PPN Power Generating Plant Pvt.Ltd., CHENNAI V. ACIT, CHENNAI

ITA 570/CHNY/2012

• Counselvise Citation: 57021714 RSA 2012
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 16-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , ! , ' #$ BEFORE SHRI N.R.S.GANESAN, JUDICIAL MMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NOS. 569, 570/MDS/2012 & 1188/MDS/2013 / ASSESSMENT YEARS : 2006-07, 2007-08 & 2008-09 PPN POWER GENERATING COMPANY PVT. LTD., JHAVER PLAZA, 3 RD FLOOR, IA, NUNGAMBAKKAM HIGH ROAD, CHENNAI 600 034. PAN AABCP8131D. APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-V(2), CHENNAI 34. RESPONDENT) / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / RESPONDENT BY : SHRI E.S.NAGENDRA PRASAD, CIT ! / DATE OF HEARING : 06.05.2015 '# ! / DATE OF PRONOUNCEMENT: 29.05.2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEALS BY THE ASSESSEE IN ITA NOS.569 & 570/MDS/12 ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE - - ITA 569, 570/12 & 1188/13 2 COMMISSIONER OF INCOME-TAX(APPEALS) FOR THE ASSESSM ENT YEARS 2006-07 AND 2007-08 AND ITA NOS.1188/MDS/13 IS DIRE CTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX PASSED UNDER SEC.263 OF THE INCOME-TAX ACT, 1961 FOR THE A SSESSMENT YEAR 2008-09. 2. FIRST, WE TAKE UP ITA NOS. 569 & 570/MDS/2012. THE FACTS OF THE CASE AS NARRATED FOR THE ASSESSMENT YE AR 2006-07 ARE THAT THE ASSESSEE HAS EARNED INTEREST ON DEPOSI T TO THE TUNE OF ` 5.65 CRORES AND CONSIDERED THE SAME AS PART OF THE BUSINESS INCOME SO AS TO CLAIM DEDUCTION UNDER SEC.80IA OF T HE ACT. AS THIS INTEREST INCOME EARNED FROM DEPOSITS REQUIRED TO BE MADE IN TRUST AND RETENTION ACCOUNT MAINTAINED UNDER THE FI NANCING AGREEMENT WITH THE LENDERS FROM THE ELIGIBLE PROFIT ON THE GROUND THAT THE ASSESSEE IS NOT IN THE BUSINESS OF FINANCI NG, THE ASSESSING OFFICER TREATED IT AS INCOME FROM OTHER S OURCES. THE ASSESSEE HAS CHALLENGED THE EXCLUSION OF INTEREST F OR DEDUCTION U/S.80IA OF THE ACT, BEFORE THE COMMISSIONER OF INC OME- TAX(APPEALS). IT WAS SUBMITTED BEFORE THE COMMISSI ONER OF INCOME-TAX(APPEALS) THAT THE SAID INCOME WAS ARISIN G ONLY FROM THE TRUST AND RETENTION DEPOSITS REQUIRED TO SERVIC E DEBT UNDER - - ITA 569, 570/12 & 1188/13 3 THE FINANCING AGREEMENT AND HENCE, ACCORDING TO THE ASSESSEE, IT IS A PART OF THE BUSINESS PROFIT OF THE UNDERTAK ING. HOWEVER, THE COMMISSIONER OF INCOME-TAX(APPEALS) REJECTED TH E CLAIM OF THE ASSESSEE BY PLACING RELIANCE ON THE JUDGMENT O F THE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. (262 ITR 278), WHEREIN IT WAS HELD THAT SUCH RECEIPTS ARE NO T DERIVED FROM THE UNDERTAKING ELIGIBLE FOR DEDUCTION AND SUCH REC EIPTS ARE ATTRIBUTABLE TO THE UNDERTAKING, HENCE DOES NOT QUA LIFY FOR SUCH DEDUCTION. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE LD. AR SUBMITTED IN THE WRITTEN SUBMISSION T HAT THE MONIES ARE KEPT IN A TRUST ACCOUNT, FOR AND ON BEHA LF OF THE L ENDERS. THE M O N EY T OGE T HE R WITH I NTEREST VESTS WITH TRUSTEE BANKER HOLDING ON BEHALF OF LENDERS . AS TH E MONI ES ARE NOT UNDER CONTROL O R USABLE BY THE SSSESSEE, IT CANNOT BE ASESSEE ' S IN CO M E . AS THE MONIES ARE HELD ON BEHALF OF LENDERS , BUT ASSESSEE IS NOT PERMITTED TO PREPAY THE LENDERS OR THE BANK, THE INTEREST RECEIPT SHOULD BE NETTED OFF AGAINST THE IN TEREST INCOME OF THE TRUST. AS THE ACTIVITY FROM I NC E PTION IS INEXTRICABLY AND DIRECTLY CONNECTED WITH SETTING UP OF AND CONTINUING OF THE MANUFACTURING ACTIVITY , THE INCOME SHOULD BE - - ITA 569, 570/12 & 1188/13 4 CONSIDERED AS DERIV E D FROM THE BUSINESS OF THE UNDERTAKING AND SHOULD NOT BE EXCLUDED FO R C OMPUTATION OF RELIEF U/S 80 LA. IN SUPPORT OF HIS SUBMISSION, HE RELIED ON THE FOLLOWI NG CASES: 1. C IT VS INDO SWISS JEWELS LTD & ANR - 284 ITR 389 (BOM) 2. CIT VS J A GD I SHPRASAD M.JOSHI - 318 ITR 420 (BOM) 3. C I T VS KANSARA MODLER LTD - 218 CTR 21 (RAJ) 4. CI T VS K A R N A L CO-OPERATIVE SUGAR MILLS TD 0 243 ITR 2 (SC) 5. CI T V . JAY PEE DSC VENTURES LTD . -(2011) 335 ITR 132 DEL 6. CIT VS . KOSH I KA TELECOM LTD. (2006) 287 ITR 479 (DEL) 7. C IT VS KA R NATAKA POWER CORPN - 247 ITR 268 (SC) 8. BONGAIGAON REF I NARY AND PETROCHEMICALS LTD VS CIT- 251 ITR 329(SC) 9. CIT VS BOKARO STEEL LTD - 236 ITR 315 (SC) 10. CI T VS PONNI SUGARS AND CHEMICALS LTD - 260 ITR 605 (MAD) 11. CIT VS PONNI SUGARS AND CHEMICALS LTD - 306 ITR 392 (SC) 12. SUNDARAM HOME FINANCE VS ACIT - ITA NO 27 & 28/ MDS/08 DATED 14.08.2008 13. EMPIRE PUMPS PVT . LTD VS. ACIT (GUJARAT HIGH COURT) 14. CIT VS. ELTEK SGS P LTD. (300 ITR 6)(DEL.) 15. NTPC SAIL (210 TAXMAN 358)(DEL.) 4. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE INTEREST EARNED FROM FIXED DEPOSITS MADE IN TRUST AND RETENT ION ACCOUNT MAINTAINED UNDER THE FINANCING AGREEMENT WITH THE L ENDERS CANNOT BE CONSIDERED AS INCOME DERIVED FROM THE ASS ESSEES BUSINESS AND THUS, CLAIM FOR DEDUCTION IN RESPECT O F THE SAID INTEREST WAS TO BE REJECTED. HE RELIED ON THE JUD GMENT OF THE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. (SUPRA) - - ITA 569, 570/12 & 1188/13 5 AND ALSO THE JUDGMENT OF THE HIMACHAL PRADESH HIGH COURT IN THE CASE OF HIMACHAL FUTURISTIC COMMUNICATION LTD. V. CIT (42 TAXMAN.COM 179. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE, THE INTEREST INCOME EARNE D BY THE ASSESSEE FROM THE DEPOSITS REQUIRED TO BE MADE IN T RUST AND RETENTION ACCOUNT MAINTAINED UNDER THE FINANCING AG REEMENT WITH THE LENDERS. IT IS TO BE SEEN WHETHER THE INTEREST INCOME EARNED BY THE ASSESSEE ON THE FIXED DEPOSITS IS BUSINESS I NCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING OR IT IS AN INCOME FROM OTHER SOURCES. SEC.80IA ALLOWS DEDUCTION ON PROFIT S AND GAINS DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UNDERTAK ING. THIS ISSUE IS COVERED BY THE FOLLOWING JUDGMENTS OF THE SUPREME COURT: 1. HINDUSTAN LEVER LTD. VS. CIT (239 ITR 297) 2. PANDIAN CHEMICALS VS. CIT (262 ITR 278) 3. CIT VS. STERLING FOODS (237 ITR 579) 6. IN THESE CASES, IT WAS LOOKED INTO THE MEANING O F THE WORD DERIVE. IT WAS HELD THAT THE WORD DERIVE USUAL LY FOLLOWED BY THE WORD FROM AND IT MEANS; GET, TO TRACE FROM A SOURCE, ARISE - - ITA 569, 570/12 & 1188/13 6 FROM, ORIGINATE IN, SHOW THE ORIGIN OF FORMATION OF . THERE MUST BE, FOR THE APPLICATION OF THE WORDS DERIVED FROM , A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UN DERTAKING. IN THE CASE OF THE HINDUSTAN LEVER LTD. CITED SUPRA, T HE MEANING OF WORD DERIVED WAS CONSIDERED, WHEREIN THEY REFERRE D TO THE DECISION OF THE PRIVY COUNCIL IN CIT V. RAJA BAHADU R KAMAKHAYA NARAYAN SINGH (1948) 16 ITR 325, IN THE END, IN THI S CASE, IT WAS HELD THAT THE WORD DERIVED IS NOT A TERM OF ART. ITS USE IN THE DEFINITION INDEED DEMANDS AN ENQUIRY IN THE GENEALO GY OF THE PRODUCT. BUT THE ENQUIRY SHOULD STOP AS SOON AS TH E EFFECTIVE SOURCE IS DISCOVERED. IN THE CASE OF PANDIAN CHEM ICALS CITED SUPRA, THE MEANING OF WORDS DERIVED FROM WAS AGAI N CONSIDERED AND AFTER RELYING ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTR IAL CO. LTD. VS. CIT (113 ITR 84), IT WAS HELD THAT THE EXPRESSI ON DERIVED FROM HAD A NARROWER CONNOTATION THAN THE EXPRESSIO N ATTRIBUTABLE TO. AFTER HAVING CONSIDERED THE MEA NING OF THE WORDS DERIVED FROM, AS PER THE VARIOUS DECISIONS OF SUPREME COURT, IN OUR OPINION, THE INTEREST EARNED BY THE ASSESSEE FROM DEPOSITS MADE IN TRUST AND RETENTION ACCOUNT MAINTA INED UNDER - - ITA 569, 570/12 & 1188/13 7 THE FINANCING AGREEMENT WITH THE LENDERS, CANNOT BE CONSIDERED AS PROFITS AND GAINS OF BUSINESS DERIVED FROM THE I NDUSTRIAL UNDERTAKING. THUS, WE FIND NO INFIRMITY IN THE ORD ER OF THE COMMISSIONER(APPEALS) IN FOLLOWING THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. (SUPRA). THE LD. DR WAS OF THE OPINION THAT BENEFIT OF NETTI NG OF INTEREST CANNOT BE ALLOWED IN THIS CASE, AS THE INTEREST PAI D AND INTEREST RECEIVED DO NOT PARTAKE THE SAME CHARACTER, AS HELD BY THE SUPREME COURT IN THE CASE OF CIT V. KESHAVJI & RAVJ I (183 ITR 1) AND CIT V. V. CHINNAPANDI (282 ITR 389). THEREFORE , NO BENEFIT OF NETTING OF INTEREST IS ALLOWED. ACCORDINGLY, TH IS GROUND IS DISMISSED IN BOTH THE APPEALS. 7. COMING TO ITA NO.1188MDS/2013, THE ASSESSEE HAS CHALLENGED INVOKING THE PROVISIONS OF SEC.263 SO AS TO WITHDRAW DEDUCTION GIVEN TO THE ASSESSEE, AFTER CONSIDERING THE INTEREST INCOME RECEIVED FROM FIXED DEPOSITS MADE WITH THE T RUST AND ARISING FROM TRUST AND RETENTION ACCOUNT REQUIRED T O BE MADE WITH THE INTENTION TO SERVICE DEBT UNDER FINANCING AGREE MENT AS BUSINESS INCOME. AS DISCUSSED IN EARLIER PARAGRAPH S, THE ISSUE REGARDING TREATING THE INTEREST INCOME EARNED FROM DEPOSITS AND - - ITA 569, 570/12 & 1188/13 8 RETENTION ACCOUNT MADE UNDER FINANCING AGREEMENT IS TO BE CONSIDERED AS INCOME FROM OTHER SOURCES. AS SUCH, THE ORDER OF THE ASSESSING OFFICER SUFFERED FROM INFIRMITY, WHIC H IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HENCE, THE COMMI SSIONER OF INCOME-TAX IS JUSTIFIED IN INVOKING THE JURISDICTIO N UNDER SEC.263 OF THE ACT STATING THAT THE SAID INTEREST IS TO BE CONSIDERED AS BUSINESS INCOME. AS WE HAVE ALREADY HELD IN EARL IER YEARS THAT THE SAID INTEREST INCOME IS TO BE CONSIDERED AS INC OME FROM OTHER SOURCES, THE ASSESSEE FAILS ON THIS GROUND AL SO. 8. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN IT A NOS.569, 570/MDS/2012 AND 1188/MDS/2013 ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 29 TH OF MAY, 2015 AT CHENNAI. SD/- SD/- ( $ . . $ . %& ) ( ' ( ) * ) N.R.S.GANESAN + ,-./01.2334.15+ 6 78 /JUDICIAL MEMBER ! 789::3;/<./<=>?@>1 '6 /CHENNAI, A7 /DATED, THE 29 MAY, 2015. MPO* - - ITA 569, 570/12 & 1188/13 9 7& BCDC /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. E+ /CIT(A) 4. E /CIT 5. CF% G /DR 6. %HI /GF.