M/s.Kinfra Exports promotion Industrial parks Ltd, Cochin V. DCIT, Ernakulam

ITA 237/COCH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2512 (ITAT-COCHIN)
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 22-04-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 03-09-2012
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR; SUSAN GEORGE VARGHESE
• Assessee Lawyers: PREETHA S NAIR
• Keywords: Business income; Capital expenditure
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 237 /COCH/2012 ASSESSMENT YEAR : 2007-08 M/S. KINFRA EXPORTS PROMOTION INDUSTRIAL PARKS LTD., KAKKANAD, KOCHI-30 [PAN:AABCK 0004G] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(3), ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SMT. PREETHA S. NAIR, ADV. REVENUE BY SHRI M. ANIL KUMAR, CIT(DR) AND SMT. SUSAN GEORGE VARGHESE, SR. DR DATE OF HEARING 25/04/2013 DATE OF PRONOUNCEMENT 28/06/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE AS IS DIRECTED AGAINST THE ORDER DATED 29-06-2012 PASSED BY THE LD. CIT(A)-II, KOCHI AND IT RELATES TO THE A SSESSMENT YEAR 2007-08. 2. THE GROUNDS OF APPEAL URGED BY THE ASSESSEE GIVE RISE TO THE FOLLOWING TWO ISSUES: (A) WHETHER THE LD. CIT(A) WAS JUSTIFIED IN HOLDIN G THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IA OF THE ACT. (B) WHETHER THE LD. CIT(A) WAS JUSTIFIED IN HOLDIN G THE INTEREST INCOME IS ASSESSABLE UNDER INCOME FROM OTHER SOURCES AND HENC E, IMPLIEDLY, NOT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT 3. THE FACTS RELATING TO THE TWO ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS A KERALA STATE OWNED PUBLIC LIMITED COMPANY, ENGAGED IN THE BUSINESS OF PROVIDING I.T.A. NO. 237/COCH/2012 2 INFRASTRUCTURAL FACILITIES TO INDUSTRIES. IT RUNS A N INDUSTRIAL PARK AT KAKKANAD, KOCHI. THE ASSESSEE WAS GRANTED LICENCE BY THE GOVERNMENT OF K ERALA FOR DISTRIBUTION OF POWER WITHIN THE INDUSTRIAL PARK AREA. ACCORDINGLY, DURI NG THE FINANCIAL YEAR 2004-05, THE ASSESSEE LAID A NETWORK OF NEW DISTRIBUTION LINES A ND ALLIED EQUIPMENTS TO FACILITATE POWER DISTRIBUTION TO THE UNITS LOCATED IN THE PARK . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED DEDUCTION U/S. 80IA(4)(IV)(B) OF THE ACT IN RESPECT OF INCOME GENERATED FROM THE ACTIVITY OF DISTRIBUTI ON OF POWER. BOTH THE TAX AUTHORITIES REJECTED THE CLAIM OF THE ASSESSEE, THOUGH FOR DIFF ERENT REASONS, WHICH ARE DISCUSSED INFRA IN A SUBSEQUENT PARAGRAPH. THE ASSESSEE RECE IVED A SUM OF RS.82,31,289/- AS INTEREST FROM BANK DEPOSITS AND SECURITY DEPOSITS. THE ASSESSEE TREATED THE SAME AS ITS BUSINESS INCOME AND ACCORDINGLY CLAIMED DEDUCTION U /S. 80IA OF THE ACT. THE ASSESSING OFFICER, BY RELYING ON THE FOLLOWING CASE LAWS, HEL D THAT INTEREST IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND ASSESSED ACCORDI NGLY. (A) COLLIS LINE (P) LTD. VS. ITO ( 135 