1678/HYD/ 12 M/S. BERCO UNDERWRITINGS (INDIA) PVT. LTD. CHERLAPALLY (V), HYDERABAD 4 CONFIRMED BY THE CIT(A). WE HAVE CONSIDERED THE E LABORATE CONTENTIONS OF THE PARTIES IN THE LIGHT OF THE CASE-LAW RELIED UPON BY THEM IN RESPECT OF THEIR RESPECTIVE CONTENTIONS ON THE POINT IN DISPUTE. 9. IN THE CASE OF CIT V/S. SPONGE IRON INDIA LTD. (201 ITR 770), THE JURISDICTIONAL HIGH COURT CONSIDERING A SIMILAR ISS UE HELD THAT SINCE THE BUSINESS HAD NOT COMMENCED, THE INTEREST INCOME COULD NOT BE TREATED AS BUSINESS INCOME. IT WAS FURTHER HELD THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION OF THE ADMINISTRATIVE EXPENSES AND EXPLORATION AND MIN ING EXPENSES FROM OUT OF ITS INTEREST INCOME. 10. FURTHER, IN ITS SUBSEQUENT DECISION IN THE CASE OF CIT V/S. RASSI CEMENT LTD.(232 ITR 554), HONBLE JURISDICTIONAL HIGH COUR T HELD THAT THE INTEREST EARNED ON SURPLUS FUNDS DEPOSITED IN BANKS DURING THE INST ALLATION OF A COMPANY PRIOR TO THE COMMENCEMENT OF THE BUSINESS IS ASSESSABLE AS I NCOME FROM OTHER SOURCES. 11. AS FOR THE CASE-LAW RELIED UPON BY THE ASSESSEE, THE DECISION OF THE APEX COURT IN THE CASE OF BOKARO STEEL LTD. (SUPRA ), RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IS NOT STRAIGHT ON THE ISS UE IN DISPUTE IN THE PRESENT APPEAL, AND HENCE NOT APPLICABLE TO THE FACTS OF TH E PRESENT CASE. IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. V/S. ITO ( SUPRA), RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, IT HAS BEEN HELD THAT INTEREST WHICH ACCRUED ON FUNDS DEPLOYED WITH THE BANK DURING PRE-OPERATIVE P ERIOD COULD NOT BE TAXED AS INCOME FROM OTHER SOURCES, BUT CONSTITUTED CAPITAL RECEIPT LIABLE TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES AS THE FUNDS WERE SP ECIFICALLY EARMARKED FOR PURCHASE OF LAND AND DEVELOPMENT OF INFRASTRUCTURE. THE SAID DECISION IS STRAIGHT ON THE POINT AND COVERS THE ISSUE IN DISPUTE IN THE PRESENT APPEAL, IN FAVOUR OF THE ASSESSEE. THE SUBSEQUENT DECISION OF THE HONBL E DELHI HIGH COURT IN THE CASE OF NTPC SAIL POWER COMPANY (P)LTD. (SUPRA) IS ALSO TO THE SAME EFFECT. HOWEVER, RELIANCE OF THE LEARNED COUNSEL FOR THE AS SESSEE ON THESE DECISIONS OF ITA NO.1678/HYD/ 12 M/S. BERCO UNDERWRITINGS (INDIA) PVT. LTD. CHERLAPALLY (V), HYDERABAD 5 THE HONBLE DELHI HIGH COURT IS OF NO AVAIL AND CAN NOT BE ACCEPTED IN VIEW OF THE BINDING DECISIONS TO THE CONTRARY EFFECT RENDERED BY THE JU RISDICTIONAL HIGH COURT. WE ARE SUPPORTED IN THIS BEHALF BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S. THANA ELECTRICITY SUPPLY LT D. (206 ITR 727), WHEREIN ON THE ASPECT OF BINDING NATURE OF A PRECEDENT, IN THE ORDER OF PREFERENCE, THE FOLLOWING GUIDELINES HAVE BEEN LAID- '17. FROM THE FOREGOING DISCUSSION, T HE FOLLOWING PROPOSITIONS EMERGE: (A) THE LAW DECLARED BY THE SUPREME COURT BEING BIN DING ON ALL COURTS IN INDIA, THE DECISIONS OF THE SUPREME COURT ARE BINDING ON A LL COURTS, EXCEPT, HOWEVER, THE SUPREME COURT ITSELF WHICH IS FREE TO REVIEW TH E SAME AND DEPART FROM ITS EARLIER OPINION IF THE SITUATION SO WARRANTS. WHAT IS BINDING IS, OF COURSE, THE RATIO OF THE DECISION AND NOT EVERY EXPRESSION FOUND THER EIN. (B) THE DECISIONS OF THE HIGH COURT ARE BINDING ON THE SUBORDINATE COURTS AND AUTHORITIES OR TRIBUNALS UNDER ITS SUPERINTENDENCE THROUGHOUT THE TERRITORIES IN RELATION TO WHICH IT EXERCISES JURISDICTION. IT DOE S NOT EXTEND BEYOND ITS TERRITORIAL JURISDICTION. (C) THE POSITION IN REGARD TO THE BINDING NATURE OF THE DECISIONS OF A HIGH COURT ON DIFFERENT BENCHES OF THE SAME COURT MAY BE SUMME D UP AS FOLLOWS : (I) A SINGLE JUDGE OF A HIGH COURT IS BOUND BY THE DECISION OF ANOTHER SINGLE