MAHARASHTRA TOURISM DEVELOPMENT CORPORATION LTD, MUMBAI V. ITO 3(2)(2), MUMBAI

ITA 258/MUM/2010

• Counselvise Citation: 25819914 RSA 2010
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Keywords: Capital asset; Business income; Depreciation; Question of law
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI PRAMOD KUMAR (A.M) ITA NO.258/MUM/2010(A.Y. 2006-07) MAHARASHTRA TOURISM DEVELOPMENT CORPORATION LTD., EXPRESS TOWER, 9 TH FLOOR, NARIMAN POINT, MUMBAI 400 021. PAN:AAACM 0712G (APPELLANT) VS. INCOME TAX OFFICER, WARD 3(2)(2), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI ANIL SATHE RESPONDENT BY : SHRI P.C.MAURYA DATE OF HEARING : 20/12/2011 DATE OF PRONOUNCEMENT : /12/2011 ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSE AGAINST THE ORDER DATED 12/10/2009 OF CIT(A)-7, MUMBAI RELATING TO ASSESSMENT YEAR 200 6-07. GROUND NO.1 RAISED BY THE ASSESSEE READS AS FOLLOWS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFI CER AND TREATING THE SUM OF RS.3,52,99,296/- AS INCOME FROM OTHER SOURCE S AS AGAINST BUSINESS INCOME AS RETURNED BY THE APPELLANT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DENYING THE DEDUCTION PERTAINING TO THE WRITE OFF OF RS.7,0 0,000/- OF STORES AND SPARES. 3. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW A ND ON FACTS IN NOT ITA NO.258/MUM/2010(A.Y. 2006-07) 2 ALLOWING THE DEPRECIATION CLAIM IN REGARD TO THE ST ORES AND SPARES TREATED AS CAPITAL ASSET. 2. THE ASSESSEE IS A COMPANY WHOLLY OWNED BY THE GO VERNMENT OF MAHARASHTRA ESTABLISHED FOR DEVELOPMENT OF TOURISM IN THE STATE OF MAHARASHTRA. THE ASSESSEE GETS GRANTS FROM CENTRAL AND STATE GOVERNMENT FROM TIME TO TIME. THE SAME ARE DEPOSITED IN FIXED DEPOSITS WHICH YIELDED INTEREST INCOME. THE ASSESSEE RECEIVED A SUM OF RS . 3,52,99,298/- AS INTEREST ON SUCH DEPOSITS WITH THE BANKS. THE ASSE SSEE CLAIMED THAT IT WAS INCOME FROM BUSINESS. THE AO HOWEVER TAXED IT AS I NCOME FROM OTHER SOURCES. THE CIT(A) CONFIRMED THE ORDER OF THE AO GIVING RISE TO GROUND NO.1 OF THE ASSESSEE BEFORE THE TRIBUNAL. 3. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT AS PER SPECIFIC DIRECTIONS OF THE MINISTRY OF TOURISM, GOV ERNMENT OF INDIA THE ASSESSEE IS BOUND TO DEPOSIT GRANTS FROM THE GOVERN MENT IN SAVINGS OF FIXED DEPOSITS TILL UTILIZATION. EVEN THE INTEREST EARNE D BY MAKING SUCH DEPOSITS SHOULD BE USED ONLY FOR THE PURPOSE FOR WHICH THE G RANTS WERE GIVEN. ACCORDING TO HIM THE INTEREST RECEIVED IS THEREFORE , DIRECTLY CONNECTED WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AND, THEREFOR E, THE SAME SHOULD BE TAXED AS INCOME FROM BUSINESS. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS IN SUPPORT OF THE ASSESSEES CLAIM THAT INTEREST INCOME EARNED BY THE ASSESSEE IN THE PRESENT CASE HAS TO BE CONSIDERED AS INCOME FROM BUSINESS. 