Income Tax Officer-5(2), Lucknow V. M/s Prayagraj Power Generation Company Ltd.,

ITA 618/LKW/2013

• Counselvise Citation: 61823714 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUNIT KUMAR
• Assessee Lawyers: B P YADAV COST ACCOUNTANT
• Keywords: Wholly owned subsidiary; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.618&619/LKW/2013 ASSESSMENT YEAR:2008-09 & 2009-10 INCOME TAX OFFICER 5 (2) RANGE V LUCKNOW V. M/S PRAYAGRAJ POWER GENERATION COMPANY LIMITED SECTOR 128, GAUTAM BUDH NAGAR NOIDA TAN/PAN:AAECP2746B (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. PUNIT KUMAR, D.R. RESPONDENT BY: SHRI. B. P. YADAV, COST ACCOUNTANT DATE OF HEARING: 23 03 2015 DATE OF PRONOUNCEMENT: 19 06 2015 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST RESPECTIVE ORDERS OF THE LD. CIT(A) ON COMMON GROUND EXCEPT THE DIFFERENCE IN QUANTUM AND FOR THE SAKE OF REFERENCE, WE EXTRACT THE GROUND RAISED IN I.T.A. NO. 618/LKW/2013 AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS. 70 LAKHS UNDER THE HEAD INCOME FROM OTHER SOURCES 2. SINCE THESE APPEALS WERE HEARD TOGETHER, THEY ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE HAS EARNED INCOME FROM SALE OF TENDER DOCUMENTS AT RS.70 LAKHS IN ASSESSMENT :- 2 -: YEAR 2008-09 AND RS.35 LAKHS IN ASSESSMENT YEAR 2009-10 AND THE SAME WERE TREATED AS CAPITAL RECEIPT AND ADJUSTED AGAINST THE PREOPERATIVE EXPENSES REDUCING THE COST OF PROJECT. THE ASSESSING OFFICER, HAVING EXAMINED THE LEGAL POSITION, CAME TO THE CONCLUSION THAT THE INCOME FROM SALE OF TENDER DOCUMENTS WAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND HE ACCORDINGLY MADE ADDITION OF THE SAME TO THE INCOME OF THE ASSESSEE. 4. THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE ASSESSEES CASE IS SQUARELY COVERED BY THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF ADDL. CIT VS. INDIA DRUGS AND PHARMACEUTICALS LTD., 141 ITR 134. THE LD. CIT(A) RE-EXAMINED THE ISSUE IN THE LIGHT OF THE ASSESSEES CONTENTIONS AND THE JUDGMENTS OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TUTUCORIN ALAKALI CHEMICALS AND FERTILIZERS LTD., 227 ITR 172 AND CIT VS. INDO GULF FERTILIZER & CHEMICAL, 280 ITR 521 AND WAS OF THE VIEW THAT THE TENDER FORMS WERE SUPPLIED BY THE ASSESSEE TO THE CONTRACTORS NOT IN ORDER TO EARN INCOME NOR IS THE SALE OF TENDER FORMS A SOURCE OF INCOME AS UNDERSTOOD COMMONLY. THIS ACTIVITY WAS RATHER A PART AND PARCEL OF THE CONSTRUCTIONAL ACTIVITIES OF THE ASSESSEE. THE SOURCE IS NOT INDEPENDENT OF, BUT IS RATHER CLOSELY CONNECTED AND INTERLINKED TO THE PROCESS OF SETTING UP OF THE FACTORY. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) IN ASSESSMENT YEAR 2008-09 ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- 5(4) I HAVE EXAMINED THE FACTS AND CIRCUMSTANCES OF THE CASE. I HAVE CONSIDERED THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE APPELLANT-COMPANY IS A 100% SUBSIDIARY OF M/S JAIPRAKASH POWER VENTURES LIMITED. DURING THE RELEVANT PERIOD THE APPELLANT-COMPANY WAS IN THE PROCESS OF SETTING UP A 1980 MW COAL BASED THERMAL POWER PROJECT AT TEHSIL BARA, ALLAHABAD. DURING THE COURSE OF SETTING UP OF THE PLANT THE APPELLANT DERIVED INCOME OF RS.70,00,000/- BY WAY OF SALE OF TENDER :- 3 -: DOCUMENTS TO PROSPECTIVE BIDDERS. THE AO TREATED THE INCOME AS 'INCOME FROM OTHER SOURCES' WHICH THE APPELLANT CLAIMS IS NOT CHARGEABLE TOP TAX. 5(5) I FIND THAT THE JUDICIAL DECISIONS IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. 227 ITR 172 AND CIT VS INDO GULF FERTILIZER & CHEMICAL 280 ITR 521 (ALL) RELIED UPON BY THE AO ARE NOT APPLICABLE TO THE FACTS OF THE CASE IN SO FAR AS THESE DECISIONS RELATE TO CHARGEABILITY OF INTEREST INCOME DURING PERIOD OF CONSTRUCTION AND NOT INCOME FROM SALE DOCUMENTS. I FIND THAT THE ISSUE IS COVERED BY DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF ADDITIONAL CIT VS INDIA DRUGS AND PHARMACEUTICALS LTD 141 ITR 134. THE HON'BLE COURT OBSERVED THAT SO FAR AS THE RECEIPT; FROM THE SALE PROCEEDS OF TREES, GRASS, BOULDERS AND STONES ARE CONCERNED, THEY REPRESENT THE SALE PROCEEDS OF CAPITAL ON ACCOUNT OF TENDER FORMS AND BY WAY OF WATER AND ELECTRICITY CHARGES TO THE CONTRACTORS ARE CONCERNED, WE AGREE WITH THE TRIBUNAL THAT THESE CANNOT BE TREATED AS ARISING OUT OF A SOURCE OF INCOME SEPARATE FROM THE BUSINESS WHICH WAS BEING SET UP. AS POINTED OUT BY THE TRIBUNAL, SINCE THE BUSINESS HAD NOT BEEN FULLY SET UP, THE RECEIPTS AND PAYMENTS WOULD BE CLEARLY ON CAPITAL ACCOUNT. SO FAR AS PAYMENTS ARE CONCERNED, THIS PROPOSITION IS NOW SETTLE BEYOND DOUBT BY THE DECISION OF THE SUPREME COURT IN THE CASE OF CHALLAPALLI SUGARS LTD. V. CIT [1975] 98 ITR 167. AS RIGHTLY POINTED OUT BY THE AAC, IT WOULD BE INCONSISTENT TO HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE PRIOR TO THE SETTING UP WOULD BE OF A CAPITAL NATURE BUT THAT THE RECEIPTS WOULD BE OF A REVENUE NATURE, IN A CASE WHERE THESE RECEIPTS AND PAYMENTS PERTAIN TO THE FIXED STRUCTURE OF THE COMPANY'S BUSINESS THAT IS BEING SET UP. WE AGREE WITH THE VIEW TAKEN BY THE TRIBUNAL THAT THE RECEIPTS IN RESPECT OF TENDER FORMS AND ON ACCOUNT OF EXCESS REALISED ON ACCOUNT OF WATER AND ELECTRICITY CHARGES GO TO REPRESENT THE COST OF CONSTRUCTION OF THE BUILDING :- 4 -: AND ERECTION OF THE PLANT AND MACHINERY, AND SHOULD BE TREATED AS IN THE REDUCTION OF SUCH COST. SIMILARLY, SALE PROCEEDS OF TREES, GRASS, STONES AND BOULDERS GO TO REPRESENT THE CAPITAL COST OF THE LAND UTILIZED FOR THE CONSTRUCTION OF THE FACTORY AND THE ERECTION OF EQUIPMENT OF THE FACTORY AND THE ERECTION OF EQUIPMENTS. THESE RECEIPTS WERE DIRECTLY RELATED TO THE CAPITAL STRUCTURE OF THE BUSINESS AND THEY CANNOT BE CONSIDERED AS AN INDEPENDENT SOURCE OF INCOME UNRELATED TO THE BUSINESS TO THE BUSINESS WHICH WAS BEING SET UP. 5(6) THE TENDER FORMS WERE SUPPLIED BY THE ASSESSEE TO THE CONTRACTORS NOT IN ORDER TO EARN INCOME NOR IS THE SALE OF TENDER FORMS A SOURCE OF INCOME AS UNDERSTOOD COMMONLY. THIS ACTIVITY WAS RATHER A PART AND PARCEL OF THE CONSTRUCTIONAL ACTIVITIES OF THE ASSESSEE. THE SOURCE IS NOT INDEPENDENT OF, BUT IS RATHER CLOSELY CONNECTED AND INTERLINKED WITH, THE PROCESS OF SETTING UP OF THE FACTORY. ANY RECEIPT OR PAYMENT BY AN ASSESSEE HAS NECESSARILY TO BE RELATED TO A SOURCE OF INCOME AND IF IT CAN BE RELATED TO A SPECIFIC SOURCE, IT CANNOT BE RELATED TO THE RESIDUARY SOURCE. IN THE PRESENT CASE, THE IMPUGNED AMOUNTS WERE CLEARLY REFERABLE TO THE SOURCE OF INCOME UNDER THE HEAD 'BUSINESS, PROFESSION AND VOCATION. THE FACT THAT THE BUSINESS WAS NOT YET COMPLETELY SET UP DID NOT DETRACT FROM THE EXISTENCE OF THE SOURCE. THE BUSINESS WAS IN THE PROCESS OF BEING SET UP AND THE RECEIPTS AND PAYMENTS IN RESPECTS OF THAT SOURCE, WHILE THE BUSINESS WAS BEING SET UP, MUST NECESSARILY BE RELATED TO THAT SOURCE. SINCE THE BUSINESS WAS NOT STILL FULLY SET UP, THE RECEIPTS AND PAYMENTS WOULD BE CLEARLY ON CAPITAL ACCOUNT. THESE RECEIPTS WERE DIRECTLY RELATED TO THE CAPITAL STRUCTURE OF THE BUSINESS WHICH WAS BEING SET UP. ON THE OTHER HAND THEY DID NOT BY THEMSELVES SET UP AN INDEPENDENT SOURCE OF INCOME UNRELATED TO THE BUSINESS WHICH WAS BEING SET UP. IT IS FROM THIS POINT OF VIEW THAT THESE RECEIPTS ARE DISTINGUISHABLE FROM INTEREST ON DEPOSITS OF SURPLUS MONEY. INTEREST WAS REALIZED BY UTILIZATION OF SURPLUS MONEY AND THE UTILIZATION CREATED A SEPARATE INDEPENDENT SOURCE. THE IMPUGNED RECEIPTS, ON THE OTHER HAND, DID NOT CREATE ANY :- 5 -: INDEPENDENT SOURCE AND WERE IN FACT INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP THE BUSINESS. IT HAS ALSO BE LAID DOWN IN THE CASE OF CIT VS KARNATAKA POWER CORPORATION', 247 I.T.R. 268(SC) AND 'BONGAIGAON REFINERY AND PETRO CHEMICAL CO. LTD. VS. CIT, 251 I.T.R. 329(SC), THAT ANY RECEIPT INEXTRICABLY LINKED TO THE SETTING UP OF THE PROJECT IS CAPITAL RECEIPT NOT LIABLE TO TAX AND GOING TO REDUCE THE COST OF THE PROJECT. 5(7) IN VIEW OF ABOVE DISCUSSION THE INCOME FROM SALE OF TENDER DOCUMENTS OF RS.70,00,000/- IS A CAPITAL RECEIPT AND CANNOT BE CHARGEABLE TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE ADDITION OF RS.70,00,000/- MADE BY THE AO IS DELETED GIVING CONSEQUENTIAL RELIEF TO THE APPELLANT. 5. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND HAS SIMPLY PLACED RELIANCE UPON THE ORDERS OF THE ASSESSING OFFICER WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT DURING THE RELEVANT PERIOD THE ASSESSEE-COMPANY WAS IN THE PROCESS OF SETTING UP OF THERMAL POWER PROJECT AND DURING THE COURSE OF SETTING UP OF THE PLANT THE ASSESSEE-COMPANY DERIVED INCOME BY WAY OF SALE OF TENDER DOCUMENTS TO THE PROSPECTIVE BIDDERS. SINCE THE INCOME WAS DERIVED BEFORE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE, IT WAS CAPITALIZED AND WAS REDUCED FROM THE COST OF THE PROJECT. 6. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTEDLY THE ASSESSEE HAS EARNED INCOME FROM SALE OF TENDER DOCUMENTS DURING THE COURSE OF SETTING UP OF PLANT. SINCE THE ASSESSEE HAS EARNED INCOME BEFORE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE, IT WAS TO BE CAPITALIZED AND THE ASSESSEE ACCORDINGLY TREATED THE RECEIPT AS CAPITAL RECEIPT AND ADJUSTED AGAINST EXPENSES REDUCING THE COST OF THE PROJECT. THE LD. CIT(A) EXAMINED THIS ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AND THEREAFTER TREATED :- 6 -: THE RECEIPT AS CAPITAL RECEIPT. SINCE NO INFIRMITY HAS BEEN POINTED OUT IN THE ORDER OF THE LD. CIT(A) DURING THE COURSE OF HEARING, WE FIND NO JUSTIFICATION TO INTERFERE WITH HIS ORDER. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A) IN BOTH THE ASSESSMENT YEARS. 7. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:19 TH JUNE, 2015 JJ:1506 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR