ACIT, Coimbatore V. M/s. Laski Centre (India) Private Ltd., Coimbatore

ITA 1932/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81158 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-08-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 04-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: R VIJAYARAGHAVAN
• Section: 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI . , , ! ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / I.T.A. NO. 1932/MDS/2013 / ASSESSMENT YEAR : 2010-11 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(3), 63-A, RACE COURSE ROAD, COIMBATORE ( # /APPELLANT) VS M/S.LASIK CENTRE (INDIA) PRIVATE LIMITED, 582-A, D.B.ROAD, R.S.PURAM, COIMBATORE-641 025 [PAN: AAACL 3765 C] ( $% # /RESPONDENT) REVENUE BY : SHRI GURU BHASHYAM, JCIT ASSESSEE BY : SHRI R.VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 07-08-2014 / DATE OF PRONOUNCEMENT : 26-09-2014 & / O R D E R PER VIKAS AWASTHY, J.M: THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS)-I, COIMBATOR E DATED 19-08-2013 RELEVANT TO THE ASSESSMENT YEAR (AY) 201 0-11. 2. THE REVENUE HAS PRIMARILY RAISED TWO ISSUES IN I TS APPEAL : I. WHETHER THE ASSESSEE IS ENTITLED FOR DEDUCTION U /S.80IA OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT)? AND ITA NO. 1932/MDS/2013 2 II. WHETHER THE ASSESSEE IS ENTITLED TO CLAIM DEDUC TION U/S.80IA ON COMPENSATION RECEIVED FOR UNDERPERFORMANCE OF WIND MILL? 3. THE FACTS IN BRIEF AS EMANATING FROM RECORDS ARE AS UNDER: THE ASSESSEE IS A COMPANY ENGAGED IN PROVIDING TREA TMENT OF OPTICAL DISORDERS/DISEASES. THE ASSESSEE HAS ALSO SET UP A WIND MILL FOR GENERATION OF ELECTRICITY. THE ASSESSEE F ILED ITS RETURN OF INCOME FOR THE AY. 2010-11 ON 15-09-2010 ADMITTING TOTAL INCOME OF ` 95,08,658/- UNDER NORMAL PROVISIONS AND ` 1,00,47,371/- U/S.115JB. THE CASE OF THE ASSESSEE WAS SELECTED F OR SCRUTINY AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED TO TH E ASSESSEE ON 02-08-2011. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER INTER ALIA HELD THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S.80IA ON THE AMOUNT OF COMPENSAT ION ` 11,77,500/- RECEIVED FROM THE MANUFACTURERS OF THE WIND MILL I.E., M/S.ENERCON INDIA LTD. IN PARTICULAR AND OUT RIGHTL Y REJECTED THE ASSESSEES CLAIM OF DEDUCTION U/S.80IA AFTER HOLDIN G THAT THE ASSESSEES CLAIM IS ALLOWABLE TO THE EXTENT OF ` 19,32,441/-. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS BASED ITS CLAIM ON THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT RENDER ED IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD., VS. ACIT ITA NO. 1932/MDS/2013 3 REPORTED AS 231 CTR 368. THE DEPARTMENT HAS NOT ACCEPTED THE SAME AND HAS FILED SLP AGAINST THE SAID JUDGMENT BE FORE THE HON'BLE APEX COURT. AGGRIEVED BY THE ASSESSMENT ORDER DATED 28-01-2013 , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS ). THE CIT(APPEALS) VIDE IMPUGNED ORDER HELD THAT THE ASSE SSEE IS ENTITLED TO CLAIM DEDUCTION U/S.80IA IN VIEW OF THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD., VS. ACIT (SUPRA) AND ON THE ISSUE OF ELIGIBILITY ASSESSEE TO CLAIM DEDUCTION U/S.80IA ON THE AMOUNT OF COMPENSATION, THE CIT(APPEALS) PARTLY ACCEPTED THE APPEAL OF THE ASSESSEE AND GRANTED DEDUCTION U/S.80IA ON THE PART OF COMPENSATION RECEIVED I.E., ` 6,77,500/- DIRECTLY FOR THE LOSS OF GENERATION OF ELECTRICITY. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REV ENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL. 4. SHRI GURU BHASHYAM, APPEARING ON BEHALF OF THE R EVENUE CONTENDED THAT THE ASSESSEE IS NOT ELIGIBLE FOR DED UCTION U/S.80IA ON THE AMOUNT OF COMPENSATION RECEIVED FOR LOSS OF GENERATION OF ELECTRICITY. THE LD.DR CONTENDED THAT THE AMOUNT OF COMPENSATION RECEIVED IS NOT A RESULT OF ANY POWER GENERATION OR DISTRIBUTION ITA NO. 1932/MDS/2013 4 ACTIVITY/MANUFACTURING PROCESS RESULTING IN THE PRO FITS AND GAINS DERIVED BY THE ASSESSEE. IN ORDER TO SUPPORT HIS C ONTENTIONS, THE LD.DR PLACED RELIANCE ON THE DECISION OF HON'BLE MAD HYA PRADESH HIGH COURT IN THE CASE OF CIT VS. ALPINE SOLVEX LTD., REPORTED AS 276 ITR 92 AND THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF PINE PACKAGING P.LTD., VS. CIT REPORTED AS 356 ITR 222 (DEL). 5. ON THE OTHER HAND, SHRI R.VIJAYARAGHAVAN, APPEAR ING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORD ER OF CIT(APPEALS). THE LD.COUNSEL FOR THE ASSESSEE CONT ENDED THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S.80IA IN VIEW OF THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD., VS. ACIT (SUPRA). ON THE ISSUE OF ELIGIBILITY OF DEDUCTION U/S.80IA ON T HE AMOUNT OF COMPENSATION, THE LD.AR CONTENDED THAT THE ASSESSEE HAS RECEIVED COMPENSATION FOR UNDER PERFORMANCE OF WIND MILL. SINCE, THE WIND MILL WAS PERFORMING BELOW THE PARAMETERS G UARANTEED BY THE MANUFACTURING COMPANY, THE ASSESSEE WAS NOT ABL E TO GENERATE OPTIMUM POWER. THE MANUFACTURER OF THE WI ND MILL COMPENSATED THE ASSESSEE FOR LOSS OF INCOME. THE A SSESSEE HAS CREDITED THE COMPENSATION IN THE PROFIT AND LOSS AC COUNT AND ITA NO. 1932/MDS/2013 5 OFFERED THE SAME AS INCOME UNDER THE HEAD INCOME F ROM BUSINESS. THERE IS A DIRECT NEXUS BETWEEN THE RECE IPT OF COMPENSATION AND INCOME FROM RUNNING A WIND MILL. IN THESE CIRCUMSTANCES, THE ASSESSEE IS ELIGIBLE TO CLAIM DE DUCTION U/S.80IA ON THE AMOUNT OF COMPENSATION AS WELL. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. WE HAVE ALSO PE RUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECI SIONS ON WHICH BOTH THE SIDES HAVE PLACED RELIANCE. THE REVENUE H AS RAISED TWO ISSUES IN APPEAL. FIRST ISSUE RELATES TO ELIGIBILI TY OF ASSESSEE FOR CLAIMING DEDUCTION U/S.80IA. THE CASE OF THE ASSES SEE IS SQUARELY COVERED BY THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD., VS. ACIT (SUPRA). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. THE SECOND ISSUE RAISED IN APPEAL IS WITH REGARD TO ASSESSEES CLAIM OF DEDUCTION U/S.80IA ON THE AMOUN T OF COMPENSATION RECEIVED FROM M/S.ENERCON INDIA LTD., FOR THE LOSS OF GENERATION OF ELECTRICITY. READING OF SECTION 80IA MAKES IT ABUNDANTLY CLEAR THAT IT IS THE GROSS PROFITS AND G AINS DERIVED FROM BUSINESS ACTIVITY AS REFERRED IN SUB-SECTION(4) THA T IS ALLOWED ITA NO. 1932/MDS/2013 6 DEDUCTION U/S.80IA. GENERATION OF POWER IS ONE OF THE SPECIFIED BUSINESS ACTIVITIES MENTIONED IN SUB-SECTION(4) CLA USE(IV) OF SECTION 80IA TO BE QUALIFIED FOR CLAIMING DEDUCTION UNDER THE SAID SECTION. IN THE PRESENT CASE, THE MOOT QUESTION TO BE ANSWERED IS WHETHER THE COMPENSATION RECEIVED FOR LOSS OF GENER ATION OF POWER IS INCOME DERIVED FROM THE BUSINESS ACTIVITY. IT IS A TRAIT LAW THAT THE WORD DERIVED FROM CANN OT HAVE A VIDE IMPORT SO AS TO