ASST CIT 16(1), MUMBAI V. NATINAL FILMS DEVELOPMENT CORPORATION LTD, MUMBAI

ITA 5737/MUM/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6732 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 22-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMARDR
• Assessee Lawyers: CHETAN KARIAAR
• Keywords: Business income
• Section: 143(3)

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -BBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A.NO.5737/MUM/2015, / ASSESSMENT YEAR: 2011-12 ACIT-16(1) ROOM NO.439, AAYAKAR BHAVAN M.K. MARG, MUMBAI-400 020. VS. M/S. NATIONAL FILMS DEVELOPMENT CORPORATION LTD. DISCOVERY OF INDIA BUILDING, 6 TH FLOOR, DR.ANNIE BESANT ROAD, WORLI, MUMBAI-400 018. PAN:AAACN 3540 R ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI SUMAN KUMAR-DR /ASSESSEE BY: SHRI CHETAN KARIA-AR / DATE OF HEARING: 02/04/2018 / DATE OF PRONOUNCEMENT: 27/06/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , - PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 29/09/2016 OF THE CIT(A )-4, MUMBAI,THE ASSESSING OFFICER(AO) HAS FILED PRESENT APPEAL. THE ASSESSEE IS ENGAGED I N THE BUSINESS OF DISTRIBUTION OF FILMS, FILM PRODUCTION, FILM FINANCE, MEDIA CAMPAIGN, EXPORTS O F FILMS, SERVICE PROJECTS INCLUDING SUBTITLING, HIRING OF EQUIPMENTS, VIDEO STUDIO ETC. , FILED ITS RETURN OF INCOME ON 29/09/2011 DECLARING TOTAL INCOME AT NIL. THE CASE WAS SELECTE D FOR SCRUTINY AND ACCORDINGLY NOTICE U/S. 143(2) WAS SERVED UPON THE ASSESSEE . THE ASSESSING OFFICER (A.O) COMPLETED ASSESSMENT U/S. 143(3) ON 28/03/2014, DETERMINING TOTAL INCOME AT RS.61.28 LAKHS. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE AD DITION MADE BY THE AO UNDER THE HEAD INCOME FROM OTHER SOURCES. DURING THE ASSESSMENT PR OCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD SHOWN INTEREST ON FIXED DEPOSITS UNDER THE HEAD INCOME FROM BUSINESS.HE DIRECTED IT TO EXPLAIN AS TO WHY THE INTEREST INCOM E SHOULD NOT BE TAXED AS INCOME FROM OTHER SOURCES. AFTER CONSIDERING THE SUBMISSION OF THE AS SESSEE,HE HELD THAT AS PER THE AUDIT REPORT THE NATURE OF THE BUSINESS OF THE ASSESSEE CONSISTE D OF DISTRIBUTION OF FILMS, PRODUCTION OF FILMS, FILM FINANCE AND MEDIA CAMPAIGN, THAT THE IN TEREST RECEIVED FROM THE DEPOSITS MADE WITH THE BANK WAS NOT A PART AND PARCEL OF THE BUSI NESS ACTIVITIES CARRIED BY IT, THAT THE SURPLUS FUNDS DEPOSITED HAD TO BE TAXED SEPARATELY, THAT TH E ASSESSEE ITSELF HAD SHOWN INTEREST INCOME ON FILM LOAN SEPARATELY IN THE P&L ACCOUNT, THAT TH E INTEREST INCOME ON ACCOUNT OF FILM RELATED ACTIVITIES WAS TO BE ASSESSED AS INCOME FRO M OTHER SOURCES.ACCORDINGLY, HE REJECTED 5737/M/15 M/S. NATIONAL FILMS DEVELOPMENT CORPORATION LTD. 2 THE CLAIM MADE BY THE ASSESSEE THAT THE INTEREST IN COME FROM THE FIXED DEPOSITS SHOULD BE TREATED AS BUSINESS INCOME. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) AND MADE DETAILED SUBMISSI ONS. IT ALSO RELIED UPON CERTAIN CASE LAWS. AFTER CONSIDERING THE AVAILABLE MATERIAL, HE HELD THAT IT WAS NOT A SIMPLE CASE WHERE IDLE MONEY WAS PART FIXED DEPOSITS AND THE ASSESSEE HAD EARNED INCOME, THAT THE IDLE MONEY WAS MADE PRODUCTIVE ITSELF BY INVESTING, THAT ASSESSEE WAS AN ENTERPRISE OF GOVERNMENT OF INDIA, THAT IT WAS UNDER DIRECT CONTROL OF THE MINISTRY OF INFORMATION AND BROADCASTING, THAT THE GOVERNMENT OF INDIA WAS 100% SHAREHOLDER OF THE ASS ESSEE-COMPANY,THAT THE OBJECT OF THE COMPANY WAS TO PLAN, PROMOTE, ORGANISE AND INTEGRAT E THE ACTIVITIES OF DEVELOPMENT OF FILM INDUSTRY, AS PER THE POLICY OF THE GOVERNMENT, THAT VARIOUS AMOUNTS WERE RECEIVED AS ADVANCES BY THE ASSESSEE FROM MINISTRY OF CULTURE,MINISTRY O F INFORMATION AND BROADCASTING, DEPARTMENT OF LAND RESOURCES, MINISTRY OF ENVIRONME NT AND FORESTS, DISTRICT WATER AND SANITATION DEPARTMENT, THAT ADVANCES WERE RECEIVED FOR PRODUCTION OF FILMS,REGIONAL LANGUAGE FILMS FOR RESTORATION OF VARIOUS REGIONAL FILMS AS PER POLICY OF 11TH 5-YEAR PLAN, THAT VARIOUS ADVANCES WERE RECEIVED BY IT FOR THE BUSINESS PURPO SES, THAT FOR PRODUCTION OF SUCH FILMS ADEQUATE TIME WAS REQUIRED, THAT THERE WERE LOTS OF COMPLICATIONS,ACTIVITIES AND TECHNIQUES RELATED ISSUES FOR PRODUCTION OF FILMS,THAT THE ADV ANCES RECEIVED BY IT COULD NOT BE UTILISED FOR THAT REASON, THAT WITH A VIEW TO SAFEGUARD THE ADVA NCES THE COMPANY DECIDED TO DEPOSIT THE MONEY WITH THE BANKS,THAT A GENERAL APPROACH FOR TA XING INTEREST INCOME EARNED ON FIXED DEPOSIT AS INCOME FROM OTHER SOURCES COULD NOT BECO ME A PREVAILING FORCE. HE REFERRED TO THE VARIOUS DEPOSITS MADE BY THE ASSESSEE COMPANY AND T HE DURATION OF THE FIXED DEPOSIT RECEIPTS.HE FURTHER OBSERVED THAT ADVANCES WERE REC EIVED FROM VARIOUS MINISTRIES AND GOVERNMENT DEPARTMENTS FOR BUSINESS PURPOSES ONLY,T HAT ADVANCES HAD BEEN DEPOSITED ON SHORT-TERM BASIS TO MAKE THEM PRODUCTIVE, THAT UNLI KE OTHER ASSESSEES THE ASSESSEE COMPANY HAD TO BE REVIEWED AFTER TAKING INTO CONSIDERATION THE PECULIAR FACTS, THAT THE ENTIRE ADVANCES RECEIVED BY IT COULD NOT BE IMMEDIATELY UTILISED, T HAT THE SURPLUS AMOUNTS WERE TEMPORARILY PARKED WITH THE BANK,THAT THE INVESTMENT WAS NOT FR OM OTHER SOURCES BUT FROM THE MAIN SOURCE I.E. GOVERNMENT OF INDIA AND ITS VARIOUS DEP ARTMENTS, THAT THE AO HAD ONLY PRESUMED THE NATURE OF THE INCOME AS INTEREST INCOME, THAT T HE RELEVANT FACTS REVEALED THAT THE ADVANCES RECEIVED WERE FOR THE PURPOSE OF FUNDING MEDIA RELE ASE AND PRODUCTION OF BIG FILMS/SHORT FILMS, THAT THE PROCESS OF FILM PRODUCTION WOULD UN DERTAKE DIFFERENT STAGES AND WOULD BE SPREAD OVER FOR A LONGER PERIOD OF TIME. HE RELIED UPON CASES OF PARAMOUNT PREMIUM LTD. 5737/M/15 M/S. NATIONAL FILMS DEVELOPMENT CORPORATION LTD. 3 (190 ITR 259), LOK HOLDINGS (308 ITR 356), BIHAR ST ATE CO-OPERATIVE BANK LTD. (39 ITR 114) AND FINALLY ALLOWED THE APPEAL FILED BY THE AS SESSEE. 4. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE(DR)STRONGLY SUPPORTED THE ORDER OF THE AO AND STATED THAT ASSES SEE WAS NOT IN BUSINESS OF EARNING INTEREST INCOME, THAT INTEREST INCOME WAS RIGHTLY ASSESSED A S INCOME FROM OTHER SOURCES.HE RELIED UPON THE CASES OF TUTICORIN ALKALI CHEMICALS (227 I TR72) AND SANGAM POWER GENERATION (INCOME TAX APPEAL NO.87OF 2016,DTD.31.08.2017) OF THE HONBLE ALLAHABAD HIGH COURT.THE AUTHORISED REPRESENTATIVE(AR) RELIED UPON THE ORDER OF THE FAA AND STATED THAT THERE WAS DIRECT LINK BETWEEN THE BUSINESS OF THE ASSESSEE AN D THE INTEREST INCOME,THAT THE ADVANCES RECEIVED FROM VARIOUS GOVERNMENTAL AGENCIES WERE UT ILISED IN AN EFFICIENT MANNER FOR A LIMITED PERIOD.HE RELIED UPON THE CASES OF LOK HOL DINGS( SUPRA). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE ARE OF THE OPINION THAT CONSIDERING THE FACTS THAT ASSESSEES BUSINESS -PRODUCTION OF FILMS FOR MINISTRIES OF GOVERNMENT OF INDIA AND VARIOUS GOVERNMENT DEPAR TMENTS-AND THE DURATIONS FOR WHICH THE AMOUNTS WERE KEPT WITH BANKS THE INCOME EARNED BY I T HAS TO HELD AS BUSINESS INCOME.THE FAA HAD ALLOWED THE CLAIM MADE BY THE ASSESSEE ON T HE GROUNDS THAT IT WAS IN THE BUSINESS OF PRODUCTION OF FILMS,THAT THE COMPLETION OF FILMS WO ULD TAKE TIME,THAT DURING THE INTERVENING PERIOD THE ADVANCES WERE DEPOSITED WITH BANK RESULT ING IN ACCRUAL OF INTEREST INCOME.WE FIND THAT THESE BASIC FINDING OF THE FAA HAVE NOT BEEN C HALLENGED BY THE DEPARTMENT.IT IS ALSO A FACT THAT GOVERNMENT OF INDIA WAS 100% SHAREHOLDER OF THE ASSESSEE-COMPANY AND THE DEPOSIT OF ADVANCES WITH THE BANKS WAS DIRECTLY AND INEXTRICABLY LINKED WITH THE BUSINESS OF THE ASSESSEE,SO THE INTEREST EARNED BY IT HAD TO BE TREATED AS INCOME EARNED FROM BUSINESS AND CANNOT NOT BE TREATED AS INCOME FROM OTHER SOURCES. IN OTHER WORDS,IT CAN SAFELY BE HELD THAT THE INTEREST EARNED BY THE ASSESSEE WAS OBVIOUSLY A TTRIBUTABLE AND INCIDENTAL TO THE BUSINESS CARRIED ON BY IT,THAT IT WOULD NOT BE CORRECT TO SA Y THAT THIS INTEREST WAS TOTALLY DE HORS THE BUSINESS CARRIED ON BY IT.IT IS WELL-SETTLED THAT I NTEREST CAN BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES,ONLY IF IT CANNOT BE BROUGHT WIT HIN ONE OR THE OTHER OF THE SPECIFIC HEADS OF CHARGE.IN THE CASE BEFORE US THE INTEREST INCOME IS CLEARLY AND JUSTIFIABLY ASSESSED AS BUSINESS INCOME.IN SHORT,THE CASE UNDER CONSIDERATION IS NOT A CASE OF DEPOSITING UNUTILIZED AND SURPLUS MONEY BY THE ASSESSEE TO EARN INTEREST AND, THEREFO RE,THE INTEREST EARNED BY THE ASSESSEE CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. 5737/M/15 M/S. NATIONAL FILMS DEVELOPMENT CORPORATION LTD. 4 5.1. HERE,WE WOULD LIKE TO REFER TO THE CASE OF LOK HOLD INGS(SUPRA).FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN CONSTRUCTION BUSINESS A ND RECEIVED MONIES FROM THE PURCHASERS OF FLATS WHICH IT DEPOSITED WITH THE BANK. THE AO A SSESSED THE INTEREST INCOME EARNED ON MONEY DEPOSITED WITH THE BANK AS INCOME FROM OTHER SOURCES.THE FAA DELETED THE ADDITION.THE TRIBUNAL ON FINDING THAT THE ENTIRE IN TEREST SPRANG FROM THE BUSINESS ACTIVITY OF THE ASSESSEE AND NOT OUT OF ANY INDEPENDENT ACTIVIT Y, HELD THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE WAS BUSINESS INCOME.DISMISSING THE APP EAL FILED BY THE DEPARTMENT,THE HONBLE BOMBAY HIGH COURT HELD AS UNDER: .THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE I NTEREST INCOME RECEIVED BY THE ASSESSEE WAS ASSESSABLE AS BUSINESS INCOME. AS FAR AS MATTER OF SANGAM POWER GENERATION(SUPRA), IS CONCERNED,WE WOULD LIKE TO MENTION THAT MATTER DEALS WITH DIFFERENT SET OF FACTS.IN TH AT MATTER BUSINESS HAD YET TO COMMENCE.IN THE CASE BEFORE US,THE ASSESSEE IS CARRYING ON BUSINESS OF FILM PRODUCTION FROM ITS INCEPTION.ADVANCES WERE RECEIVED BY ASSESSEE IN ITS NORMAL COURSE OF BUSINESS.SIMILAR IS THE CASE OF TUTICORIN ALKALI.IN SHORT,BOTH THE CASES DO NOT DEAL WITH THE FACTS OF THE PRESENT CASE. SO,CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIR MITY AND THAT IT DOES NOT REQUIRE ANY INTERFERENCE FROM OUR SIDE.EFFECTIVE GROUND OF APPE AL IS DECIDED AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . ! ' #$%&'() . ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JUNE, 2018. &* + ' 27 , 2018 SD/- SD/ - ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER , MUMBAI; + ' /DATED :27.06.2018 JV.SR.PS . / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.