ITR 390). (B) CIT VS. DR. V. GOPINATHAN (248 ITR 449). (C) TUTICORIN ALKALI CHEMICALS & FERTILIZE RS LTD. VS. CIT (227 ITR 172). THE LD CIT(A) ALSO CONFIRMED THE SAID DECISION OF T HE ASSESSING OFFICER. THUS THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IA IN RESPE CT OF INTEREST INCOME WAS REJECTED BY BOTH THE AUTHORITIES. AGGRIEVED, THE ASSESSEE H AS FILED THIS APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. THE CONTROVERSY IN THE FIRST ISSUE SURROUNDS AROUND THE PROVISIONS OF SEC. 80IA(4)(IV) OF THE ACT. HENCE, IT IS NECESSARY TO REFER TO THE SAID PROVISION AND FOR THE SAKE OF CONVENIENCE, WE EXTRACT THE RELEVANT PORTIONS OF THE SAME BELOW:- 80IA (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRIS E FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAF TER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJ ECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PERCENT OF THE PROFIT S AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS. I.T.A. NO. 237/COCH/2012 3 ..... (4) THIS SECTION APPLIES TO--- (I) .... (II) ..... (III) ...... (IV) AN UNDERTAKING WHICH, - (A) IS SET UP IN ANY PART OF INDIA FOR THE GENERATI ON OR GENERATION AND DISTRIBUTION OF POWER IF IT BEGINS T O GENERATE POWER AT ANY TIME DURING THE PERIOD BEGINNING ON TH E 1 ST DAY OF APRIL, 1993 AND ENDING ON THE 31 ST DAY OF MARCH, 2009 (AMENDED LATER AS 2011) (B) STARTS TRANSMISSION OR DISTRIBUTION BY LAYING A NETWORK OF NEW TRANSMISSION OR DISTRIBUTION LINES AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL, 1999 AND ENDING ON THE 31 ST DAY OF MARCH, 2009 (AMENDED LATER AS 2011) PROVIDED THAT THE DEDUCTION UNDER THIS SECTION TO AN UNDERTAKING UNDER SUB-CLAUSE (B) SHALL BE ALLOWED O NLY IN RELATION TO THE PROFITS DERIVED FROM LAYING OF SUCH NETWORK OF NEW LINES FOR TRANSMISSION OR DISTRIBUTION; (C) UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNISA TION OF THE EXISTING NETWORK OF TRANSMISSION OR DISTRIBUTIO N LINES AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL, 2004 AND ENDING ON THE 31 ST DAY OF MARCH 2011. EXPLANATION _ FOR THE PURPOSES OF THIS SUB-CLAUSE, SUBSTANTIAL RENOVATION AND MODERNISATION MEANS AN INCREASE IN THE PLANT AND MACHINERY IN THE NETWORK OF TRANSMISSION OR DIS TRIBUTION LINES BY AT LEAST FIFTY PER CENT OF THE BOOK VALUE OF SUCH PLANT AND MACHINERY AS ON THE 1 ST DAY OF APRIL, 2004. 5. THE CASE OF THE ASSESSEE IS THAT IT IS COVER ED BY CLAUSE (B) OF SEC. 80IA(4)(IV), SINCE IT IS TRANSMITTING OR DISTRIBUTING ELECTRICIT Y BY LAYING A NET WORK OF NEW TRANSMISSION OR DISTRIBUTION LINES. THERE IS NO DI SPUTE WITH REGARD TO THE FACT THAT THAT THE ASSESSEE HAS LAID THE NET WORK OF TRANSMISSION OR DISTRIBUTION LINES DURING THE TIME PERIOD SPECIFIED IN THE ABOVE SAID SECTION. THE AS SESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE HAS TO