1. CIT VS. A.P.INDUSTRIAL INFRASTRUCTURE CORPORATI ON LTD. 175 ITR 361 (AP) WHEREIN IT WAS HELD THAT INTEREST INCOME EARNED ON FUNDS RECEIVED DURING ITS BUSINESS WHICH WERE TO BE DISBURSED LATER ON CONSTI TUTED BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES. 2. CIT VS. LOK HOLDINGS LTD. 308 ITR 356 (BOM). THE ASSESSEE, A FIRM, WAS ENGAGED IN CONSTRUCTION B USINESS AND RECEIVED MONIES FROM THE PURCHASERS OF FLATS WHICH IT DEPOSI TED WITH THE BANK. THE ASSESSING OFFICER ASSESSED THE INTEREST INCOME EARN ED ON MONEY DEPOSITED ITA NO.258/MUM/2010(A.Y. 2006-07) 3 WITH THE BANK AS INCOME FROM OTHER SOURCES AND THUS MADE AN ADDITION UNDER THE HEAD INCOME FROM OTHER SOURCES FOR THE ASSESSMENT YEAR 1992- 93. THE COMMISSIONER (APPEALS) DELETED THE ADDITION . THE TRIBUNAL ON FINDING THAT THE ENTIRE INTEREST SPRANG FROM THE BU SINESS ACTIVITY OF THE ASSESSEE AND NOT OUT OF ANY INDEPENDENT ACTIVITY, H ELD THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE WAS BUSINESS INCOME . ON FURTHER APPEAL, THE HONBLE BOMBAY HIGH COURT HELD THAT THE TRIBUNA L WAS JUSTIFIED IN HOLDING THAT THE INTEREST INCOME RECEIVED BY THE AS SESSEE WAS ASSESSABLE AS BUSINESS INCOME. 3. CIT V. PARAMOUNT PREMIUM P. LTD. [1991] 190 ITR 259 (BOM) WAS A CASE IN WHICH THE HONBLE BOMBAY HIGH COURT HELD THAT IN TEREST RECEIVED FROM PROSPECTIVE PURCHASERS FOR DELAYED PAYMENT OF DEPOS ITS, IDLE AMOUNTS DEPOSITED IN BANK OR AS TEMPORARY LOANS, INTEREST O N FIXED DEPOSITS WERE FOUND BY THE TRIBUNAL TO BE ARISING FROM BUSINESS A CTIVITY AND SUCH FINDING WAS HELD BY THE HONBLE BOMBAY HIGH COURT TO BE A F INDING OF FACT AND THEREFORE NO QUESTION OF LAW AROSE FOR CONSIDERATIO N. 4. CIT VS. SHREE PANCHAGANGA SAHAKARI SAKHAR KARKH ANA LTD. 250 ITR 772 (BOM) WAS A CASE WHERE INTEREST ON NON-REFUNDABLE D EPOSITS COLLECTED BY A SOCIETY OF CANE GROWERS FROM CANE GROWERS WERE HELD TO BE TRADING RECEIPTS . 5. CIT VS. PRODUCIN (P) LTD. 290 ITR 598 (KARN) WA S A CASE WHERE INTEREST EARNED ON DEPOSIT OF MONEY RECEIVED AS ADVANCE IN T HE EXPORT BUSINESS WHICH WAS THE MAIN ACTIVITY OF THE ASSESSEE WAS HEL D TO BE BUSINESS INCOME AS IT HAS CLOSE LINK WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. 6. COMMISSIONER OF INCOME-TAX VS. INDO SWISS JEWEL S LTD. 284 ITR 389 (BOM) THE ASSESSEE WAS A COMPANY ENGAGED IN THE BU SINESS OF MANUFACTURE OF INDUSTRIAL JEWELS. THE ASSESSEE HAD EARNED INTER EST INCOME OF RS. 7,07,711 DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSING OF FICER TREATED IT AS INCOME FROM OTHER SOURCES. THOUGH THE ASSESSING OFFICER DI D NOT ACCEPT THE EXPLANATION OF THE ASSESSEE, THE APPELLATE AUTHORIT Y IN THE FACTS OF THE CASE ITA NO.258/MUM/2010(A.Y. 2006-07) 4 AND IN THE LIGHT OF THE MATERIAL PLACED BY THE ASSE SSEE ON RECORD, WAS SATISFIED THAT THE FUNDS WERE KEPT BY THE ASSESSEE IN THE VARIOUS COMPANIES FOR SHORT TERMS FOR PAYMENT FOR IMPORTED MACHINERY. THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HELD THAT THE INTEREST W AS ASSESSABLE AS BUSINESS INCOME. ON APPEAL TO THE HIGH COURT, IT WAS HELD TH AT FROM THE FACTS AND CIRCUMSTANCES OF THE CASE IT WAS CLEAR THAT THE INT ER-CORPORATE DEPOSITS WERE MADE BY THE ASSESSEE FROM THE SURPLUS FUNDS THAT WE RE SET APART FOR PAYMENT FOR IMPORTED MACHINERY. THE INTEREST EARNED ON THE SHORT TERM DEPOSITS OF THE MONEY KEPT APART FOR THE PURPOSES O F BUSINESS HAD TO BE TREATED AS INCOME EARNED FROM BUSINESS AND COULD NO T BE TREATED AS INCOME FROM OTHER SOURCES. 4. THE LD. D.R RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES AND IN PARTICULAR RELIED ON THE DECISION OF THE HONBLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. SWANI SPICE MILLS PVT. LTD. (2011) 12 TAXMAN.COM 432(BOM), WHEREIN IT WAS HELD THAT SURPLUS FUNDS OF AN ASSESS EE UTILIZED FOR DISCOUNTING BILLS ON WHICH ASSESSEE RECEIVES DISCOU NTING CHARGES HAVE TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE ASSESS EE IN THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT WAS CARRYING ON BUSINESS OF EXPORT OF SEEDS, SPICES AND SIMILAR GOODS. EXPORT BILLS OF ASSESSEE AGAINST FULFILLMENT OF EXPORT ORDERS WERE SENT FOR COLLECTION TO BANKS AND ASSESSE RECEIVED DISCOUNTED VALE OF SALE PROCEEDS. ACCORDING TO ASS ESSEE, MONEYS WHICH WERE SO RECEIVED WERE UTILIZED FOR REPAYMENT OF ITS LOAN S. IF THE ASSESSEE HAD NO EXPORT ORDERS AND IF THERE WAS STILL BALANCE, THE A SSESSEE USED ITS FUNDS TO DISCOUNT PURCHASE BILLS OF PRIVATE PARTIES FOR SHOR T PERIODS OF THREE TO FIVE WEEKS. ON SUCH ACTIVITY BY UTILIZING SURPLUS FUNDS , THE ASSESSEE RECEIVED INTEREST. THE QUESTION BEFORE THE HONBLE BOMBAY H IGH COURT WAS WHETHER THE INTEREST INCOME WAS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES. THE HONBLE BOMBAY HIGH COURT HELD THAT THE INTEREST INCOME DID NOT HAVE A DIRECT AND PROXIMATE RELATIONSHIP WITH E XPORT ACTIVITY AND HELD ITA NO.258/MUM/2010(A.Y. 2006-07) 5 THAT THE INTEREST INCOME WAS INCOME FROM OTHER SOUR CES. THE HONBLE BOMBAY HIGH COURT IN THE AFORESAID CONSIDERED THE F OLLOWING DECISIONS: CIT VS. ASIAN STAR CO.LTD. 326 ITR 56 (BOM), TUTICO RIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT 227 ITR 172 (SC), CIT VS. BOKARO STEEL LTD. 236 ITR 315 (SC), CIT VS. KARNATAKA POWER CORPN. 247 ITR 26 8 (KARN), BONGAIGAON REFINERY & PETROCHEMICALS LTD. VS. CIT 251 ITR 329( SC), CIT VS. GOVINDA CHOUDHURY & SONS 203 ITR 881(SC), CIT VS. KARNAL CO -OPERATIVE SUGAR MILLS LTD. 243 ITR 2 (SC), CIT VS. AUTOKAST LTD. 24 8 ITR 110 (SC), CIT VS. PARAMOUNT PREMISES (P) LTD. 190 ITR 259, SHREE KRIS HNA POLYESTER LTD. VS. DCIT 274 ITR 21 (BOM), COMMISSIONER OF INCOME-TAX V S. INDO SWISS JEWELS LTD. 284 ITR 389 (BOM), CIT VS. LOK HOLDINGS LTD. 3 08 ITR 356 (BOM), SOUTH INDIA SHIPPIN CORPN. LTD. VS. CIT 240 ITR 24 (BOM), MURLI INVESTMENT CO. VS. CIT 167 ITR 368 (RAJ), K.RAVINDRANATHAN NAIR VS . DCIT 262 ITR 669 (KER), SOUTHERN CASHEW EXPORTERS VS. DCIT 130 TAXMA N 203 (KER), URBAN STANISLAUS CO. VS. CIT 263 ITR 10 (KER), CIT VS. SH RI RAM HONDA POWER EQUIP 275 ITR 475 (DEL)CIT VS. GOLDTEX FURNISHING I NDUSTRIES 174 TAXMAN 187 (DEL), CIT VS. COSMOS INTERNATIONAL 318 ITR 314 (DEL), KASHMIR ARTS VS. CIT 166 TAXMAN 237 (DEL) CIT VS. RAVI RATNA EXPORTS (P) LTD. 246 ITR 443(BOM) AND PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 (SC). AFTER CONSIDERING THE AFORESAID DECISIONS THE HONB LE BOMBAY HIGH COURT OBSERVED IN PARA-10 AS FOLLOWS: 10.THE TOTAL INCOME OF AN ASSESSEE WHICH IS CHARGA BLE TO TAX UNDER SECTION 4 HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. SEC.14 PROVIDES THAT ALL INCOME SHALL, FOR TH E PURPOSES OF THE CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOM E, BE CLASSIFIED UNDER THE FOLLOWING HEADS OF INCOME: (I)SALARIES; ( II) INCOME FROM HOUSE PROPERY; (III) PROFITS AND GAINS OF BUSINESS OR PRO FESSION; (IV) CAPITAL GAINS; AND (V) INCOME FROM OTHER SOURCES. THE HEAD INTEREST ON SECURITIES HAS BEEN OMITTED WITH EFFECT FROM 1-4-1 989. SECTION 28 DEFINES INCOME WHICH IS CHARGEABLE TO INCOME TAX UN DER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. SEC TION 56 STIPULATES THAT INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUD ED FROM THE TOTAL INCOME UNDER THE ACT SHALL BE CHARGEABLE TO INCOME- TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, IF IT IS NOT CHAR GEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN ITEMS A TO E OF SECTION 14. HENCE, ITA NO.258/MUM/2010(A.Y. 2006-07) 6 INCOME CAN FALL FOR CLASSIFICATION UNDER THE HEAD INCOME FROM OTHER SOURCES IF THE INCOME IS OF A KIND WHICH IS NOT TO BE EXCLUDED FROM TOTAL INCOME AND IF IT IS NOT CHARGEABLE TO INCOME- TAX UNDER ANY OF THE HEADS SPECIFICALLY ENUMERATED IN ITEMS A TO E OF SE CTION 14. THE QUESTION OF CLASSIFYING A HEAD OF INCOME UNDER SECT ION 56 CAN, THEREFORE ARISE WHERE IT DOES NOT FORM PART OF ANY OF THE SPECIFICALLY ENUMERATED HEADS. IN PARA 27 THE HONBLE COURT OBSERVED AS FOLLOWS: 27. ORDINARILY, WHERE AN ASSESSEE INVESTS FUNDS S URPLUS TO THE BUSINESS AND EARNS INTEREST, SUCH INCOME DOES NOT C ONSTITUTE BUSINESS INCOME BUT FALLS UNDER THE HEAD INCOME FROM OTHER SOURCES. MERELY BECAUSE AN ASSESSEE CARRIES ON BUSINESS AND THE INC OME OF THE BUSINESS IS INVESTED IN DEPOSITS, THAT WOULD NOT RE SULT IN AN INFERENCE THAT THE RETURN ON THE INVESTMENTS MUST PARTAKE OF THE CHARACTER OF BUSINESS INCOME. EVERY INCOME WHICH IS EARNED BY A N ASSESSEE WHO CARRIES ON BUSINESS IS NOT BUSINESS INCOME. ON THE CONTRARY, THE POSITION IN LAW IS THAT IT IS ONLY WHERE INCOME EAR NED ON ACCOUNT OF INTEREST SPRINGS OUT OF OR EMANATES FROM THE BUSINE SS ACTIVITY OF THE ASSESSE, THAT THIS INCOME CAN BE REGARDED AS BEING OF THE NATURE AND CHARACTER OF BUSINESS INCOME. IN PARA-35 THE HONBLE COURT OBSERVED AS FOLLOWS: 35. THE CONSISTENT LINE OF REASONING WHICH EMERGES FROM THE DECISION OF SEVERAL HIGH COURTS ADVERTED TO EARLIER IS THAT THE MERE FACT THAT AN ASSESSEE CARRIES ON BUSINESS WOULD NOT RESULT IN AN INFERENCE THAT THE INCOME WHICH IS EARNED BY WAY OF INTEREST WOULD FAL L FOR CLASSIFICATION AS BUSINESS INCOME. WHERE AN ASSESSEE INVESTS ITS S URPLUS FUNDS IN ORDER TO EARN INTEREST AND TO OBVIATE ITS FUNDS LYI NG IDLE, SUCH INCOME WOULD NOT FALL FOR CLASSIFICATION AS BUSINESS INCOM E. THIS IS PARTICULARLY SO IN A SITUATION WHERE THE BUSINESS OF THE ASSESSE E DOES NOT CONSIST IN THE INVESTMENT OF FUNDS. WHERE THE ASSESSEE ENGA GES IN AN INDEPENDENT LINE OF BUSINESS, INTEREST EARNED ON DE POSITS CANNOT BE REGARDED AS FALLING UNDER THE HEAD OF PROFITS AND G AINS OF BUSINESS OR PROFESSION. SUCH INCOME WOULD FALL FOR CLASSIFICATI ON AS INCOME FROM OTHER SOURCES. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE AR E OF THE VIEW THAT THE AFORESAID DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SWANI SPICE MILLS (P) LTD. (SUPRA) RELIED UPON BY THE LEA RNED D.R. SUPPORTS THE CASE OF THE REVENUE. THE DECISIONS RELIED UPON BY THE L EARNED COUNSEL FOR THE ITA NO.258/MUM/2010(A.Y. 2006-07) 7 ASSESSEE HAVE ALL BEEN CONSIDERED BY THE HONBLE BO MBAY HIGH COURT IN THE CASE OF SWANI SPICE MILLS (P) LTD. (SUPRA). THE DE CISION IN THE CSE OF SHREE PANCHAGANGA SAHAKARI SAKHAR KARKHANA LTD. (SUPRA) R ELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN CONSI DERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SWANI SPICE MILLS (P) LTD. (SUPRA. WE ARE OF THE VIEW THAT THE SAID DECISION IS OF NO ASSISTA NCE TO THE PLEA OF THE ASSESSEE. THE DECISION RELATES TO A CASE OF A CO-O PERATIVE SOCIETY WHERE COLLECTION OF DEPOSIT AND EARNING INTEREST THEREON WAS CONSIDERED TO BE PART OF THE BYE LAWS OF THE SOCIETY. THE OTHER DECISION S OF THE HONBLE A.P. HIGH COURT AND HONBLE KARNATAKA HIGH COURT ARE CONTRARY TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT, WHICH IS THE JURISDICTIO NAL HIGH COURT. WE ARE THEREFORE OF THE VIEW THAT THE CIT(A) WAS RIGHT IN REJECTING THE CLAIM OF THE ASSESSEE AS RAISED IN GROUND NO.1 BEFORE THE TRIBUN AL AND WE THEREFORE DISMISS GR.NO.1 RAISED BY THE ASSESSEE. 6. GR.NO.2 WAS NOT PRESSED AND THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 7. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS DI MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH DAY OF DEC. 2011. SD/- SD/- (PRAMOD KUMAR ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 30 TH DEC.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RB BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. ITA NO.258/MUM/2010(A.Y. 2006-07) 8 VM. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 22/12/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 27/12/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER