M/s H.P. Electricity Regulatory Commission, Shimla V. Addl. CIT, Shimla

ITA 42/CHANDI/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6429 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 08-01-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASHISH GUPTA CIT DR ANKUR ALYA
• Keywords: Diversion of income; Competent authority; Capital receipt
• Section: 195; 2; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , ! '# $ % & '# , BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.42/CHD/2015 / ASSESSMENT YEAR : 2011-12 ./ ITA NOS.161 TO 163/CHD/2017 / ASSESSMENT YEAR : 2008-09 TO 2010-11 H.P. ELECTR ICITY REGULATORY COMMISSION, KEONTHAL COMMERCIALL COMPLEX, KHALINI, SHIMLA. THE ADDL.CIT, SHIMLA RANGE, SHIMLA. ./PAN NO.AAAJH0378N /ASSESSEE BY : SHRI VISHAL MOHAN, ADV. / REVENUE BY : S/SHRI ASHISH GUPTA, CIT DR ANKUR ALYA, SR.DR ! /DATE OF HEARING : 13.11.2018 '#$% ! /DATE OF PRONOUNCEMENT: 08.02.2019 /ORDER PER BENCH: THE PRESENT APPEALS RELATE TO THE SAME ASSESSEE. TH E APPEAL IN ITA NO.42/CHD/2015 IS AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA (IN SH ORT CIT(A) DATED 29.10.2014,RELATING TO ASSESSMENT YE AR 2011- 12, WHEREAS THE APPEALS IN ITA NOS.161 TO 163/CHD/2 017 ARE AGAINST THE CONSOLIDATED ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS), SHIMLA DATED 22.11.2016, RELA TING TO ASSESSMENT YEARS 2011-12,2008 TO 2010-11 RESPECTIVE LY, ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 2 PASSED U/S 250(6) OF THE INCOME TAX AT, 1961 (HEREI NAFTER REFERRED TO AS ACT). 2. IT WAS COMMON GROUND THAT THE ISSUE INVOLVED IN ALL THE APPEALS WAS IDENTICAL. THEY WERE ALL THEREFORE TAKEN UP TOGETHER FOR HEARING AND ARE BEING DISPOSE D OFF BY THIS COMMON ,CONSOLIDATED ORDER. WE SHALL TAKE UP THE APPEAL FILED BY THE ASSESSEE PERTAINING TO ASSESSMENT YEAR 2011-12 IN ITA NO.42/CHD/2015 AND SHALL BE DEALING WITH THE FACTS IN THE SAID APPEAL. OUR DECISION RENDERED THEREIN WILL APPLY MUTATIS MUTANDIS TO OTHER APPEALS OF THE ASSESSEE. 3. AT THE OUTSET IT WAS POINTED OUT THAT THE SOLITA RY ISSUE INVOLVED IN ALL THE APPEALS RELATED TO TAXABILITY O F THE SURPLUS GENERATED BY THE ASSESSEE COMMISSION DURING THE COURSE OF CARRYING OUT ITS ACTIVITIES. TAKING UP TH ROUGH THE FACTS OF THE CASE AS NARRATED IN THE ORDERS OF THE AUTHORITIES BELOW, IT WAS POINTED OUT THAT THE ASSESSEE COMMISS ION HAD BEEN SET UP BY THE GOVERNMENT OF HIMACHAL PRADESH U NDER THE ELECTRICITY REGULATORY COMMISSION ACT, 1998 VID E NOTIFICATION NO.MPP-A(7)/-1) 2000 DATED 31.12.2000 AND THE ACTIVITIES UNDERTAKEN BY IT RELATED TO DETERMINATIO N OF TARIFF FOR ELECTRICITY, REGULATION OF POWER PURCHASE AND I TS DISTRIBUTION AND PROMOTION OF COMPETITION, EFFICIEN CY AND ECONOMY IN THE ACTIVITIES OF THE ELECTRICITY INDUS TRY . IT WAS POINTED OUT THAT DURING THE IMPUGNED ASSESSMENT YEA R I.E. 2011-12, THE ASSESSEE HAD SHOWN EXCESS OF INCOME OV ER ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 3 EXPENDITURE OF RS.2,10,50,524/- AND HAD CLAIMED ENT IRE AMOUNT EXEMPT ON THE BASIS OF THAT THE CENTRAL ELEC TRICITY REGULATORY COMMISSION ( IN SHORT REFERRED TO AS CER C) AND OTHER STATE ELECTRICITY REGULATORY COMMISSIONS WERE EXEMPT. FURTHER THE ASSESSEE SUBMITTED NOTIFICATION NO.49/1 3 DATED 3.7.2013 ISSUED BY THE CBDT, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE WHICH EXEMPTED THE INCOME OF TH E ASSESSEE COMMISSION. THE A.O. NOTED THAT THE NOTIFI CATION EXEMPTING THE ASSESSEES INCOME FROM TAX WAS APPLIC ABLE FOR FINANCIAL YEAR 2012-13 TO 2016-17 AND DID NOT APPLY FOR THE IMPUGNED YEAR I.E. FINANCIAL YEAR 2010-11 RELEVANT TO ASSESSMENT YEAR 2011-12. THIS WAS CONFRONTED TO THE ASSESSEE WHO CONTENDED THAT SINCE IT IS A REGULATOR Y BODY AND ITS FUNCTIONS ARE COMPLETELY NON COMMERCIAL IN NATURE, ON THE BASIS OF WHICH IT WAS NOTIFIED AS EXEMPT FRO M TAX BY CBDT VIDE THE AFORESAID NOTIFICATION, THEREFORE THE INCOME FOR THE IMPUGNED YEAR WAS ALSO CLAIMED AS EXEMPT. THE A.O. WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE ST ATING THAT THE ASSESSEE WAS SPECIFICALLY NOTIFIED AS EXEMPT U/ S 10(46) OF THE ACT ONLY W.E.F. SUBSEQUENT ASSESSMENT YEARS. ACCORDINGLY, HE TREATED THE SURPLUS OF THE INCOME O VER THE EXPENDITURE FOR THE IMPUGNED YEAR, AMOUNTING TO RS.2,10,50,524/-, AS TAXABLE AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.C IT(A) WHERE THE ASSESSEE CONTENDED THAT THE RECEIPT IN IT S HANDS WAS NOT IN THE NATURE OF INCOME BUT WAS IN THE NATU RE OF ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 4 CAPITAL RECEIPT KEPT IN A NOTIFIED FUND AND ALSO SI NCE IT WAS NOT ENGAGED IN ANY BUSINESS ACTIVITY AND FURTHER SI NCE CERC CARRYING OUT IDENTICAL ACTIVITIES WAS EXEMPT FROM T HE PAYMENT OF TAX AND THE ASSESSEE ALSO HAD BEEN NOTIF IED BY THE CBDT FOR EXEMPTION FROM TAX, THEREFORE, THE INC OME FOR THE IMPUGNED YEAR WAS NOT TO BE SUBJECTED TO TAX. T HE LD.CIT(A) WAS NOT CONVINCED WITH THE CONTENTION OF THE ASSESSEE STATING THAT THE CERC HAD BEEN SPECIFICALL Y NOTIFIED AS EXEMPT FROM TAX U/S 10(23BBG) OF THE ACT AND THE ASSESSEE COULD NOT GET ANY BENEFIT OF THE SAME. FU RTHER THE ASSESSEE HAD BEEN NOTIFIED AS EXEMPT FOR SPECIFIED PERIOD WHICH DID NOT INCLUDE THE IMPUGNED ASSESSMENT YEAR AND THERE WAS NO PROVISION BY WHICH THE NOTIFICATION GR ANTING EXEMPTION FROM TAX COULD BE GIVEN A RETROSPECTIVE E FFECT. ACCORDINGLY, THE ASSESSEES APPEAL WAS DISMISSED BY THE LD.CIT(A). 5. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US RAISING FOLLOWING GROUNDS: (1) THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX ACT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) , SHIMLA IS AGAINST LAW AND FACTS ON THE FILE IN AS MU CH SHE WAS NOT JUSTIFIED IN ARBITRARILY UPHOLDING THE ACTION OF THE LD. ASSESSING OFFICER IN TREATING THE ENTIRE SUR PLUS OF RS. 2,10,50,5247- AS TAXABLE INCOME. (2) THAT SHE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF T HE LD. ASSESSING OFFICE WITHOUT APPRECIATING THE FACT TH AT THE ENTIRE SURPLUS WAS TRANSFERRED TO THE CAPITAL / CORPUS FUND. (3) THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND GROUN D OF THE APPEAL ON OR BEFORE THE DISPOSAL OF THE SAME. 6. DURING THE COURSE OF HEARING BEFORE US THE LD. COUNSEL FOR ASSESSEE REITERATED THE CONTENTIONS MADE BEFORE THE LOWER ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 5 AUTHORITIES. BRIEFLY PUT, THE CONTENTION RAISED BY THE ASSESSEE WERE THAT; 1) ALL INCOMES AND EXPENDITURES TO BE INCURRED BY T HE ASSESSEE WERE SPECIFIED IN THE RULES NOTIFYING THE CREATION OF FUND FOR THE ASSESSEE COMMISSION, TO WH ICH ALL INCOMES WAS TO BE CREDITED AND ALL EXPENDITURE MADE THEREFROM. THAT THE SURPLUS WAS TO BE CREDITED TO T HE CORPUS FUND AND NO REAL INCOME ACCRUED TO THE ASSESSEE. THAT ON THE CLOSURE OF THE FUND, AS PER T HE RULES NOTIFIED FOR CREATION OF THE FUND, THE ENTIRE AMOUNT WAS TO BE GIVEN BACK TO THE GOVERNMENT AND, THEREFORE, INCOME EARNED WAS NOT THAT OF ASSESSEE COMMISSION BUT BELONGED ALWAYS TO THE GOVERNMENT. RELIANCE WAS PLACED ON THE DECISION OF THE ITAT CHANDIGARH BENCH IN THE CASE OF H.P. EXCISE & TAXAT ION TECHNICAL SERVICES AGENCY VS. DCIT IN ITA NOS.436 T O 441/CHD/2017 DATED 30.11.2017. FURTHER A COPY OF TH E ORDER OF THE HON'BLE JURISDICTIONAL HIGH COURT I.E. HIMACHAL PRADESH HIGH COURT AFFIRMING THE ORDER OF THE I.T.A.T. IN THE AFORESAID CASE DATED 7.12.2018 WAS ALSO PLACED BEFORE US. 2) THAT THERE WAS DIVERSION OF INCOME TO THE STATE BY OVERRIDING TITLE AND HENCE NO REAL INCOME ACCRUED T O THE ASSESSEE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 1) SOMAIYA ORGANO CHEMICALS LTD.VS CIT 216 ITR 291(BOM) ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 6 2) RAJKOT DISTRICT GOPALAKCO-OP MILK PRODUCERS UNION LTD. VS CIT 204 ITR 590(GUJ) 3) THAT THE VITAL CONSTITUENT OF THE INCOME WAS GRANTS RECEIVED FROM GOVERNMENT WHICH COULD NOT BE STATED TO BE REVENUE IN NATURE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS IN THIS REGARD: 1) CIT VS HANDICRAFTS & HANDLOOM EXPORT CORP. OF INDIA 360 ITR 130 (DEL) 2) LACHIT FILMS VS CIT 195 ITR 402 (GAUHATI) 4) THAT THE ASSESSEES INCOME WAS NOTIFIED EXEMPT B Y THE CBDT VIDE ITS NOTIFICATION NO.49/2013 DATED 3.7.2013 CLEARLY SHOWING THE INTENTION OF THE LEGISLATURE. 5) THAT CERC, WHICH CARRIED OUT IDENTICAL REGULATOR Y ACTIVITIES AS THE ASSESSEE AND HAD AN IDENTICAL FUN D CREATED FOR THE SAID PURPOSE, WAS EXEMPT U/S 10(23BBG) OF THE ACT. IT WAS CONTENDED THAT THE ASSESSEES CASE WAS PARAMATERIA WITH CERC, THEREFORE , AND APPLYING THE PRINCIPLE OF EQUITY, THE INCOME OF THE ASSESSEE WAS ALSO TO BE TREATED AS EXEMPT. 7. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE BEFORE US RELAT ES TO THE TAXABILITY OF THE SURPLUS GENERATED BY THE ASSESSEE WHICH IS A COMMISSION SET UP FOR REGULATING ELECTRICITY RELA TED TO THE ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 7 ACTIVITIES FOR THE STATE OF HIMACHAL PRADESH. ONE O F THE CONTENTION RAISED BY THE LD.COUNSEL FOR THE ASSESSE E FOR CLAIMING ITS INCOME AS EXEMPT FROM TAXATION, IS TH AT IT HAS BEEN FORMED BY AN ACT OF THE GOVERNMENT FOR CARRYIN G OUT ACTIVITIES SPECIFIED BY THE GOVERNMENT AND FOR WHIC H PURPOSE A FUND HAS BEEN CREATED BY THE GOVERNMENT TO WHICH INCOMES OF THE NATURE SPECIFIED BY THE GOVERNMENT ARE CREDI TED AND EVEN THE EXPENDITURE TO BE MET OUT OF THE SAME ARE SPECIFIED BY THE GOVERNMENT AND FURTHER ANY SURPLUS REMAINING ON THE CLOSURE OF THE FUND IS GIVEN BACK TO THE GOVERNMENT . THEREFORE THE ASSESSEE COMMISSION HAS NO ROLE IN DETERMINING THE NATURE OF THE ACTIVITIES TO BE CARR IED OUT BY IT, THE SOURCE OF ITS INCOME OR PURPOSE FOR WHICH T HE INCOME IS TO BE SPENT AND IS ACTING ONLY IN A FIDUCIARY CA PACITY FOR CARRYING OUT THE FUNCTION OF THE GOVERNMENT AND, TH US, IT CANNOT BE SAID THAT THE COMMISSION HAD EARNED ANY I NCOME SO AS TO MAKE IT LIABLE TO PAY INCOME TAX THEREON. FOR THE PURPOSE OF DEALING WITH THIS CONTENTION OF THE ASSESSEE, IT IS ESSENTIAL TO FIRST DELVE INTO THE B ACKGROUND AND THE MANNER IN WHICH THE ASSESSEE COMMISSION WAS SET UP. FOR THE SAID PURPOSE IT IS NECESSARY TO REFER TO THE RELEVANT SECTIONS OF THE ELECTRICITY ACT, 2003 AND THE NOTIFICATIONS ISSUED BY THE STATE GOVERNMENT ,TO WH ICH OUR ATTENTION WAS DRAWN DURING THE COURSE OF HEARING BE FORE US. A COPY OF THE BARE ACT RELATING TO THE ELECTRICITY ACT, 2003 WAS PLACED BEFORE US BY THE LD. COUNSEL FOR AS SESSEE. ON GOING THROUGH THE SAME WE FIND THAT AS PER THE S TATEMENT ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 8 OF OBJECTS AND REASON FOR THE INTRODUCTION OF ELECT RICITY ACT, 2003, WAS TO OVERCOME THE SHORTCOMINGS IN THE EXIST ING ACT GOVERNING THE SUPPLY OF ELECTRICITY IN INIDA. IT NO TES THAT THE ELECTRICITY SUPPLY INDUSTRY IN INDIA WAS EARLIER GO VERNED BY THREE ENACTMENTS. THE FIRST ENACTMENT WAS THE INDIA N ELECTRICITY ACT, 1910 WHICH CREATED A BASIC FRAMEWO RK FOR ELECTRIC SUPPLY IN INDIA ENVISAGING GROWTH OF THE E LECTRICITY INDUSTRIES THROUGH PRIVATE LICENCEES. THEREAFTER TH E ELECTRICITY (SUPPLY ACT), 1948 CAME INTO FORCE, MAN DATING THE CREATION OF A STATE ELECTRICITY BOARD WHICH WAS GIV EN THE RESPONSIBILITY FOR ARRANGING THE SUPPLY OF THE ELEC TRICITY IN THE STATE, SO AS TO ENSURE ELECTRIFICATION OF ALL A REAS AND NOT LIMITED TO CITIES ONLY. HOWEVER, OVER A PERIOD OF T IME THE PERFORMANCE OF THE SAID STATE ELECTRICITY BOARD DET ERIORATED SPECIALLY ON ACCOUNT OF VARIOUS FACTORS AND WHICH I NCLUDED THAT THEY WERE UNABLE TO TAKE DECISION ON TARIFF IN A PROFESSIONAL AND INDEPENDENT MANNER AND CROSS SUBSI DY HAD REACHED UNSUSTAINABLE LEVELS. TO ADDRESS THIS ISSUE AND FOR DISTANCING GOVERNMENT FROM DETERMINATION OF TARIFF, THE ELECTRICITY REGULATORY COMMISSION ACT, 1998 WAS ENA CTED CREATING THE CENTRAL ELECTRICITY REGULATORY COMMISS ION AND WHICH HAD THE ENABLING PROVISION THROUGH WHICH THE STATE GOVERNMENT COULD CREATE A STATE ELECTRICITY REGULAT ORY COMMISSION. THEREAFTER, WITH THE POLICY OF ENCOURAG ING PRIVATE SECTOR PARTICIPATION IN GENERATION, TRANSMI SSION AND DISTRIBUTION AND WITH THE OBJECTIVE OF DISTANCING T HE REGULATORY RESPONSIBILITIES FROM THE GOVERNMENT TO THE REGULATORY COMMISSION, AND TO ADDRESS THE NEED FOR ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 9 HARMONIZING AND RATIONALISING THE PROVISION OF INDI AN ELECTRICITY ACT, 1948 AND THE ELECTRICITY REGULATOR Y COMMISSION ACT, 1998, A NEW SELF CONTAINED LEGISLAT URE, I.E THE ELECTRICITY ACT, 2003 WAS ENACTED. 9. HAVING DEALT WITH THE BACKGROUND LEADING TO THE LEGISLATION OF THE ELECTRICITY ACT,2003, WE SHALL N OW DISCUSS THE RELEVANT PROVISIONS OF THE ACT WHICH DEAL WITH THE CREATION OF THE REGULATORY COMMISSIONS AND ITS POWE RS AND DUTIES. 10. PART X OF THE SAID ACT DEALS WITH REGULATORY COMMISSIONS, WITH SECTION 76 TO 81 DEALING WITH CON STITUTION OF THE CENTRAL COMMISSION AND ITS RELATED MATTERS, BEING APPOINTMENT OF MEMBERS, FUNCTION OF THE CENTRAL COMMISSION, SETTING UP OF ADVISORY COMMITTEE AND IT S OBJECTS. THEREAFTER SECTION 82 IN THE SAID CHAPTER DEALS WITH CONSTITUTION OF STATE COMMISSION AND READS AS UNDER : 82. CONSTITUTION OF STATE COMMISSION.- 1. EVERY STATE GOVERNMENT SHALL, WITHIN SIX MONTHS FROM THE APPOINTED DATE, BY NOTIFICATION, CONSTITUTE FOR THE PU RPOSES OF THIS ACT, A COMMISSION FOR THE STATE TO BE KNOWN AS T HE (NAME OF THE STATE) ELECTRICITY REGULATORY COMMISSION: PROVIDED THAT THE STATE ELECTRICITY REGULATORY COMMISSION, ESTABLISHED BY A STATE GOVERNMENT UNDER SECTION 17 OF THE ELECTRICITY REGULATORY COMMISSIONS ACT, 1998 AND THE ENACTMENTS SPECIFIED IN THE SCHEDULE, AND FUNCTIONING AS SUCH IMMEDIATELY BEFORE THE APPOINTED DATE, SHALL BE THE ST ATE COMMISSION FOR THE PURPOSES OF THIS ACT AND THE CHA IRPERSON, MEMBERS, SECRETARY, AND OFFICERS AND OTHER EMPLOYEES T HEREOF SHALL CONTINUE TO HOLD OFFICE, ON THE SAME TERMS AND C ONDITIONS ON WHICH THEY WERE APPOINTED UNDER THOSE ACTS: PROVIDED FURTHER THAT THE CHAIRPERSON AND OTHER MEMBERS OF THE STATE COMMISSION APPOINTED, BEFORE THE COMMEN CEMENT OF THIS ACT, UNDER THE ELECTRICITY REGULATORY COMMISSI ONS ACT, 1998 OR UNDER THE ENACTMENTS SPECIFIED IN THE SCHEDU LE, MAY, ON THE RECOMMENDATIONS OF THE SELECTION COMMITTEE ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 10 CONSTITUTED UNDER SUB-SECTION (1) OF SECTION 85, BE ALLOWE D TO OPT FOR THE TERMS AND CONDITIONS UNDER THIS ACT BY T HE CONCERNED STATE GOVERNMENT. 2. THE STATE COMMISSION SHALL BE A BODY CORPORATE BY THE NAME AFORESAID, HAVING PERPETUAL SUCCESSION AND A COM MON SEAL, WITH POWER TO ACQUIRE, HOLD AND DISPOSE OF PROPERTY, B OTH MOVABLE AND IMMOVABLE, AND TO CONTRACT AND SHALL, BY THE SAID NAME, SUE OR BE SUED. 3. THE HEAD OFFICE OF THE STATE COMMISSION SHALL BE A T SUCH PLACE AS THE STATE GOVERNMENT MAY, BY NOTIFICATION, SPECIF Y. 4. THE STATE COMMISSION SHALL CONSIST OF NOT MORE TAN THREE MEMBERS, INCLUDING THE CHAIRPERSON. 5. THE CHAIRPERSON AND MEMBERS OF THE STATE COMMISS ION SHALL BE APPOINTED BY THE STATE GOVERNMENT ON THE RECOMMENDATION OF A SELECTION COMMITTEE REFERRED TO I N SECTION 85. 11. FOR THE PURPOSE OF THE PRESENT APPEAL, THE OTHE R RELEVANT SECTIONS OF THE ELECTRICITY ACT, 2003 RELA TING TO THE FUNCTIONS OF THE STATE COMMISSION AS LAID DOWN IN S ECTION 86 OF THE ACT READS AS UNDER: 86. FUNCTIONS OF STATE COMMISSION.- 1. THE STATE COMMISSION SHALL DISCHARGE THE FOLLOWING FUNCTIONS, NAMELY:-- A. DETERMINE THE TARIFF FOR GENERATION, SUPPLY, TRANSM ISSION AND WHEELING OF ELECTRICITY, WHOLESALE, BULK OR RETAIL, AS THE CASE MAY BE, WITHIN THE STATE: PROVIDED THAT WHERE OPEN ACCESS HAS BEEN PERMITTED TO A CATEGORY OF CONSUMERS UNDER SECTION 42, THE STATE COMMISSION SHALL DETERMINE ONLY THE WHEELING CHARGES AND SURCHARGE THEREON, IF ANY, FOR THE SAID CATEGORY OF CONSUM ERS; B. REGULATE ELECTRICITY PURCHASE AND PROCUREMENT PROC ESS OF DISTRIBUTION LICENSEES INCLUDING THE PRICE AT WHICH ELECTRICITY SHALL BE PROCURED FROM THE GENERATING COMPANIES OR LI CENSEES OR FROM OTHER SOURCES THROUGH AGREEMENTS FOR PURCHA SE OF POWER FOR DISTRIBUTION AND SUPPLY WITHIN THE STATE; C. FACILITATE INTRA-STATE TRANSMISSION AND WHEELING OF ELECTRICITY; D. ISSUE LICENCES TO PERSONS SEEKING TO ACT AS TRAN SMISSION LICENSEES, DISTRIBUTION LICENSEES AND ELECTRICITY TRAD ERS WITH RESPECT TO THEIR OPERATIONS WITHIN THE STATE; ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 11 E. PROMOTE COGENERATION AND GENERATION OF ELECTRICITY FROM RENEWABLE SOURCES OF ENERGY BY PROVIDING SUITABLE MEA SURES FOR CONNECTIVITY WITH THE GRID AND SALE OF ELECTRICITY T O ANY PERSON, AND ALSO SPECIFY, FOR PURCHASE OF ELECTRICITY FR OM SUCH SOURCES, A PERCENTAGE OF THE TOTAL CONSUMPTION OF ELE CTRICITY IN THE AREA OF A DISTRIBUTION LICENSEE; F. ADJUDICATE UPON THE DISPUTES BETWEEN THE LICENSE ES AND GENERATING COMPANIES AND TO REFER ANY DISPUTE FOR ARBITRAT ION; G. LEVY FEE FOR THE PURPOSES OF THIS ACT; H. SPECIFY STATE GRID CODE CONSISTENT WITH THE GRID CODE SPECIFIED UNDER CLAUSE (H) OF SUB-SECTION (1) OF SECTION 79; I. SPECIFY OR ENFORCE STANDARDS WITH RESPECT TO QUAL ITY, CONTINUITY AND RELIABILITY OF SERVICE BY LICENSEES; J. FIX THE TRADING MARGIN IN THE INTRA-STATE TRADING OF ELECTRICITY, IF CONSIDERED, NECESSARY; K. DISCHARGE SUCH OTHER FUNCTIONS AS MAY BE ASSIGNE D TO IT UNDER THIS ACT. 2. THE STATE COMMISSION SHALL ADVISE THE STATE GOVERN MENT ON ALL OR ANY OF THE FOLLOWING MATTERS, NAMELY:-- I. PROMOTION OF COMPETITION, EFFICIENCY AND ECONOMY IN ACTIVITIES OF THE ELECTRICITY INDUSTRY; II. PROMOTION OF INVESTMENT IN ELECTRICITY INDUSTRY; III. REORGANISATION AND RESTRUCTURING OF ELECTRICITY I NDUSTRY IN THE STATE; IV. MATTERS CONCERNING GENERATION, TRANSMISSION, DIS TRIBUTION AND TRADING OF ELECTRICITY OR ANY OTHER MATTER REFERR ED TO THE STATE COMMISSION BY THAT GOVERNMENT: 3. THE STATE COMMISSION SHALL ENSURE TRANSPARENCY WHI LE EXERCISING ITS POWERS AND DISCHARGING ITS FUNCTIONS. 4. IN DISCHARGE OF ITS FUNCTIONS, THE STATE COMMISSI ON SHALL BE GUIDED BY THE NATIONAL ELECTRICITY POLICY, NATIONAL ELECT RICITY PLAN AND TARIFF POLICY PUBLISHED UNDER SECTION 3. 12. FURTHER SECTION 103 OF THE ACT DEALS WITH THE ESTABLISHMENT OF A FUND BY THE STATE GOVERNMENT AN D READS AS UNDER: 103. ESTABLISHMENT OF FUND BY STATE GOVERNMENT.- ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 12 1. THERE SHALL BE CONSTITUTED A FUND TO BE CALLED THE ST ATE ELECTRICITY REGULATORY COMMISSION FUND AND THERE SHALL BE CREDITED THERETO-- A. ANY GRANTS AND LOANS MADE TO THE STATE COMMISSION BY THE STATE GOVERNMENT UNDER SECTION 102; B. ALL FEES RECEIVED BY THE STATE COMMISSION UNDER THIS AC T; C. ALL SUMS RECEIVED BY THE STATE COMMISSION FROM SUC H OTHER SOURCES AS MAY BE DECIDED UPON BY THE STATE GOVERNMENT. 2. THE FUND SHALL BE APPLIED FOR MEETING-- A. THE SALARY, ALLOWANCES AND OTHER REMUNERATION OF CHAIRPERSON, MEMBERS, SECRETARY, OFFICERS AND OTHER EMPLOYEES OF THE STATE COMMISSION; B. THE EXPENSES OF THE STATE COMMISSION IN DISCHARG E OF ITS FUNCTIONS UNDER SECTION 86; C. THE EXPENSES ON OBJECTS AND FOR PURPOSES AUTHORI SED BY THIS ACT. 3. THE STATE GOVERNMENT MAY, IN CONSULTATION WITH TH E COMPTROLLER AND AUDITOR- GENERAL OF INDIA, PRESCRIBE THE MANNER OF APPLYING THE FUND FOR MEETING THE EXPENSE S SPECIFIED IN CLAUSE (B) OR CLAUSE (C) OF SUB-SECTION (2). 13. GOING FORWARD FROM HERE WE NOTE THAT THE ASSESS EE STATE COMMISSION WAS ESTABLISHED ON 30 TH DECEMBER 2000,BY A NOTIFICATION ISSUED BY THE GOVERNOR OF HIMACHAL P RADESH, IN EXERCISE OF THE POWERS VESTED IN HIM U/S 17(1) O F THE ELECTRICITY REGULATORY COMMISSION ACT,1998.COPY OF THE SAME WAS PLACED BEFORE US AT PAPER BOOK PAGE NO.1-4 . THEREAFTER ANOTHER NOTIFICATION DATED 14.6.2001 WAS ISSUED BY THE GOVERNMENT OF HIMACHAL PRADESH OUTLINING THE FUNCTIONS TO BE DISCHARGED BY THE COMMISSION AS UND ER: NOTIFICATION IN CONTINUATION OF THIS DEPARTMENT NOTIFICATION OF EVEN NUMBER FT 30 TH DEC., 2000, THE GOVERNOR, HIMACHAL PRADESH, IS PLEASED TO ORDER THAT THE HIMACHAL PRADESH ELECTRICITY REGULATORY COMMISSION SHALL DISCHARGE THE FOLLOWING FUNCTIONS AS PROVIDED UNDER SECTION 22(I) OF THE STATE ELECTRICITY REGULATORY COMMISSION ACT, VIZ:- ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 13 (A) TO DETERMINE THE TARIFF FOR ELECTRICITY WHOLESALE, BULK, GRID OR RETAIL, AS THE CASE MAY BE, IN THE MANNER PROVIDED IN SECTION 29 OF THE ELECTRICITY REGULATORY COMMISSION ACT, (B) TO DETERMINE THE TARIFF PAYABLE FOR THE USE OF THE TRANSMISSION FACILITIES IN THE MANNER PROVIDED IN SECTION 29 OF HE ABOVE ACT, (C) TO REGULATE POWER PURCHASE AND PROCUREMENT PROCESS OF THE TRANSMISSION UTILITIES AND DISTRIBUTION UTILITIES INCLUDING THE PRICE AT WHICH THE POWER SHALL BE PROCURED FROM THE GENERATING COMPANIES, GENERATING STATIONS OR FROM OTHER SOURCES FOR TRANSMISSION, SALE, DISTRIBUTION AND SUPPLY IN THE STATE, (D) TO PROMOTE COMPETITION, EFFICIENCY AND ECONOMY IN THE ACTIVITIES OF THE ELECTRICITY INDUSTRIES TO ACHIEVE THE OBJECTS AND PURPOSES OF THIS ACT, 2. IT IS ALSO CLARIFIED THAT ANY OF THE OTHER FUNCTIONS AS INDICATED UNDER SECTION 22(2) OF THE AFORESAID ACT MAY BE ORDERED TO BE DISCHARGED BY THE COMMISSION AS DECIDED BY THE COMPETENT AUTHORITY FROM TIME TO TIME. 14. BY NOTIFICATION DATED 3.5.2007, THE GOVERNMENT OF HIMACHAL PRADESH BY EXERCISING POWERS CONFERRED BY SECTION 180 AND SECTION 103 TO 106 OF THE ELECTRICITY ACT,2 003, NOTIFIED RULES FOR THE ESTABLISHMENT OF THE ASSESSE E COMMISSION FUND . THE RELEVANT RULES BEING RULE NO. 2 DEALING WITH THE CONSTITUTION OF THE FUND, RULE NO. 3 DEALING WITH THE APPLICATION OF THE FUND, RULE NO.4 DEALING WITH THE OPERATION OF THE FUNDS AND RULE NO.8 DEALING WITH THE CLOSURE OF THE FUND ARE REPRODUCED AS UNDER: 2. CONSTITUTION OF FUND. (1) THE GOVERNMENT HEREBY CONSTITUTES A FUND TO BE CALLED THE HIMACHAL PRADESH ELECTRICITY REGULATORY COMMISSI ON FUND. ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 14 (2) THE FUND SHALL COMPRISE OF (I) ALL THE GRANTS AND LOANS MADE TO THE COMMISSION BY THE STATE GOVERNMENT UNDER SECTION 102 OF THE ACT. (II) ALL FEES AND FINES RECEIVED BY THE COMMISSION UNDER THE ACT. (III) ALL OTHER SUMS RECEIVED BY THE COMMISSION FROM OTHER SOURCES. (3) APPLICATION OF FUND THE FUND SHALL BE APPLIED FOR MEETING THE FOLLOWING EXPENSES WHICH INTERALIA INCLUDE:- (C) THE SALARY ALLOWANCES AND OTHER REMUNERATION OF CHAIRPERSON, MEMBERS, SECRETARY, OFFICERS AND OTHER EMPLOYEES OF THE COMMISSION. THE COMMISSION WILL MEET EXPENDITURE FOR ONLY THOSE POSTS AS ARE APPROVED BY THE GOVERNMENT OF HIMACHAL PRADESH UNDER SECTION 91(3) OF THE ELECTRICITY ACT,2003. (D) HONORARIUM FOR THE MEMBERS OF ADVISORY COMMITTEE CONSTITUTED BY THE COMMISSION. (E) CONVEYANCE CHARGES INCLUDING OF HIRING OF VEHICLES. (F) ADMINISTRATIVE AND GENERAL EXPENSES. (G) REPAIRS AND MAINTENANCE EXPENSES OF OFFICE PREMISES WHICH INCLUDE THE PROVISION AND MAINTENANCE OF A PRINCIPAL OFFICE FOR THE COMMISSION AND SUCH OTHER OFFICES WITH THE COST OF APPLIANCES AND FITTINGS AND INSURANCES; (H) CONSULTANCY EXPENDITURE FOR TECHNICAL STUDIES, SAMPLE AND MODAL STUDIES AND FINANCIAL ANALYSIS ETC. (I) MISCELLANEOUS AND OTHER EXPENSES; (J) LEGAL EXPENSES WHICH INCLUDED THE PAYMENT OF FEES TO THE COUNSELS ENGAGED BY THE COMMISSION; (K) LOANS AND ADVANCES TO TH STAFF AS PER THE NORMS OF H.P.GOVERNMENT; (L) CONTRIBUTION TO THE STAFF WELFARE MEASURES SUCH AS HEALTH INSURANCE; (M) AND FAMILY BENEFIT FUNDS; (N) STATUTORY DEPOSITS; (O) PURCHASE OF ASSETS AND OTHER CAPITAL ITEMS ETC.; (P) FEES FOR THE AUDIT OF THE ACCOUNTS OF THE COMMISSION; ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 15 (Q) STATIONERY, PRINTING AND ALL OFFICE AND ADVERTISING EXPENSES; (R) THE EXPENSES OF THE COMMISSION IN DISCHARGE OF ITS ___ UNDER SECTION 86 OF THE ACT, SUCH AS (V) EXPENSES IN CONNECTION WITH TARIFF DETERMINATION (VI) EXPENSES IN CONNECTION WITH GRANT OF LICENSES; (VII) EXPENSES IN CONNECTION WITH ADJUDICATION OF DISPUTES; (VIII) EXPENSES IN SPECIFYING DIFFERENT REGULATION AND PUBLISHING THE SAME IN THE MANNER SPECIFIED IN THE RULES (IX) EXPENSES IN CONNECTION WITH REGULATION OF POWER PURCHASE PROCUREMENT PROCESS; (S) THE EXPENSES ON OBJECTS AND FOR PURPOSE AUTHORIZED BY THE (T) AFTER THE FINANCIAL YEAR END THE COMMISSION SHALL SUBMIT AUDITED ANNUAL ACCOUNTS TO THE GOVERNMENT. OPERATION OF THE FUND (8) THE FUND SHALL BE OPERATED BY THE COMMISSION OR ITS _____ DESIGNATED OFFICER BY THE COMMISSION (9) THE COMMISSION SHALL MAKE AVAILABLE THE SPECIME N SIGNATURE THE AUTHORIZED SIGNATORIES TO THE NOMINAT ED BANK. INFORMATION AND FOR OPERATION OF THE HPERC FU ND ACCOUNT; (10) THE GRANTS OR LOAN ALLOCATED BY THE GOVERNMENT UNDER THE PROVISIONS SHALL BE ARRANGED TO BE DRAWN AND DEPOSITED FUND BY THE DRAWING AND DISBURSING OFFICER; (11) THE COMMISSION SHALL MEET EXPENSES REQUIRED IN CONNECTION THE DISCHARGE OF ITS FUNCTION UNDER SECT ION 86 AND ALSO FOR OBJECTS AND THE PURPOSE AUTHORIZED BY THE ACT. (12) ALL FUNDS RECEIVED SHALL BE PAID INTO THE COM MISSIONS ACCOUNT THE BANK/BANKS AND SHALL NOT BE WITHDRAWN EXCEPT ON PRESENTATION CHEQUE SIGNED BY THE OFFICERS AS AUTHORIZED BY THE COMMISSION; (13) THE DESIGNATED OFFICER SHALL BE RESPONSIBLE FOR MONITORING THE PROPER TRANSACTIONS OF RECEIPTS AND PAYMENTS ON BEHALF OF THE COMMISSION; (14) THE DESIGNATED OFFICER SHALL ALSO BE RESPONSIBL E TO ENSURE THAT THE AMOUNT OF CHEQUES/ DEMAND DRAFTS DEPOSITED IN THE ACCR3EDITED BANKS HAVE BEEN TIMELY CREDITED IN THE ACCOUNT OF THE COMMISSION AND ALSO ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 16 RECONCILE THE RECEIPTS AND PAYMENTS ACCOUNT EVERY QUARTER WITH THEM. 8. CLOSURE OF FUND: (3) THE FUND SHALL REMAIN OPERATIONAL AS LONG AS THE PROVISIONS OF THE ACT REMAIN IN FORCE; (4) THE UNSPENT BALANCE UNDER THE FUND OR WHEN THE FUND IS NOT REQUIRED SHALL BE REMITTED INTO THE GOVERNMENT ACCOUNT WITH MONTHS FROM THE DATE OF CLOSURE OF THE FUND. 15. ON GOING THROUGH ALL THE ABOVE, WE FIND THAT TH E ASSESSEE COMMISSION WAS FORMED UNDER THE ELECTRICI TY REGULATORY COMMISSIONS ACT,1998.THE PRIMARY PURPOSE OF ENACTING THE SAME WAS TO DILUTE THE ROLE OF THE GOV ERNMENT ON MATTERS RELATING TO THE REGULATION OF ELECTRICIT Y, SINCE IT WAS FOUND DEFICIENT TO TAKE DECISIONS ON TARIFFS IN A PROFESSIONAL AND INDEPENDENT MANNER. SUBSEQUENTLY ELECTRICITY ACT, 2003, WAS LEGISLATED TO HARMONIZE THE PROVISIONS OF THE ELECTRICITY REGULATORY COMMISSION S ACT,1998 AND THE EARLIER ELECTRICITY ACTS OF 1910 & 1948. SECTION 82 OF THE ELECTRICITY ACT,2003 SPECIFICALL Y GRANTED CONTINUITY TO STATE COMMISSIONS FORMED UNDER THE EL ECTRICITY REGULATORY COMMISSIONS ACT,1998 BY ITS FIRST PROVIS O REPRODUCED ABOVE. SUB SECTION (2) TO SECTION 82 CLE ARLY DEFINED THE CONSTITUTION OF THE STATE COMMISSIONS , AS BODY CORPORATES WITH THE NAME OF THE SPECIFIED STATE ELE CTRICITY REGULATORY COMMISSION, HAVING PERPETUAL SUCCESSION AND COMMON SEAL, WITH POWER OF ACQUIRE, HOLD AND DISPOS E OFF PROPERTY BOTH THE MOVABLE AND IMMOVABLE AND TO CONT RACT AND SUE OR BE SUED IN THE SAID NAME. THE ACT MAND ATED THE SETTING UP OF A STATE REGULATORY COMMISSION TO DEAL WITH THE MATTERS RELATING TO THE STATE GOVERNMENT FOR DETERM INATION ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 17 OF TARIFF, REGULATION OF TRANSMISSION OF ELECTRICIT Y , ISSUE LICENCES AND SUCH OTHER FUNCTIONS AT STATE LEVEL. THE ACT ALSO SPECIFIED THE CREATION OF A FUND FOR THE PURPO SE OF FUNDING THE ACTIVITIES TO BE CARRIED OUT BY THESE COMMISSIONS, UNDER SECTION 103 OF THE ACT. AS PER T HE SAID SECTION THE FUND WAS TO BE CREDITED WITH CONTRIBU TIONS MADE BY WAY OF GRANTS AND LOANS BY THE STATE COMMIS SION AND ALSO WITH ALL FEES AND SUCH OTHER RECEIPTS EARN ED BY THE COMMISSION. THE ACT ALSO SPECIFIED THE PURPOSE FOR WHICH THE FUNDS WERE TO BE UTILIZED/RELEASED. THE RULES NOTIFIED FOR THE CREATION OF THE FUNDS, SPECIFYING THE SOURC E OF INCOME OR THE CREDITS IN THE SAID FUND WE HAVE NOTED ,WERE SIMILAR TO THAT STATED IN THE ELECTRICITY ACT,2003 AS BEING SO URCED FROM LOANS AND GRANTS BY THE STATE GOVERNMENT AND INCOME EARNED BY THE COMMISSION AND TO BE USED/EXPENDED FO R CARRYING OUT ITS SPECIFIED ACTIVITIES. 16. IT IS EVIDENT FROM THE ABOVE THAT THE ASSESSEE COMMISSION WAS SET UP UNDER AN ACT OF THE GOVERNMEN T, AS AN INDEPENDENT BODY, FOR THE PURPOSE OF REGULATING ELECTRICITY RELATED MATTERS AT THE STATE LEVEL AND FOR THE PURPOSE OF ACHIEVING ITS OBJECTIVES ITS FUNCTIONS WERE CLEARLY DEFINED, AS ALSO THE SOURCE OF ITS FUNDING FOR CARR YING OUT THE SAID FUNCTION AND THE MANNER OF EXPENDING THE FUNDS . THE OBJECTIVE FOR CREATING THE COMMISSION WAS TO DISTAN CE THE STATE FROM ELECTRICITY REGULATING MATTERS SINCE IT WAS FOUND UNABLE TO HANDLE THE SAME IN A PROFESSIONAL MANNER AND ITS CONSTITUTION ALSO BELIES THIS FACT THAT IT WAS AN I NDEPENDENT ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 18 BODY FROM THE STATE HAVING BEEN FORMED AS A DISTINC T AND SEPARATE CORPORATE ENTITY ENTITLED TO FUNCTION IN ITS OWN RIGHT. THE OBLIGATIONS AND DUTIES ONLY IDENTIFIED T HE BROAD PARAMETERS WITHIN WHICH IT WAS TO FUNCTION ,IN ESS ENCE DEFINING ITS ROLE. FURTHER BEING AN ENTITY FORMED B Y LEGISLATION, IT WAS PROVIDED THAT FUNDS REQUIRED FO R ITS FUNCTIONING WOULD BE PROVIDED BY THE STATE AND THE COMMISSION WAS ALSO AT LIBERTY TO RAISE LOANS, BESI DES COLLECTING FUNDS BY WAY OF FEES AND SUCH OTHER MODE S. 17. IN VIEW OF THE ABOVE UNDISPUTED FACTS THEREFOR E, WE HAVE NO HESITATION IN HOLDING THAT THE ASSESSEE COM MISSION WAS A PERSON FOR THE PURPOSE OF INCOME TAX, LIABL E TO BE SUBJECTED TO TAX AND BY NO STRETCH OF LOGIC COULD B E SAID TO BE THE GOVERNMENT OR IN ANY WAY ACTING ON ITS BEHAL F. FOR THE SAME REASON WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE THAT SINCE THE ASSESSEE COMMISSION HAD NO ROLE IN THE NATURE OF AC TIVITIES TO BE CARRIED OUT BY IT OR IN THE MANNER IN WHICH T HE FUND WAS TO BE CREATED AND MONEY THEREFROM EXPENDED, NO REAL INCOME WAS EARNED BY THE ASSESSEE. AT THE COST OF R EPETITION IT IS STATED THAT THE FACTS CLEARLY SHOW THAT THE ASSESSEE COMMISSION WAS AN INDEPENDENT BODY AND EVEN IF THE SOURCES OF ITS FUNDS WAS SPECIFIED AND ALSO THE MA NNER IN WHICH IT WAS TO BE EXPENDED, THE ACT WAS ONLY REGUL ATING THE FUNCTIONS OF THE COMMISSION BY DOING SO. THE QUANTU M OF FEES TO BE COLLECTED FOR VARIOUS FUNCTIONS CARRIED OUT BY THE COMMISSION WAS LEFT TO IT AND SO ALSO SOURCES OF AN Y OTHER ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 19 INCOME, ALSO THE QUANTUM AND MANNER OF EXPENDITURE TO BE INCURRED ON VARIOUS ACTIVITIES CARRIED OUT BY IT WA S ALSO LEFT TO BE DECIDED BY THE ASSESSEE COMMISSION. THEREFORE , WHATEVER WAS EARNED BY IT BY WAY OF GRANTS OR FEES, WAS ITS INCOME AND IT CANNOT BE SAID THAT NO REAL INCOME A CCRUED TO THE ASSESSEE. THE CONCEPT OF REAL INCOME ENVISAGES THAT ONLY INCOME WHICH ACTUALLY ACCRUES OR ARISES TO THE ASSE SSEE IS TO BE TREATED AS ITS INCOME. THE HONBLE APEX COURT IN THE CASE OF CIT VS. SHOORJI VALLABHDAS & CO. (1962) 46 ITR 1 44 (SC) : TC39R.737, HAS ENUNCIATED THE DOCTRINE OF REAL INCO ME IN THESE TERMS : 'INCOME-TAX IS A LEVY ON INCOME. NO DOUBT, THE INCOME-TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VI Z., THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK- KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME', WHICH DOES NOT MATERIALISE. WHERE INCOME HAS, IN FACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOUNT.' 18. THE ASSESSEE COMMISSION BEING AN INDEPENDENT BO DY ALL INCOMES ACCRUED TO IT AND DEFINITELY NOT ON BEHALF OF THE STATE. THUS EVEN GOING BY THE CONCEPT OF REAL INCOM E ,THE ASSESSEE CANNOT DERIVE ANY BENEFIT FROM THE SAME. ALSO THE FACT THAT THE UNSPENT BALANCE OF THE FUND WAS TO BE REMITTED TO THE GOVERNMENT ON CLOSURE OF THE FUND AS PROVIDED BY CLAUSE 8 OF THE RULES NOTIFIED FOR THE ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 20 ESTABLISHMENT OF THE FUND, IS OF NO ASSISTANCE TO T HE ASSESSEE FOR SHOWING THAT THE FUND IN EFFECT DID NO T BELONG TO THE ASSESSEE AND THEREFORE ALL INCOME CREDITED TO I T WAS NOT ITS REAL INCOME BUT THAT OF THE STATE. IT IS TO BE NOTED THAT THE RIGHT OF THE STATE TO THE AMOUNT CREDITED TO TH E FUND ARISES ONLY ON CLOSURE OF THE FUND, WHICH IS EVIDEN T FROM A BARE READING OF CLAUSE 8 OF THE RULES. DURING THE P ERIOD WHEN THE FUND IS IN EXISTENCE, THERE IS NO RIGHT OF THE STATE TO THE UNSPENT BALANCE OF THE FUND. DURING THE ENTI RE PERIOD OF THE EXISTENCE OF THE FUND ALL AMOUNTS RECEIVED B Y WAY OF GRANTS, LOANS, FEES ETC. IS TO BE CREDITED TO THE F UND, FOR UTILIZATION BY THE COMMISSION FOR ITS STATED PURPOS ES. THEREFORE IT WAS THE ASSESSEE COMMISSION WHICH HAD ALL RIGHTS OVER THE FUNDS AND ITS UTILIZATION DURING TH E TENURE OF THE FUND, WHICH CEMENTS OUR FINDING ABOVE THAT ALL CREDITS TO THE FUND OF REVENUE NATURE, WERE THE INCOME OF THE ASSESSEE COMMISSION. WE MAY ADD THAT THE CLAUSE REQUIRING RE MISSION OF UNSPENT BALANCE OF THE FUND ON CLOSURE IS LOGIC AL ENOUGH CONSIDERING THE FACT THAT THE COMMISSION IS AN INDE PENDENT BODY CORPORATE, PROMOTED BY THE STATE AND NOT ANY P RIVATE PERSON AND THEREFORE IN THE SITUATION OF ITS WINDIN G UP/CLOSURE OF THE FUND THE UNSPENT BALANCE HAS TO B E LOGICALLY ENOUGH REMITTED TO THE PROMOTERS AS IS DO NE IN THE CASE OF ANY OTHER BODY CORPORATE OR SUCH OTHER INDE PENDENT ENTITY. 19. THE LD.COUNSEL FOR THE ASSESSEE HAS RELIED ON T HE DECISION OF THE ITAT CHANDIGARH BENCH IN THE CASE O F H.P. ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 21 EXCISE & TAXATION TECHNICAL SERVICES AGENCY VS. DCI T IN ITA NOS.436 TO 441/CHD/2017 DATED 30.11.2017 WHICH IT W AS POINTED OUT WAS UPHELD BY THE HON'BLE JURISDICTIONA L HIGH COURT I.E. HIMACHAL PRADESH HIGH COURT VIDE ITS OR DER DATED 7.12.2018 IN SUPPORT OF ITS CONTENTION THAT WHERE M ONEY COLLECTED IS TO BE REMITTED BACK TO THE STATE GOVER NMENT, NO REAL INCOME CAN BE SAID TO HAVE ACCRUED. WE HAVE GO NE THROUGH THE SAID DECISIONS AND FIND THAT THEY DO NO T APPLY IN THE FACTS OF THE PRESENT CASE, HAVING BEEN RENDERED IN THE BACKDROP OF DIFFERENT SET OF FACTS. IN THE FACTS OF THE SAID CASES THE ASSESSEE WAS COLLECTING FEES ON SALE OF V AT FORMS ON BEHALF OF THE GOVERNMENT, AND WAS REQUIRED TO RE MIT 20% OF THE SAME IMMEDIATELY ON COLLECTION, WHILE THE BA LANCE 80% WAS ALLOWED TO BE RETAINED BY IT FOR MEETING IT S EXPENSES AND THE SURPLUS REMAINING THEREAFTER HAD T O BE REMITTED TO THE GOVERNMENT. IT WAS IN THIS BACKGROU ND THAT THE HONBLE HIGH COURT SAID THAT THE ASSESSEE WAS O NLY COLLECTING FEES ON BEHALF OF THE GOVERNMENT AND NO REAL INCOME ACCRUED TO IT. IT IS TO BE NOTED THAT IN THA T CASE THE SURPLUS REMAINING AT ALL POINTS OF TIME WAS TO BE R EMITTED TO THE GOVERNMENT, THUS SHOWING RIGHT OF THE GOVERNMEN T TO THE FUNDS COLLECTED AT ALL POINTS OF TIME. IN THE PRESE NT CASE THE RIGHT OF THE GOVERNMENT TO THE SURPLUS ACCRUES ONLY ON CLOSURE OF THE FUND AND IS NOT AT ALL POINTS OF TIM E. THEREFORE THE PROPOSITION LAID DOWN IN THE SAID CASE WILL NOT APPLY TO THE PRESENT CASE. ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 22 20. THE RELIANCE PLACED BY THE LD.COUNSEL FOR THE A SSESSEE ON THE DECISIONS OF THE HONBLE HIGH COURTS IN THE CASE OF SOMAIYA ORGANO(SUPRA) AND RAJKOT DISTRICT GOPALAK C O- OPERATIVE (SUPRA) IS ALSO OF NO ASSISTANCE TO THE A SSESSEE SINCE IN THE SAID CASES THERE WAS EITHER DIVERSION OF INCOME BY STATUTE OR BY OVERRIDING TITLE, LEADING THE COUR TS TO HOLD THAT NO INCOME THEREFORE ACCRUED TO THE ASSESSEES. IN THE PRESENT CASE, AS WE HAVE NOTED ABOVE, THE STATE HAS NO OVERRIDING TITLE OVER THE INCOME OF THE ASSESSEE EI THER BY STATUE OR OTHERWISE AND THEREFORE THE RATIO LAID DO WN IN THE SAID DECISIONS WILL NOT APPLY IN THE PRESENT CASE. THE NEXT CONTENTION OF THE LD.COUNSEL FOR THE ASSE SSEE WAS THAT IT WAS RECEIVING GRANTS FROM THE STATE GO VERNMENT FOR THE PURPOSE OF WHICH IT WAS SET UP AND, THEREFO RE, IT WAS A CAPITAL RECEIPT. WE DO NOT FIND ANY MERIT IN THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE ALSO. IT IS NO T THE CASE OF THE LD.COUNSEL FOR THE ASSESSEE THAT THE GRANTS HA VE BEEN RECEIVED FOR ANY CAPITAL PURPOSE, NOR THAT THE GRA NTS WERE FOR SOME SPECIFIC ACTIVITY TO BE CARRIED OUT BY THE ASSESSEE COMMISSION. CLEARLY AS IS EMANATING FROM THE FACTS BEFORE US THE GRANTS WERE FOR ASSISTING THE ASSESSEE COMMISS ION, AN INDEPENDENT BODY , IN CARRYING OUT ITS DAY-TO-DAY A CTIVITIES. THEREFORE, IT CANNOT BE SAID THAT THE GRANTS WERE E ITHER CAPITAL RECEIPT OR SPECIFIC PURPOSE GRANTS, NOT LIA BLE TO TAX. FOR THE SAME REASON THE RELIANCE PLACED BY THE LD.C OUNSEL FOR THE ASSESSEE ON THE DECISION OF THE HONBLE HIG H COURTS IN THE CASE OF HANDICRAFTS AND HANDLOOMS EXPORT COR P. OF ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 23 INDIA LTD.(SUPRA) & LACHIT FILMS LTD.(SUPRA) IS OF NO ASSISTANCE TO THE ASSESSEE SINCE IN THE FACTS OF TH E SAID CASES THE GRANTS WERE EITHER SPECIFIC PURPOSE OR WE RE RANTS IN AID, WHICH WERE THEREFORE HELD NOT TO BE IN THE NATURE OF INCOME OF THE ASSESSEES. 21. FURTHER THE VERY FACT THAT THE LEGISLATURE SPEC IFICALLY PROVIDED U/S 10(46) OF THE ACT FOR EXEMPTION OF T HE INCOMES OF THE COMMISSIONS THAT TOO FOR A SPECIFIC PERIOD ONLY, CEMENTS OUR ABOVE VIEW THAT THE INCOME OF THE ASSESSEE TRUST WAS OTHERWISE LIABLE TO TAX. SECTION 10(46) I S REPRODUCED HEREUNDER FOR CLARITY: INCOMES NOT INCLUDED IN TOTAL INCOME. 10.IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING C LAUSES SHALL NOT BE INCLUDED: [(46) ANY SPECIFIED INCOME ARISING TO A BODY OR AUTHO RITY OR BOARD OR TRUST OR COMMISSION (BY WHATEVER NAME CALLED) [674A ][OR A CLASS THEREOF]WHICH (A) HAS BEEN ESTABLISHED OR CONSTITUTED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT, OR CONSTITUTED BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT, WITH THE OBJECT OF REGULATING OR ADMINISTERING ANY ACTIVITY FOR THE BENE FIT OF THE GENERAL PUBLIC; (B) IS NOT ENGAGED IN ANY COMMERCIAL ACTIVITY; AND (C) IS NOTIFIED BY THE CENTRAL GOVERNMENT IN THE OFFIC IAL GAZETTE FOR THE PURPOSES OF THIS CLAUSE. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, 'SPECI FIED INCOME' MEANS THE INCOME, OF THE NATURE AND TO THE E XTENT ARISING TO A BODY OR AUTHORITY OR BOARD OR TRUST OR C OMMISSION (BY WHATEVER NAME CALLED) REFERRED TO IN THIS CLAUSE, WHICH THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFIC IAL GAZETTE, SPECIFY IN THIS BEHALF;] 22. THE NOTIFICATION SPECIFICALLY EXEMPTING THE ASS ESSEE COMMISSION IS ALSO REPRODUCED AS UNDER: ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 24 IN EXERCISE OF THE POWERS CONFERRED BY CLAUSE (40) OF SECTION 10 OF THE INCOME TAX ACT, 1961 (43 OF 1961) THE CENTRAL GOVERNMENT HEREBY NOTIFIES FOR THE PURPOSES OF THE SAID CLAUSE, THE HIMACHAL PRADESH ELECTRICITY REGULATORY COMMISSION, A COMMISSION ESTABLISHED BY THE CENTRAL GOVERNMENT OF HIMACHAL PRADESH IN RESPECT OF THE FOLLOWING SPECIFIED INCOME ARISING TO THAT COMMISSION, NAMELY:- (A) AMOUNT RECEIVED IN THE FORM OF GOVERNMENT GRANTS, (B) AMOUNT RECEIVED AS LICENCE FEE FROM LICENSEES IN ELECTRICITY, (C) AMOUNT RECEIVED AS COURT FEE OR PETITUION FEE, AND (D) INTEREST EARNED ON GOVERNMENT GRANTS AND FEE RECEIVED. 2. THIS NOTIFICATION SHALL BE DEEMED TO HAVE BEEN APPLIED FOR THE FINANCIAL YEAR 2012-13 AND SHALL APPLICABLE FOR THE FINANCIAL YEARS 2013-14, 2014- 15, 2015-16 AND 2016-17. 3. THE NOTIFICATION SHALL BE EFFECTIVE SUBJECT TO THE FOLLOWING CONDITIONS, NAMELY:- (A) THE HIMACHAL PRADESH ELECTRICITY REGULATORY COMMISSION DOES NOT ENGAGE IN ANY COMMERCIAL ACTIVITY. (B) THE ACTIVITIES AND THE NATURE OF THE SPECIFIED INCOME OF HIMACHAL PRADESH ELECTRICITY REGULATORY COMMISSION REMAIN UNCHANGED THROUGHOUT THE FINANCIAL YEAR, AND (C) THE HIMACHAL PRADESH ELECTRICITY REGULATORY COMMISSION FILES RETURN OF INCOME IN ACCORDANCE WITH THE PROVISION OF CLAUSE (G) OF SUB-SECTION (4C) OF SECTION 139 OF THE INCOME TAX ACT, 1961. IT IS EVIDENT FROM THE ABOVE THAT THE ASSESSEE COMMISSION HAS BEEN SPECIFICALLY EXEMPTED FROM TAX WITH EFFECT FROM FINANCIAL YEAR 2012 -13 FOR A SPECIFIE D PERIOD UPTO F.Y 2016-17.FURTHER THE NOTIFICATION SPECIFIES ALSO THE INCOMES/AMOUNTS EXEMPT AND INCLUDES THAT RECEIVED B Y WAY ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 25 OF GOVERNMENT GRANTS. WHICH MEANS THAT THESE AMOUNT S ARE OTHERWISE TAXABLE. 23. NOW COMING TO THE NEXT ARGUMENT OF LD.COUNSEL FOR THE ASSESSEE THAT SINCE CENTRAL REGULATORY ELECTRICITY COMMISSION(IN SHORT REFERRED TO AS CREC) WAS CARRYI NG OUT IDENTICAL FUNCTIONS AND ACTIVITIES WHICH WAS PARAME TRIA WITH THE FUNCTIONS CARRIED OUT BY THE ASSESSEE AND SINCE CREC WAS EXEMPT FROM TAX BY VIRTUE OF SECTION 10(23BBG) OF THE ACT ,APPLYING THE PRINCIPLE OF EQUITY THE ASSESSEE ALSO SHOULD BE TREATED AS EXEMPT FROM TAX. WE ARE UNABLE TO AGR EE WITH THIS CONTENTION OF THE ASSESSEE ALSO. THE EXEMPTION PROVIDED UNDER THE INCOME TAX ACT HAVE TO BE READ STRICTLY. SECTION 10(23BBG) SPECIFICALLY EXEMPTS ONLY CERC FROM TAXAT ION AND THE STATE COMMISSIONS WERE SPECIFICALLY NOTIFIED U/ S 10(46) OF THE ACT. THEREFORE, NOTHING MORE CAN BE READ IN TO SECTION 10(23BBG) SO AS TO EXTEND THE EXEMPTION TO THE ASSE SSEE COMMISSION ALSO. 24. AS FAR AS THE ASSESSEES CONTENTION THAT NOTIFI CATION EXEMPTING IT FROM TAXATION U/S 10(46) OF THE ACT FR OM THE FINANCIAL YEAR 2012-13 TO 2016-17, BE READ RETROSP ECTIVELY, WE DO NOT FIND ANY MERIT IN THE SAME ALSO. THE SAID SECTION STATES THAT ENTITIES WOULD BE NOTIFIED AS EXEMPTED FROM THE PAYMENT OF TAX FOR A SPECIFIED PERIOD. THE EXEMPTIO N BEING PERIOD SPECIFIC, THERE IS NO SCOPE FOR READING IT RETROSPECTIVELY. THEREFORE, THIS CONTENTION OF THE ASSESSEE IS ALSO DISMISSED. ITA NO.42/CHD/2015 A.Y.2011-12 ITA NOS. 161 TO 163/CHD/2017 A .YS.2008-09 TO 2010-11 26 IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE LD.CIT(A) IN TREATING THE ENTIRE SURPLUS EARNED BY THE ASSESSEE AS TAXABLE IN THE IMPUGNED YEAR. ACCORDING LY, THE APPEAL OF THE ASSESSEE IS DISMISSED. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/ SD/- $ % & '# (SANJAY GARG ) ANNAPURNA GUPTA) /JUDICIAL MEMBER () /ACCOUNTANT MEMBER +$ /DATED: 8 TH FEBRUARY, 2019 * # * #&' ()*) / COPY OF THE ORDER FORWARDED TO : 1. + / THE APPELLANT 2. ',+ / THE RESPONDENT 3. - / CIT 4. - ( )/ THE CIT(A) 5. )./' 0 , !0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35 / GUARD FILE #& / BY ORDER, / ASSISTANT REGISTRAR