CUMULATIVELY COMPLY WITH CLAUSES (A ) TO (C) OF SEC. 80IA(4)(IV) IN ORDER I.T.A. NO. 237/COCH/2012 4 TO BECOME ELIGIBLE FOR DEDUCTION U/S 80IA OF THE AC T. SINCE THE ASSESSEE IS NOT GENERATING POWER AS SPECIFIED IN CLAUSE (A), THE HA S TAKEN THAT VIEW THAT THE ASSESSEE BECOMES INELIGIBLE TO CLAIM DEDUCTION U/S 80IA OF T HE ACT, SINCE THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO COMPLY WITH CLAUSE (A). AC CORDINGLY, THE ASSESSING OFFICER REJECTED THE CLAIM MADE BY THE ASSESSEE. THE LD CI T(A), HOWEVER, HELD THAT THE CLAUSES (A) TO (C) OF SEC. 80IA(4)(IV) ARE MUTUALLY EXCLUSIVE AND ACCORDINGLY HE DID NOT AGREE WITH THE VIEW ENTERTAINED BY THE ASSESSING OF FICER. HOWEVER, THE LD CIT(A), BY PLACING RELIANCE TO THE PROVISO UNDER CLAUSE (B) OF SEC. 80IA(4)(IV) OF THE ACT, HELD THAT THE DEDUCTION U/S 80IA HAS TO BE RESTRICTED TO THE PROFITS DERIVED FROM LAYING OF SUCH NETWORK OF NEW LINES OF TRANSMISSION OR DISTRI BUTION. ACCORDINGLY, THE LD CIT(A) HELD THAT THE MERE DISTRIBUTION OF POWER DOE S NOT MAKE THE ASSESSEE TO BE ELIGIBLE TO CLAIM DEDUCTION U/S 80IA OF THE ACT WIT HIN THE MEANING OF SEC. 80IA(4)(IV) OF THE ACT. SINCE THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IA IN RESPECT OF PROFIT DERIVED FROM SALE OF ELECTRICITY PURCHASED FROM KERALA STAT E ELECTRICITY BOARD, THE LD CIT(A) ALSO REJECTED THE CLAIM OF THE ASSESSEE. 6. BEFORE US, THE LD D.R SUPPORTED THE VIEW TAK EN BY THE AO AND ACCORDINGLY CONTENDED THAT THE ASSESSEE CAN CLAIM DEDUCTION U/S 80IA ONLY IF IT COMPLIES WITH ALL THE THREE CLAUSES, VIZ., CLAUSES (A), (B) AND (C) OF SE C. 80IA(4)(IV) OF THE ACT. NOW THE QUESTION THAT ARISE FOR OUR CONSIDERATION IS WHETHE R THE THREE CLAUSES ENUMERATED IN SUB SECTION 4(IV) OF SECTION 80-LA ARE MUTUALLY EXC LUSIVE. IN THIS REGARD, IT IS WORTH REFERRING TO THE BUDGET SPEECH RENDERED BY THE THEN FINANCE MINISTER IN PARLIAMENT ON 27.02.1999, (236 ITR (ST.) 25), WHICH READS AS UNDE R:- 'THE FINANCIAL CONDITION OF MOST OF STATE ELECTRICI TY BOARDS IS EXTREMELY PRECARIOUS. MANY OF THE STATE ELECTRICITY BOARDS WIS H TO REMEDY THE SITUATION BY UNBUNDLING GENERATION, TRANSMISSION AND DISTRIBUTIO N ACTIVITIES TO SEPARATE COMPANIES. I PROPOSE TO TREAT THE ACTIVITIES OF TRANSMISSION A ND DISTRIBUTION OF POWER, SET UP AFTER 1.4.1999, AS EL IGIBLE ACTIVITIES FOR FISCAL INCENTIVES AVAILABLE TO INFRASTRUCTURE UNITS . I AM SANGUINE THAT THIS PROPOSAL WILL FACILITATE THE RESTRUCTURING AND REHA BILITATION OF THE STATE ELECTRICITY BOARDS.' I.T.A. NO. 237/COCH/2012 5 THUS IT IS SEEN THAT THE LEGISLATIVE INTENTION WAS TO AFFORD THE TAX BENEFIT TO ALL UNDERTAKINGS WHICH WERE ENGAGED IN ANY OF THE THREE ACTIVITIES. WE ALSO NOTICE THAT THE CLAUSES (A) AND (B) OF SUB. SEC. 4(IV) TO SEC. 80IA WAS INTRODUCED WITH EFFECT FROM 1.4.2000 AND CLAUSE (C) WAS INTRODUCED ONLY WITH EF FECT FROM 