INCLUDE ANY INCOME WHICH IN SO ME MANNER CAN BE ATTRIBUTED TO THE BUSINESS. THE INCOME DERI VED MUST BE INTRINSICALLY CONNECTED WITH THE BUSINESS ACTIVITY. THE INCOME DERIVED FROM THE BUSINESS CONNOTES THAT THE INCOME SHOULD BE GENERATED FROM THE BUSINESS ACTIVITY, MANUFACTURING OR PROCESSING. THE HON'BLE DELHI HIGH COURT IN THE CASE OF PINE PACKAGING P. LTD., VS. CIT (SUPRA) HAS RELIED ON THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF PANDIAN CHEMICALS LTD., VS. CIT REPORTED AS 262 ITR 278 (SC) AND LIBERTY INDIA VS. CIT REPORTED AS 317 ITR 218 (SC) TO EXPLAIN THE TERMS DERIVED FROM AND ATTRIBUTABLE TO. THE SAME IS RE-PRODUCED HEREIN: 9. THE EXPRESSION 'DERIVED FROM' IN TAXATION LAWS MEANS SOMETHING WHICH HAS DIRECT OR IMMEDIATE NEXUS WITH THE SPECIFIED ACTIVITY, WHICH IN THE PRESENT CASE MEANS MANUFACTURE OR PRODUCTION OF ARTICLE OR THING. MANU -FACTURE OR PRODUCTION OF ARTICLE OR THING SHOULD BE THE DIRECT AND ITA NO. 1932/MDS/2013 7 PROXIMATE CAUSE OF THE SAID RECEIPT AND NOT THE IND IRECT CAUSATION AND REASON FOR THE SAID INCOME. MERE SECO ND/THIRD CONNECTION IS NOT SUFFICIENT; THE MANUFACTURE/ PROD UCTION SHOULD BE THE CAUSA CAUSANS. THE EXPRESSION 'DERIVE D FROM' IS A NARROWER EXPRESSION THAN THE WORDS 'ATTRIBUTAB LE TO' WHICH INCLUDES DIRECT AS WELL AS INDIRECT RECEIPTS WHICH MAY NOT HAVE IMMEDIATE OR DIRECT NEXUS WITH THE SPECIFIED ACTIVI TY. IN THE PRESENT CASE, IN VIEW OF WORDS 'DERIVED FROM', WE H AVE TO LOOK AT THE IMMEDIATE SOURCE WHICH HAS GENERATED OR RESU LTED IN THE SAID RECEIPT/INCOME. THE IMMEDIATE SOURCE WILL BE THE FIRST DEGREE SOURCE AND NOT THE SECOND OR THE THIRD DEGRE E SOURCE, WHICH IS A STEP REMOVED FROM THE SPECIFIED ACTIVITY . THUS, THE INCOME OF ELIGIBLE BUSINESS HAS TO QUALIF Y THE TEST OF EXPRESSION DERIVED FROM TO BE ELIGIBLE FOR DEDUCT ION U/S.80IA. 8. IN THE PRESENT CASE, THE ASSESSEE HAS RECEIVED COMPENSATION FOR THE UNDERPERFORMANCE OF ELECTRICIT Y GENERATION UNIT. THE MANUFACTURER OF THE WIND MILL HAS COMPEN SATED THE ASSESSEE FOR THE UNDER PERFORMANCE OF THE POWER GEN ERATION UNIT OUT OF CONTRACTUAL OBLIGATION, AS THE GENERATING UN IT WAS NOT PERFORMING AS PER THE CLAIM OF THE MANUFACTURER. TH E COMPENSATION AMOUNT RECEIVED BY THE ASSESSEE CANNOT BE SAID TO HAVE DERIVED FROM ANY MANUFACTURING/POWER GENERATIO N ACTIVITY OF THE ASSESSEE. THE COMPENSATION AMOUNT RECEIVED BY ASSESSEE CANNOT BE SAID TO BE FIRST DEGREE SOURCE OF INCOME AS ENVISAGED ITA NO. 1932/MDS/2013 8 UNDER THE PROVISIONS OF SECTION 80IA FOR PROVIDING BENEFIT OF DEDUCTION. THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUC TION U/S.80IA ONLY ON THE PROFITS AND GAINS DERIVED FROM THE ACTI VITIES OF THE ASSESSEE. THE SCOPE OF THE WORD DERIVED FROM CAN NOT BE ENLARGED TO INCLUDE COMPENSATION RECEIVED ON ACCOUN T OF CONTRACTUAL OR LEGAL OBLIGATIONS. THE ASSESSEE CAN NOT CLAIM BENEFIT OF DEDUCTION U/S.80IA ON THE INCOME WHICH I S NOT OUTCOME OF GENERATION OF ELECTRICITY. IN VIEW OF T HE ABOVE, THIS GROUND OF APPEAL OF THE REVENUE IS ACCEPTED. IN RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY , THE 26 TH SEPTEMBER, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER (VIKAS AWASTHY) ! / JUDICIAL MEMBER /CHENNAI, /DATED: 26 TH SEPTEMBER, 2014 TNMM ! ' #$ %$ /COPY TO: 1. &' /APPELLANT 2. '(&' /RESPONDENT 3. ) () /CIT(A) 4. ) /CIT 5. $,- ' . /DR 6. -/ 0 /GF