JUDGE OR A DIVISION BENCH OF THE SAME HIGH COURT. IT WOUL D BE JUDICIAL IMPROPRIETY TO IGNORE THAT DECISION. JUDICIAL COMITY DEMANDS THAT A BINDING DECISION TO WHICH HIS ATTENTION HAD BEEN DRAWN SHOULD NEITHER BE IGNO RED NOR OVERLOOKED. IF HE DOES NOT FIND HIMSELF IN AGREEMENT WITH THE SAME, T HE PROPER PROCEDURE IS TO REFER THE BINDING DECISION AND DIRECT THE PAPERS TO BE PLACED BEFORE THE CHIEF JUSTICE TO ENABLE HIM TO CONSTITUTE A LARGER BENCH TO EXAMINE THE QUESTION (SEE FOOD CORPORATION OF INDIA V. YADAV ENGINEER AND CON TRACTOR(AIR 1982 SC 1302). (II) A DIVISION BENCH OF A HIGH COURT SHOULD FOLLOW THE DECISION OF ANOTHER DIVISION BENCH OF EQUAL STRENGTH OR A FULL BENCH OF THE SAME HIGH COURT. IF ONE DIVISION BENCH DIFFERS FROM ANOTHER DIVISION BENCH OF THE SAME HIGH COURT, IT SHOULD REFER THE CASE TO A LARGER BENCH. (III) WHERE THERE ARE CONFLICTING DECISIONS OF COUR TS OF CO-ORDINATE JURISDICTION, THE LATER DECISION IS TO BE PREFERRED IT REACHED AF TER FULL CONSIDERATION OF THE EARLIER DECISIONS. (D) THE DECISION OF ONE HIGH COURT IS NEITHER BINDI NG PRECEDENT FOR ANOTHER HIGH COURT NOR FOR COURTS OR TRIBUNALS OUTSIDE ITS OWN T ERRITORIAL JURISDICTION. IT IS WELL SETTLED THAT THE DECISION OF A HIGH COURT WILL HAVE THE FORCE OF BINDING PRECEDENT ONLY IN THE STATE OR TERRITORIES ON WHICH THE COURT HAS JURISDICTION. IN OTHER STATES OR OUTSIDE THE TERRITORIAL JURISDICTION OF THAT HIG H COURT IT MAY, AT BEST, HAVE ONLY PERSUASIVE EFFECT. BY NO AMOUNT OF STRETCHING OF TH E DOCTRINE OF STARE DECISIS, CAN ITA NO.1678/HYD/ 12 M/S. BERCO UNDERWRITINGS (INDIA) PVT. LTD. CHERLAPALLY (V), HYDERABAD 6 JUDGMENTS OF ONE HIGH COURT BE GIVEN THE STATUS OF A BINDING PRECEDENT SO FAR AS OTHER HIGH COURTS OR TRIBUNAL WITHIN THEIR TERRITOR IAL JURISDICTION ARE CONCERNED. ANY SUCH ATTEMPT WILL GO COUNTER TO THE VERY DOCTRI NE OF STARE DECISIS AND ALSO THE VARIOUS DECISIONS OF THE SUPREME COURT WHICH HA VE INTERPRETED THE SCOPE AND AMBIT THEREOF. THE FACT THAT THERE IS ONLY ONE DECI SION OF ANY ONE HIGH COURT ON A PARTICULAR POINT OR THAT A NUMBER OF DIFFERENT HIGH COURTS HAVE TAKEN IDENTICAL VIEWS IN THAT REGARD IS NOT AT ALL RELEVANT FOR THA T PURPOSE. WHATEVER MAY BE THE CONCLUSION, THE DECISIONS CANNOT HAVE THE FORCE OF BINDING PRECEDENT ON OTHER HIGH COURTS OR ON ANY SUBORDINATE COURTS OR TRIBUNA LS WITHIN THEIR JURISDICTION. THAT STATUS IS RESERVED ONLY FOR THE DECISIONS OF T HE SUPREME COURT WHICH ARE BINDING ON ALL COURTS IN THE COUNTRY BY VIRTUE OF A RTICLE 141 OF THE CONSTITUTION. 12. IN THE LIGHT OF THE FOREGOING DISCUSSIO N, RESPECTFULLY FOLLOWING THE DECISIONS OF THE JURISDICTIONAL HIGH COURT IN THE C ASE OF SPONGE IRON INDIA LTD. (SUPRA) AND RASSI CEMENT LTD. (SUPRA), WE HOLD THAT INTEREST INCOME IS ASSESSABLE AS INCOME UNDER THE HEAD OTHER SOURCES . WE ACCORDINGLY UPHOLD THE ORDERS OF THE REVENUE AUTHORITIES AND REJECT THE GR OUNDS OF THE ASSESSEE IN THIS APPEAL. 13. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 17.06.2013 SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER DT/- 17 TH JUNE, 2013 COPY FORWARDED TO: 1. 2. 3. 4. 5. M/S. BERCO UNDERWRITINGS (INDIA) PVT. LTD. SECTOR 1 , LANE 10, PHASE II, CHERLAPALLY (V), GHATKESAR MANDAL, HAYATH NAGAR TALUK, HYDERABAD 500 051 INCOME-TAX OFFICER, WARD 1(1), HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS) II, HYDERABAD COMMISSIONER OF INCOME-TAX I HYDERABAD DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER. ITA NO.1678/HYD/ 12 M/S. BERCO UNDERWRITINGS (INDIA) PVT. LTD. CHERLAPALLY (V), HYDERABAD 7 ITA NO.1678/HYD/ 12 M/S. BERCO UNDERWRITINGS (INDIA) PVT. LTD. CHERLAPALLY (V), HYDERABAD 8