1.4.2005, I.E., THEY WERE NOT INTRODUCED IN ONE GO. ACCORDINGLY, IN OUR VIEW , THE THREE CLAUSES, REFERRED ABOVE ARE MUTUALLY EXCLUSIVE TO EACH OTHER. OUR VIEW FIN DS SUPPORT FROM THE DECISION OF THE JAIPUR BENCH OF THE HON'BLE ITAT IN THE CASE OF DCI T VS. MAHARAJA SHREE UMAID MILLS LTD., REPORTED IN (2009) 29 SOT 278, WHEREIN THE HA S OBSERVED AS UNDER:- 'THESE THREE TYPES OF UNDERTAKINGS REFERRED TO IN T HE SAID SUB-CLAUSES (A), (B) AND (C) ARE DIFFERENT AND INDEPENDENT OF EACH OTHER . THUS WHILE DEALING WITH ONE SUB-CLAUSE, INFERENCE NEED NOT AND CANNOT BE DRAWN FROM THE OTHER SUB- CLAUSE.' ACCORDINGLY, WE UPHOLD THE VIEW TAKEN BY LD CIT(A) THAT CLAUSES (A), (B) AND (C) OF SEC. 80IA(4)(IV) ARE MUTUALLY EXCLUSIVE. 7. THE NEXT ISSUE RELATES TO THE INTERPRETATION OF CLAUSE (B) OF SEC. 80IA(4)(IV) OF THE ACT. THE LD CIT(A) HAS TAKEN THE VIEW THAT THE SAI D CLAUSE PROVIDES EXEMPTION ONLY TO THE PROFIT DERIVED FROM LAYING A NETWORK OF NEW TRA NSMISSION OR DISTRIBUTION LINES. SINCE THE ASSESSEE WAS DERIVING INCOME FROM SALE OF ELECT RICITY, THE LD CIT(A) HAS HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80IA IN RESPECT OF PROFIT DERIVED FROM DISTRIBUTION OF POWER. FOR ARRIVING SUCH A CONCLUS ION, THE LD CIT(A) HAS PLACED RELIANCE ON THE PROVISO TO CLAUSE (B) OF SEC. 80IA(4)(IV) OF THE ACT. 8. AT THE COST OF REPETITION, WE EXTRACT BELOW CLAUSE (B) AND THE PROVISO THERE UNDER TO SEC. 80IA(4)(IV) OF THE ACT. (IV) AN UNDERTAKING WHICH,---- (A) .; (B) STARTS TRANSMISSION OR DISTRIBUTION BY LAYING A NETWORK OF NEW TRANSMISSION OR DISTRIBUTION LINES AT ANY TIME DURI NG THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL, 1999 AND ENDING ON THE 31 ST DAY OF MARCH, 2009 (AMENDED LATER AS 2011) I.T.A. NO. 237/COCH/2012 6 PROVIDED THAT THE DEDUCTION UNDER THIS SECTION TO AN UNDERT AKING UNDER SUB-CLAUSE (B) SHALL BE ALLOWED ONLY IN RELATION TO THE PROFITS DERIVED FROM LAYING OF SUCH NETWORK OF NEW LINES FOR TRANSMISSIO N OR DISTRIBUTION; A PLAIN READING OF CLAUSE (B) SUGGESTS THAT AN UNDE RTAKING WHICH STARTS TRANSMISSION OR DISTRIBUTION BY LAYING A NETWORK OF NEW TRANSMISSIO N OR DISTRIBUTION LINES DURING THE TIME PERIOD SPECIFIED ABOVE SHALL BE ELIGIBLE FOR DEDUCT ION U/S 80IA OF THE ACT. HOWEVER, THE CONFUSION STARTS ON READING OF THE PROVISO. A PLAI N READING OF THE PROVISO SUGGESTS THAT THE DEDUCTION SHALL BE ALLOWED IN RELATION TO THE P ROFITS DERIVED FROM LAYING OF SUCH NETWORK OF NEW LINES FOR TRANSMISSION OR DISTRIBUTI ON. 9. FOR AN UNDERTAKING, WHICH HAS STARTED THE AC TIVITY OF DISTRIBUTION OF POWER, THE EXPENDITURE INCURRED ON LAYING A NETWORK OF NEW TRA NSMISSION OR DISTRIBUTION LINES WOULD BE A CAPITAL EXPENDITURE AND HENCE THE QUESTION OF MAKING ANY PROFIT THERE FROM SHALL NOT ARISE. HENCE, IN ORDER TO UNDERSTAND THE LEGIS LATIVE INTENTION AND ALSO THE VIEW OF THE REVENUE, WE MAY REFER TO THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (CBDT). THE LD COUNSEL FOR THE ASSESSEE INVITED OU R ATTENTION TO CIRCULAR NO.779 DATED 14.9.1999 ISSUED BY THE CBDT, WHICH IS REPORTED IN (1999)(240 ITR (ST.) 3). PARAGRAPH 39.3.2 OF THE SAID CIRCULAR EXPLAINS THE AMENDMENT BROUGHT IN BY FINANCE ACT, 1999 BY INSERTING SEC. 80IA OF THE ACT. FOR THE SAKE OF CO NVENIENCE, WE EXTRACT BELOW THE RELEVANT PORTIONS OF THE CIRCULAR, REFERRED ABOVE. 39.3.2 TO AUGMENT TRANSMISSION AND DISTRIBUTION O F POWER IN THE COUNTRY, SIMILAR BENEFITS ARE ALSO EXTENDED TO UNDERTAKINGS SETTING UP NEW TRANSMISSION OR DISTRIBUTION LINES ON OR AFTER 1-4-1999 ON PROFITS DERIVED THERE FROM, AS ARE AVAILABLE FOR GENERATION OR GENERATION AND DISTRIBU TION OF POWER. THE PROFITS THEREOF SHALL BE ELIGIBLE FOR DEDUCTION IF THE UNDE RTAKING SETS UP NETWORK OF NEW TRANSMISSION OR DISTRIBUTION LINES ON OR AFTER 1-4- 1999 BUT BEFORE 31-3-2003 UNDER THE RESTRUCTURED PROVISIONS OF SECTION 80-IA OF THE INCOME-TAX ACT. THE DEDUCTION SHALL BE CONFINED TO THE PROFITS DERIVED FROM TRANSMISSION OR DISTRIBUTION OF POWER THROUGH THE NEW NETWORK . AS PER THE CIRCULAR, THE INTENTION OF THE PROVISO I S TO RESTRICT THE DEDUCTION U/S 80IA ONLY IN RESPECT OF PROFIT DERIVED FROM TRANSMISSION OR D ISTRIBUTION OF POWER THROUGH THE NEW NETWORK OF TRANSMISSION OR DISTRIBUTION LINES. I.T.A. NO. 237/COCH/2012 7 10. WE SHALL ALSO TRY TO UNDERSTAND THE MEANING OF THE PROVISO TO CLAUSE (B), EXTRACTED ABOVE. SUB-SEC. (1) OF SEC. 80IA PROVIDE S THAT THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING REFERRED TO SUB-SECTION (4) ARE E LIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. CLAUSE (IV) OF SUB-SECTION (4) OF SEC. 80IA I NCLUDES AN UNDERTAKING WHICH STARTS TRANSMISSION OR DISTRIBUTION BY LAYING A NETWORK OF NEW TRANSMISSION OR DISTRIBU TION LINES AT ANY TIME DURING THE TIME PERIOD SPECIFIED IN THAT CLAUSE. HENCE PROFITS AND GAINS DERIVED BY SUCH KIND OF UNDERTAKING ARE ELIGI BLE FOR DEDUCTION UNDER SUB-SEC. (1) OF SEC. 80IA OF THE ACT UPON SATISFYING THE MAIN CO NDITION THAT THE TRANSMISSION OR DISTRIBUTION WAS CARRIED OUT BY LAYING A NETWORK OF NEW TRANSMISSION OR DISTRIBUTION LINES. THE PROVISO, HOWEVER, STATES THAT THE DEDU CTION SHALL BE ALLOWED ONLY IN RELATION TO THE PROFITS DERIVED FROM LAYING OF SUCH NETWORK OF NEW LINES FOR TRANSMISSION OR DISTRIBUTION. THE PROVISO APPEARS TO THROTTLE DOWN THE BENEFIT GIVEN BY THE MAIN ENACTMENT. 11. AT THIS STAGE, WE FEEL IT PERTINENT TO DISCU SS ABOUT THE IMPLICATIONS OF A PROVISO INSERTED TO AN ENACTMENT. IT IS A WELL ESTABLISHED RULE OF CONSTRUCTION THAT A PROVISO CANNOT ENABLE SOMETHING TO BE DONE WHICH IS NOT TO BE FOUND IN THE ENACTING CLAUSE ITSELF, ON THE GROUND THAT OTHERWISE THE PROVISO WO ULD BE MEANINGLESS AND SENSELESS (WEST DERBY UNION VS. METROPOLITAN LIFE ASSURANCE S OCIETY 1897 AC 647). IT CANNOT BE USED AS A LEVER TO FORCE PLAIN WORDS IN THE ENACTME NT TO WHICH IT IS APPENDED, AWAY FROM THEIR NATURAL MEANING (IRC VS. JOHAN DAW STAUR T LTD 91950)9 31 TC 274 (HL)). WHERE THE LANGUAGE OF THE MAIN ENACTMENT IS CLEAR, A PROVISO CAN HAVE NO REPERCUSSION ON ITS INTERPRETATION SO AS TO EXCLUDE FROM IT BY I MPLICATION WHAT CLEARLY FALLS WITHIN IT TERMS. (M.S.M. RAILWAY VS. BEZWADA MUNICIPALITY AI R 1944 PC 71; CIT VS. MURLIDHAR MATHURAWALLA MAHAJAN ASSOCIATION 91948)(16 ITR 146 (BOM)). 12. IN THE PRECEDING PARAGRAPHS, WE HAVE EXTRAC TED RELEVANT PORTIONS FROM THE SPEECH OF THE FINANCE MINISTER AND ALSO RELEVANT P ORTIONS FROM THE CIRCULAR ISSUED BY CBDT EXPLAINING THE PROVISIONS OF CLAUSE (B) OF SEC . 80IA(4)(IV) OF THE ACT. ON CONSIDERATION OF THE SAME AND ALSO THE LEGAL EFFECT OF THE PROVISO DISCUSSED ABOVE, IN I.T.A. NO. 237/COCH/2012 8 OUR VIEW, THE HARMONIOUS CONSTRUCTION OF CLAUSE (B) AND THE PROVISO THERE UNDER, WOULD BE THAT THE DEDUCTION U/S 80IA OF THE ACT SHALL BE ALLOWED IN RESPECT OF THE PROFITS DERIVED FROM TRANSMISSION OR DISTRIBUTION OF POWER THROUGH THE NEW NETWORK. HAD THE INTENTION OF THE PARLIAMENT WAS TO GIVE DEDUCTION O NLY TO THE UNDERTAKING WHICH UNDERTAKES THE WORK OF LAYING NETWORK OF NEW TRANSM ISSION OR DISTRIBUTION LINES AND NOT TO THE UNDERTAKING WHICH TRANSMITS OR DISTRIBUTES T HE POWER, THEN CLAUSE (B) WOULD HAVE BEEN WORDED ACCORDINGLY AND THERE WOULD HAVE BEEN N O NECESSITY TO INSERT A PROVISO FOR THE SAID PURPOSE. 13. IN VIEW OF THE FOREGOING DISCUSSIONS, WE AR E NOT ABLE TO AGREE WITH THE VIEW ENTERTAINED BY THE LD CIT(A) WITH REGARD TO THE PRO VISO TO CLAUSE (B) OF SEC. 80IA(4)(IV) OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IA(4)(IV)(B) OF THE ACT IN RESPECT OF THE PROFITS DERIVED FROM DISTRIBUTION OF POWER THOUGH THE NEW NETWORK. 14. DURING THE COURSE OF HEARING, THE LD D.R SU BMITTED THAT THE ASSESSEE WAS NOT ENTITLED TO CHARGE MORE THAN THE RATES PRESCRIBED B Y THE KSEB AND ACCORDINGLY EXPRESSED THE VIEW THAT THE POSSIBILITY OF MAKING P ROFIT FROM DISTRIBUTION OF POWER IS REMOTE. THE LD A.R, IN RESPONSE THERETO, FILED AN EXTRACT OF THE FINANCIAL STATEMENT SHOWING FOLLOWING DETAILS:- SALE OF ELECTRICITY 135048010 ELECTRICITY CONNECTION CHARGES 455351 --------------- 135503361 PURCHASE OF POWER 104639853 ELECTRICITY DUTY 5869037 OPERATION & MAINTENANCE 935068 --------------- 111443958 ---------------- NET INCOME 24059403 ========= THE LD D.R POINTED OUT THAT THE ASSESSING OFFICER D ID NOT EXAMINE THE ABOVE SAID WORKINGS, SINCE HE TOOK THE VIEW THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. WE FIND FORCE IN THE SUBMISSIONS MADE BY LD D.R. AS POINTED OUT BY LD I.T.A. NO. 237/COCH/2012 9 D.R, THERE WAS NO OCCASION FOR THE AO TO VERIFY THE COMPUTATION MADE BY THE ASSESSEE, SINCE HE HAD REJECTED THE CLAIM OF THE ASSESSEE OUT RIGHT. WE NOTICE THAT THERE WAS NO OCCASION FOR THE LD CIT(A) ALSO TO EXAMINE THE WORK INGS MADE BY THE ASSESSEE. ACCORDINGLY, IN OUR VIEW, THE WORKINGS FURNISHED BY THE ASSESSEE REQUIRE EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY WE S ET ASIDE THIS ISSUE RELATING TO EXAMINATION OF THE WORKINGS FURNISHED BY THE ASSESS EE FOR CLAIMING DEDUCTION U/S 80IA OF THE ACT TO THE FILE OF THE ASSESSING OFFICER WIT H THE DIRECTION TO EXAMINE THE WORKING FURNISHED BY THE ASSESSEE AND TAKE APPROPRIATE DECI SION WITH REGARD TO THE QUANTUM OF DEDUCTION IN ACCORDANCE WITH THE LAW. 15. THE NEXT ISSUE RELATES TO THE DEDUCTION CLAI MED BY THE ASSESSEE U/S 80IA OF THE ACT IN RESPECT OF INTEREST INCOME EARNED FROM BANK DEPOSITS AND SECURITY DEPOSITS. BOTH THE TAX AUTHORITIES REJECTED THE SAID CLAIM MADE BY THE ASSESSEE. THE LD CIT(A), IN THIS REGARD, HAS PLACED RELIANCE ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS (262 ITR 278) AND ALSO ON THE DEC ISION OF HONBLE PUNJAB HARYANA HIGH COURT IN THE CASE OF NAHAR EXPORTS LTD (288 ITR 494). 16. THE LD A.R CONTENDED BEFORE US THAT THE INT EREST INCOME WAS EARNED ON THE DEPOSITS MADE IN THE REGULAR COURSE OF BUSINESS. H OWEVER, THE MOOT POINT IS THAT THE DEDUCTION U/S 80IA IS ALLOWED IN RESPECT OF PROFIT S AND GAINS DERIVED FROM THE ELIGIBLE UNDERTAKING. THE QUESTION IS WHETHER THE INTEREST INCOME CAN BE CONSIDERED AS PROFITS AND GAINS DERIVED FROM THE ELIGIBLE UNDERT AKING OR NOT, EVEN IF IT IS ASSUMED FOR A MOMENT THAT INTEREST INCOME WAS ASSESSED AS BUSIN ESS INCOME. THERE IS A DIFFERENCE BETWEEN INCOME FROM BUSINESS AND PROFITS AND GAI NS DERIVED FROM THE ELIGIBLE UNDERTAKING. NOT ALL THE BUSINESS INCOME CAN BE C LASSIFIED AS PROFITS AND GAINS DERIVED FROM THE ELIGIBLE UNDERTAKING. AS EXPLAIN ED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. STERLING FOODS (237 ITR 579), F OR APPLICATION OF THE WORDS DERIVED FROM, THERE MUST BE A DIRECT NEXUS BETWEEN THE PRO FITS AND GAINS AND THE UNDERTAKING. IN THE INSTANT CASE, THE NEXUS OF INTEREST INCOME W ITH THE BUSINESS OF THE UNDERTAKING IS NOT DIRECT BUT INCIDENTAL. THE SOURCE OF INTEREST I NCOME IS ONLY BANK DEPOSITS AND I.T.A. NO. 237/COCH/2012 10 SECURITY DEPOSITS. HENCE, IN OUR VIEW, THE LD CIT( A) WAS RIGHT IN LAW IN REJECTING THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT IN RESPECT O F INTEREST INCOME. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 28-06-20 13. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 28TH JUNE, 2013 GJ COPY TO: 1. M/S. KINFRA EXPORTS PROMOTION INDUSTRIAL PARKS LT D., KAKKANAD, KOCHI-30. 2.THE THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -1(3), ERNAKULAM. 3 THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI . 4.THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN