ESSAR POWER LTD, MUMBAI V. ACIT 5(1), MUMBAI

ITA 7438/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71233 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 24-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 04-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYA
• Keywords: Presumptive income; Business income; Depreciation; Earning of tax free income; Deemed to accrue or arise in india; Question of law; Revised return
• Section: 143(3); 80HHC; 14A; 115JB; 80IB

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO. 7438/M/2011 ( / ASSESSMENT YEAR : 2008 - 20 09 ) M/S. ESSAR POWER LTD., ESSAR HOUSE, 11 K.K. MARG, MAHALAXMI, MUMBAI - 400034 / VS. ASST. CIT - RANGE - 5(1), R.NO.568, 5TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACE 0895 J ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO. 7413/M/2011 ( / ASSESSMENT YEAR : 2008 - 20 09 ) ADDL. CIT - RANGE - 5(1), R.NO.568, 5TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S. ESSAR POWER LTD., ESSAR HOUSE, 11 K.K. MARG, MAHALAXMI, MUMBAI - 400034 ./ PAN : AAACE 0895 J ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI VIJAY MEHTA / REVENUE BY : SHRI GIRIJA DAYA / DATE OF HEARING : 24.9 .2013 / DATE OF PRONOUNCEMENT : 24 .9 .2013 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS. BOTH THE APPEALS ARE FILED AGAINST THE SAME ORDER OF THE CIT (A) - 9 , MUMBAI DATED 8.8.2011 FOR THE ASSESSMENT YEAR 2008 - 2009. SINCE, THE ISSUES INVOLVED ARE IDENTICAL, FOR THE SAKE OF CONVENIENCE; BOTH THESE APPEA LS ARE CLUBBED, HEARD COMBINED AND DISPOSED IN THIS CONSOLIDATED ORDER. APPEAL WISE AND GROUND WISE ADJUDICA TION IS GIVEN IN THE FOLLOWING PARAGRAPHS. 2 2. FIRSTLY, WE SHALL TAKE UP THE ITA NO.7438/M/2011, WHICH IS FILED BY THE ASSESSEE FOR THE AY 2008 - 2009 AND THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL READ AS UNDER: 1. THE LD CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 3,96,76,000/ - TOWARDS PROVISION FOR INCOME TAX RECOVERABLE FROM CLIENTS , TO THE TAXABLE INCOME. 2. THE LD CIT (A) ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS. 2,69,64,162/ - UNDER RULE - 8D READ WITH SECTION 14A OF THE INCOME TAX ACT, COMPU TED AT % OF THE AVERAGE VALUE OF INVESTMENTS , AS EXPENDITURE RELATABLE TO EXEMPTED INCOME. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER . DURING THE YEAR, ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME AT RS. NIL ON 29.9.2008, WHICH WAS SUBSEQUENTLY REVISED ON 5.12.2008 AND AGAIN ON 25.3.2010 DECLARING THE TOTAL INCOME AT RS. NIL. THE REVISED RETURN WAS FILED TO GIVE EFFECT TO THE DEMERGER SCHEME OF THE COMPANY AND TO CLAIM ADDITIONAL AMOUNT OF TDS OF RS. 14,80,385/ - . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT DETERMINING THE TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT AT RS. NIL AND INCOME ON THE BOOK PROFIT U/S 115JB OF THE WAS DETERMINED A T RS. 34,98,42,790/ - . AO MADE ADDITIONS IN THE ASSESSMENT. AGGRIEVED WITH THE DECISION OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, CIT (A) CONSIDERED THE SUBMIS SIONS MADE BY THE ASSESSEE AND PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED WITH THE DECISION OF PART RELIEF GRANTED BY THE CIT (A), ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 5. DURING THE PROCEEDINGS BEF ORE US, AT THE OUTSET, SHRI VIJAY MEHTA, LD COUNSEL FOR THE ASSESSEE FILED A CHART AND FAIRLY MENTION ED THAT THE GROUND NO.1, RELATING TO THE CONFIRMING THE ADDITION ON ACCOUNT OF THE PROVISION OF INCOME TAX RECOVERABLE FROM GUVNL AND ESSAR STEEL LTD., WHI LE COMPUTING THE INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, STANDS COVERED AGAINST THE ASSESSEE . THE CONTENTS OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2003 - 2004 REPORTED IN 142 ITD 251 (MUM) IS RELEVANT . IN THIS REGARD, LD COUNSE L MENTIONED 3 THAT SINCE, THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THAT OF THE ASSESSEES OWN CASE FOR THE AY 2003 - 2004 (SUPRA), THE TRIBUNAL NEEDS DECIDE THIS ISSUE IN FAVOUR OF THE REVENUE AND PARA 10 TO 41 AT PAGE 256 TO 265 OF THE S AID DECISION ARE RELEVANT FOR ADJUDICATION OF THIS ISSUE. THE SAID PARAS 10 TO 41 READ AS UNDER: 10. GROUND NO. 2 READS AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED CONFIRMING ADDITION MADE BY AO TOWARDS, PROVISION FOR INCOME TA X RECOVERABLE FROM GEB AND ESSAR STEEL LTD. WHILE MAKING COMPUTATION OF TOTAL INCOME UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961. 11. THE A.O. HAS DISCUSSED THE ABOVE ISSUE AT PAGE 5 OF THE ASSESSMENT ORDER AS UNDER: - 8. PROVISION FOR INCOME TA X RECOVERABLE RS.11.07 CRORES: THE ASSESSEE IS SUPPLYING POWER TO GUJARAT ELECTRICITY BOARD (GEB). AS PER THE POWER PURCHASE AGREEMENT BETWEEN THE ASSESSEE AND GEB, GEB IS SUPPOSED TO REIMBURSE THE INCOME TAX PAYABLE BY THE ASSESSEE. FOR THE YEAR UNDER C ONSIDERATION, ASSESSEE HAS SHOWN BELOW THE LINE IN PROFIT AND LOSS ACCOUNT 11.07 CRORE AS PROVISION FOR TAX RECOVERABLE. THIS AMOUNT HAS NOT BEEN INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE HAS TAKEN A STAND THAT THIS AMOUNT REFLECTS THE INC OME TAX PAYABLE BY THE ASSESSEE WHICH IS REIMBURSED BY GEB. THUS, IF THIS AMOUNT IS BROUGHT TO TAX IT WOULD AMOUNT TO DOUBLE TAXATION. THE ASSESSEE HAS ALSO SUBMITTED THAT THIS AMOUNT IS NOT RECEIVABLE IF NO INCOME TAX IS PAYABLE BY THE ASSESSEE. THUS, THI S IS NOT IN THE NATURE OF REVENUE. IT IS ALSO SUBMITTED BY THE ASSESSEE THAT IT IS IN THE NATURE OF REIMBURSEMENT OF EXPENDITURE AND HENCE NOT INCOME IN THE ASSESSEES HAND. THE ABOVE STAND OF THE ASSESSEE IS NOT ACCEPTABLE AS THE SAID AMOUNT IS BEING RECE IVED WITH REGARD TO SALE OF POWER TO GEB. THE METHOD FOLLOWED IN DECIDING THE AMOUNT PAYABLE BY GEB IS IMMATERIAL AS FAR AS THE NATURE OF RECEIPT IN THE ASSESSEES HANDS IS CONCERNED. WHETHER GEB PAYS THIS AMOUNT AS A REIMBURSEMENT OF EXPENDITURE OR BY WAY OF PAYMENT FOR SERVICES RENDERED OR AS A RETURN ON INVESTMENT OF CAPITAL, THE NATURE OF SUCH RECEIPT CANNOT BE DIFFERENT IN THE HANDS OF THE ASSESSEE. ASSESSEE IS REQUIRED TO SHOW ALL THE RECEIPTS FROM GEB AS REVENUE AND CLAIM DEDUCTIONS APPLICABLE UNDER THE IT ACT. IN THE INSTANT CASE 11.07 CRORES IS THEREFORE REQUIRED TO BE INCLUDED FROM REVENUE FROM GEB AND REDUCTIONS IF ANY SHALL BE ALLOWED AS PER THE ACT. THE SAID AMOUNT IS THEREFORE ADDED TO THE TOTAL INCOME. SINCE INCOME TAX IS NOT A DEDUCTIBLE EXPE NDITURE NO FURTHER DEDUCTION IS THEREFORE CONSIDERED. THE ADDITION COMES TO RS. 11.07 CRORES. SINCE RS.11.07 CRORE IS INCOME OF THE ASSESSEE AS HELD ABOVE, THE SAME CONSIDERED AND ADDED TO THE BOOK PROFIT FOR COMPUTATION U/S. 115JB ALSO. 12. ON APPEAL, TH E LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HAS HELD AS UNDER: - 3.5 I HAVE GONE THROUGH THE ABOVE SUBMISSIONS AS WELL AS THE FINDINGS OF THE ASSESSING OFFICER. I FIND THAT THE APPELLANTS ARGUMENT DOES NOT HOLD GOOD AS THIS REIMBURSEMENT IS NOTHING BUT A METHOD OF RAISING THE SALES INVOICES TOWARDS THE GENERATION AND SUPPLY OF POWER TO ITS CUSTOMERS, WHICH IS BASED ON TERMS MUTUALLY AGREED BY BOTH THE PARTIES. THEREFORE, INCOME TAX RECOVERABLE IS A REVENUE RECEIPT AND CHARGEABLE TO INCOM E - TAX. THEREFORE, GROUND NO. 4 IS REJECTED AND ORDER OF ASSESSING OFFICER IN THIS REGARD IS UPHELD. 13. THE LD. SR. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE COMPANY IS ENGAGED IN THE GENERATION AND DISTRIBUTION OF POWER. DURING THE YEAR UNDER 4 CONSIDERATION THE ASSESSEE COMPANY HAS SUPPLIED THE POWER TO GUJARAT ELECTRICITY GOARD(GEB) AND ESSAR STEEL LTD. IN ACCORDANCE WITH THE AGREEMENT OF POWER GENERATION AND SUPPLY THEREOF WITH GEB AND ESSAR STEEL LTD, TAX PAYABLE BY THE ASSESSEE COMPANY IS AG REED TO BE REIMBURSED BY BOTH THE COMPANIES AS PER COPY OF AGREEMENT APPEARING AT PAGE 3 TO 146 OF THE ASSESSEES PAPER BOOK. DURING THE YEAR THE ASSESSEE COMPANY MADE PROVISION OF RS.11.07 CRORES RECEIVABLE FROM GEB AND ESSAR STEEL LTD BELOW THE LINE. THI S IS TOWARDS THE TAX PORTION RECOVERABLE FROM GEB AND ESSAR STEEL LTD. THE ASSESSEE COMPANY FIRST COMPUTES ITS TAXABLE INCOME. ON SUCH TAXABLE INCOME, TAX PAYABLE IS WORKED OUT. SUCH TAX PAYABLE ON PRODUCTION OF CHALLAN IS REIMBURSED BY THE POWER PURCHASER S AND, THEREFORE, CANNOT BE TREATED AS INCOME AND CHARGEABLE TO TAX AGAIN. HE FURTHER SUBMITS THAT AS INCOME - TAX IS NOT AN ALLOWABLE DEDUCTION UNDER THE PROVISIONS OF THE ACT, ANY BENEFIT OR REIMBURSEMENT OF THE TAX LIABILITY BY THE POWER PURCHASERS IS NO T AN INCOME IN THE HANDS OF THE ASSESSEE COMPANY. HE FURTHER SUBMITS THAT IN THE EVENT, NO TAX IS PAID BY THE ASSESSEE COMPANY, NO REIMBURSEMENT WILL BE MADE BY THE POWER PURCHASERS, THEREFORE, IT IS REIMBURSEMENT OF WHAT IS PAID. WHEN PAYMENT IS NOT CLAIM ED AS DEDUCTION, ITS REIMBURSEMENT SHOULD ALSO BE NOT CONSIDERED AS INCOME. HE FURTHER SUBMITS THAT THE ASSESSEE COMPANY HAS NOT CLAIMED EXPENSES IN RELATION TO PAYMENT OF TAX. FURTHER THE REIMBURSEMENT RECEIVABLE IS REQUIRED TO BE OFFSET AGAINST TAX PAYAB LE BY THE COMPANY, THEREFORE NO AMOUNT OF TAX RECOVERABLE CAN BE ADDED BACK TO INCOME OF THE YEAR UNDER APPEAL. 14 . THE LD. SR. COUNSEL FOR THE ASSESSEE FOR THE PROPOSITION THAT REIMBURSEMENT IS NOT AN INCOME ALSO PLACED RELIANCE IN CIT VS. SIEMENS AKTIONG ESELLSCHAFT (2009) 310 ITR 320 (BOM) WHEREIN IT HAS BEEN HELD THAT AT PLACITUM 57 PAGE 340 THAT REIMBURSEMENT OF EXPENSES CAN, UNDER NO CIRCUMSTANCES, BE REGARDED AS A REVENUE RECEIPT AND IN THE PRESENT CASE THE TRIBUNAL HAD FOUND THAT THE ASSESSEE RECEIV ED NO SUMS IN EXCESS OF EXPENSES INCURRED. HE FURTHER SUBMITS THAT SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) VS. KRUPP UDHE GMBH (2010) 38 DTR (BOM) 251 WHEREIN IT H AS BEEN HELD THAT REIMBURSEMENT OF EXPENSES IS NOT CHARGEABLE TO TAX. HE FURTHER SUBMITS THAT IN MAHINDRA & MAHINDRA LTD. DCIT, (2009) 30 SOT 374 (MUM)[SB] IT HAS BEEN HELD THAT AT PLACITUM D PAGE 403 THAT REIMBURSEMENT OF EXPENSES DOES NOT HAVE THE IN COME ELEMENT AND, HENCE, CANNOT ASSUME THE CHARACTER OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. THE LD. SR. COUNSEL FOR THE ASSESSEE AFTER REFERRING TO THE PROVISIONS OF SECTION 44BB OF THE ACT SUBMITS THAT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERN ATIONAL TAXATION) AND ANOTHER VS. SCHLUMBERGER ASIA SERVICES LTD. (2009) 317 ITR 156 (UTTARKHAND) IT HAS BEEN HELD THAT REIMBURSEMENT TOWARDS THE CUSTOMS DUTY PAID BY THE ASSESSEE, BEING STATUTORY IN NATURE, COULD NOT FORM PART OF AMOUNT FOR THE PURPOSES O F DEEMED PROFITS, UNLIKE THE OTHER AMOUNTS RECEIVED TOWARDS REIMBURSEMENT. HE FURTHER SUBMITS THAT SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN DDIT VS. MITCHELL DRILLING INTERNATIONAL PTY. LTD. IN ITA NO. 698/DEL./2012 FOR A.Y. 2008 - 09 ORDER DTD. 31 - 8 - 2 012 HOLDING THAT SERVICE TAX IS NOT PART OF THE GROSS RECEIPT FOR THE PURPOSE OF TAXATION U/S 44BB OF THE ACT. THE RELIANCE WAS ALSO PLACED IN THE CASE OF ACIT VS. LOUIS BERGER INTERNATIONAL INC. (2010) 40 SOT 370 (HYD.) WHEREIN IT HAS BEEN HELD AT PLACITU M A PAGE 397 THAT REIMBURSEMENT OF SERVICE TAX CANNOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. HE FURTHER SUBMITS THAT SIMILAR VIEW WAS TAKEN IN CASE OF ISLAMIC REPUBLIC OF IRAN SHIPPING VS. DY. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) IN ITA NO. 8845/MUM/2010 FOR A.Y. 2007 - 08 ORDER DTD. 20 - 4 - 2011 AND IN THE CASE OF VEOLIA EAU - COMPAGNIE VS. THE ADDL DIRECTOR OF GENERALE DES EAUX INCOME - TAX IN ITA NO. 2131/MDS/2010 FOR A.Y. 2004 - 05 ORDER DTD. 23 - 6 - 2011. RELIANCE WAS ALSO PLACED IN THE CASE OF CIT VS. SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) 245 ITR 769 (BOM) WHEREIN IT HAS BEEN HELD THAT EXCISE DUTY AND SALES TAX ARE NOT INCLUDIBLE IN TOTAL TURNOVER. 15. IN THE LIGHT OF THE ABOVE DECISIONS, HE SUBMITS THAT REIMBURSEMENT OF INCOME - TAX IS REVENUE NEUTRAL. THERE IS NO ELEMENT OF PROFIT. THERE IS NO INCOME AND, HENCE, IT SHOULD BE EXCLUDED FROM THE INCOME OF THE ASSESSEE. HE FURTHER SUBMITS THAT SINCE THE INCOME - TAX IS NOT THE INCOME, THEREFORE, THE SAME IS NOT INCLUDIBLE IN THE RECEIPT AND , HENCE, DEDUCTION OF THE SAME DOES NOT ARISE. HE, THEREFORE, SUBMITS THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE A.O. IN TREATING THE PROVISION FOR THE INCOME - TAX RECOVERABLE AS INCOME OF THE ASSESSEE AND THE SAME BE DELETED. 16. ON TH E OTHER HAND, THE LD. D.R. WHILE RELYING ON THE ORDER OF THE A.O. AND THE LD. CIT(A), AT THE OUTSET, SUBMITS THAT RECEIPT OF INCOME - TAX IS A PART OF THE TARIFF REALIZED BY THE ASSESSEE FROM THE COMPANY, THEREFORE, IT IS A PART OF RECEIPT LIABLE TO TAX AS I NCOME OF THE ASSESSEE. HE FURTHER SUBMITS THAT UNDER THE PROVISIONS OF THE ACT THE PROVISION FOR INCOME - TAX MADE BY THE ASSESSEE IS NOT ALLOWABLE I.E. IN OTHER WORDS IT IS NOT DEDUCTIBLE EXPENDITURE AND, HENCE, IT WAS RIGHTLY TREATED BY THE A.O. AS INCOM E. HE FURTHER SUBMITS THAT IN THE CASE OF LOUIS BERGER INTERNATIONAL INC.(SUPRA) RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE IT HAS BEEN OBSERVED BY THE TRIBUNAL AT PAGE 396 THAT THERE IS A LOT OF DIFFERENCE BETWEEN PAYMENT OF SERVICE TAX AND INCOME - TAX, THEREFORE, THE DECISION RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE FURTHER SUBMITS THAT ALL OTHER DECISIONS RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE ARE IN R ESPECT OF REIMBURSEMENT OF EXPENSES, CUSTOM DUTY AND SERVICE TAX AND ARE NOT IN RESPECT OF REIMBURSEMENT INCOME - TAX, THEREFORE, ALL THE DECISIONS RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE P RESENT CASE. HE, THEREFORE, SUBMITS THAT THE ADDITION MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) BE UPHELD. 17. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECO RD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN 5 DISPUTE THAT THE ASSESSE HAS SHOWN BELOW THE LINE THE P&L ACCOUNT RS. 11.07 CRORES AS PROVISION FOR TAX RECOVERABLE AND HAS NOT INCLUDED THE SAID AMOUNT IN THE TOTAL INCOME COMPUTE D BY THE ASSESSEE. THE CASE OF THE ASSESSEE IS THAT THE SAID AMOUNT REFLECTS THE INCOME - TAX PAYABLE BY THE ASSESSEE WHICH IS REIMBURSED BY THE GUJARAT ELECTRICITY BOARD (GEB) AND THE SAME IS IN THE NATURE OF REIMBURSEMENT OF EXPENSES AND, HENCE, NOT LIABL E TO BE INCLUDED IN THE INCOME OF THE ASSESSEE. PER CONTRA THE STAND OF THE REVENUE IS THAT IT IS A PART OF THE TARIFF PAYABLE BY THE COMPANIES, THEREFORE, IT IS AN INCOME/RECEIPT IN THE HANDS OF THE ASSESSEE AND NOT IN THE NATURE OF REIMBURSEMENT OF EXPE NSES AND, AS SUCH, THE SAME IS NOT DEDUCTIBLE AS AN EXPENDITURE AND, HENCE, LIABLE TO TAX. 18. HERE IT IS NECESSARY TO CONSIDER THE RELEVANT PROVISIONS OF THE ACT WHICH ARE AS UNDER: - 19 . AMOUNTS NOT DEDUCTIBLE. 40. NOTWITHSTANDING ANYTHING TO THE CO NTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION': (A) IN THE CASE OF ANY ASSESSEE (II) ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEV IED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAINS; 20. THIS CLAUSE PROVIDES THAT NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, IN THE CASE OF ANY ASSESSEE (I) ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX (II) LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION, OR (III) ASSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAINS SHALL NOT BE DEDUCTED IN COMPUTI NG THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 21. TAX DEDUCTED IS INCOME RECEIVED 198. ALL SUMS DEDUCTED IN ACCORDANCE WITH THE FOREGOING PROVISIONS OF THIS CHAPTER SHALL, FOR THE PURPOSE OF COMPUTING THE INCOME O F AN ASSESSEE, BE DEEMED TO BE INCOME RECEIVED : PROVIDED THAT THE SUM BEING THE TAX PAID, UNDER SUB - SECTION (1A) OF SECTION 192 FOR THE PURPOSE OF COMPUTING THE INCOME OF AN ASSESSEE, SHALL NOT BE DEEMED TO BE INCOME RECEIVED. 22. THIS SECTION PROVIDE S THAT THE AMOUNT OF TAX DEDUCTED AT SOURCE UNDER THE PROVISIONS OF SECTIONS 192 TO 196D IS, SO FAR AS AFFECTED PERSON IS CONCERNED, TO BE TREATED AS INCOME RECEIVED BY HIM. FOR THE PURPOSE OF COMPUTATION OF HIS TOTAL INCOME, GROSS SALARY, GROSS DIVIDEND OR GROSS INTEREST, ETC. I.E. THE AMOUNT ACTUALLY RECEIVED PLUS THE AMOUNT OF TAX DEDUCTED AT SOURCE, WILL HAVE TO BE CONSIDERED. 23. WE FURTHER FIND FROM THE COPY OF AGREEMENT DTD. 30 - 5 - 1996 BETWEEN GUJARAT ELECTRICITY BOARD (GEB) AND ESSAR POWER LIMITE D (ASSESSEE) THAT IN CL. 7.1 OF THE ANNEXURE IV OF SCHEDULE OF THE AGREEMENT APPEARING AT PAGE 3 TO 87 AT PAGE 81 THAT THE TARIFF HAS BEEN DETERMINED AS FOLLOWS: - TARIFF THE TARIFF SHALL BE DETERMINED AS FOLLOWS (A) ANNUAL FIXED CHARGES TO BE DETER MINED IN TERMS OF SECTION 7.1.1. (B) VARIABLE CHARGES TO BE DETERMINED IN TERMS OF SECTION 7.2 (C) INCENTIVE PAYMENT TO BE DETERMINED IN TERMS OF SECTION 7.3 7.1.1.ANNUAL FIXED CHARGES: COMPUTATION AND PAYMENT. THE ANNUAL FIXED CHARGE SHALL BE COMPUTED O N THE FOLLOWING BASIS: (A) INTEREST ON DEBT: .. (B) ACCOUNTING YEAR: .. (C) DEPRECIATION : . (D) TAX ON INCOME: TAX ON INCOME SHALL BE DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT, 1961 EVERY YEAR AS UNDER: - TA X PAYABLE BY THE COMPANY X RETURN ON EQUITY PLUS TOTAL TAXABLE INCOME INCENTIVE PAYMENT FOR THE PURPOSES OF DETERMINATION OF THE ANNUAL FIXED CHARGES, THE TAX ON INCOME SHALL BE COMPUTED ON AN ESTIMATED BASIS. ANY UNDER OR OVER RECOVERY O F TAX ON INCOME SHALL BE ADJUSTED EVERY YEAR ON THE BASIS OF CERTIFICATE OF DOCUMENTATION OF TAX PAID AND ASSESSMENT BY THE INCOME TAX OFFICER CONCERNED. 6 E) RETURN ON EQUITY (ROE): .. F) INTEREST ON WORKING CAPITAL. G) BASE FOREIGN DEBT REPAYMEN T ADJUSTMENT MOUNT:.. 24. FROM THE FAIR READING OF THE ABOVE, THE AMOUNT OF INCOME - TAX CALCULATED AND PAID BY GEB IS PART OF THE TARIFF CHARGED BY THE ASSESSEE ON THE SALE OF ELECTRICITY AND NOT REIMBURSEMENT OF EXPENSES, THEREFORE IT IS PART OF THE RECEIPTS IN THE HANDS OF THE ASSESSEE. 25. IN CHOWRINGHEE SALES BUREAU P. LTD. CIT, (1977)110 ITR 385 (CAL.) IT HAS BEEN HELD (HEADNOTE): - HELD, THAT THE AMOUNTS COLLECTED BY THE ASSESSEE AS SALES TAX FORMED PART OF ITS TRADING RECEIPTS. HOWEVER, THE LIABILITY TO PAY SALES TAX ARISES THE MOMENT A SALE OR PURCHASE IS EFFECTED AND AN ASSESSEE WHO MAINTAINS ACCOUNTS ON THE MERCANTILE SYSTEM IS ENTITLED TO DEDUCTION OF HIS ESTIMATED LIABILITY TO SALES TAX, EVEN THOUGH THEY HAD NOT BEEN PAID TO THE SALE S TAX AUTHORITIES. 26. IN SINCLAIR MURRAY AND CO. P. LTD. VS. CIT (1974) 97 ITR 615 (SC) IT HAS BEEN HELD (HEADNOTE) : (II) THAT THE AMOUNT COLLECTED BY THE APPELLANT AS SALES TAX CONSTITUTED ITS TRADING RECEIPT AND HAD TO BE INCLUDED IN ITS TOTAL INCOM E; 27. IN CHOWRINGHEE SALES BUREAU P. LTD. CIT, (1973 87 ITR 542 (SC) IT HAS BEEN HELD (HEADNOTE): - HELD, (I) THAT THE SUM OF RS. 32,986 REALISED AS SALES TAX BY THE APPELLANT IN ITS CHARACTER AS AN AUCTIONEER FORMED PART OF ITS TRADING OR BUSINESS RE CEIPTS; (II) THAT THE FACT THAT THE APPELLANT CREDITED THE AMOUNT RECEIVED AS SALES TAX UNDER THE HEAD 'SALES TAX COLLECTION ACCOUNT' DID NOT MAKE ANY MATERIAL DIFFERENCE. IT IS THE TRUE NATURE AND QUALITY OF THE RECEIPT AND NOT THE HEAD UNDER WHICH IT I S ENTERED IN THE ACCOUNT BOOKS AS WOULD PROVE DECISIVE. IF A RECEIPT IS A TRADING RECEIPT, THE FACT THAT IT IS NOT SO SHOWN IN THE ACCOUNT BOOKS OF THE ASSESSEE WOULD NOT PREVENT THE ASSESSING AUTHORITY FROM TREATING IT AS TRADING RECEIPT. 28. IN EMIL W EBBER VS. CIT (1993) 200 ITR 483 (SC) IT HAS BEEN OBSERVED AND HELD AT PAGE 486 - 487 AS UNDER: - THE DEFINITION OF 'INCOME' IN CLAUSE (24) OF SECTION 2 OF THE ACT IS AN INCLUSIVE DEFINITION. IT ADDS SEVERAL ARTIFICIAL CATEGORIES TO THE CONCEPT OF INCOME BUT ON THAT ACCOUNT THE EXPRESSION 'INCOME' DOES NOT LOSE ITS NATURAL CONNOTATION. INDEED, IT IS REPEATEDLY SAID THAT IT IS DIFFICULT TO DEFINE THE EXPRESSION 'INCOME' IN PRECISE TERMS. ANYTHING WHICH CAN PROPERLY BE DESCRIBED AS INCOME IS TAXABLE UNDER T HE ACT UNLESS, OF COURSE, IT IS EXEMPTED UNDER ONE OR THE OTHER PROVISIONS OF THE ACT. IT IS FROM THE SAID ANGLE THAT WE HAVE TO EXAMINE WHETHER THE AMOUNT PAID BY BALLARPUR BY WAY OF TAX ON THE SALARY AMOUNT RECEIVED BY THE ASSESSEE CAN BE TREATED AS T HE INCOME OF THE ASSESSEE. IT CANNOT BE OVERLOOKED THAT THE SAID AMOUNT IS NOTHING BUT A TAX UPON THE SALARY RECEIVED BY THE ASSESSEE. BY VIRTUE OF THE OBLIGATION UNDERTAKEN BY BALLARPUR TO PAY TAX ON THE SALARY RECEIVED BY THE ASSESSEE AMONG OTHERS, IT PAID THE SAID TAX. THE SAID PAYMENT IS, THEREFORE, FOR AND ON BEHALF OF THE ASSESSEE. IT IS NOT A GRATUITOUS PAYMENT. BUT FOR THE SAID AGREEMENT, AND BUT FOR THE SAID PAYMENT, THE SAID TAX AMOUNT WOULD HAVE BEEN LIABLE TO BE PAID BY THE ASSESSEE HIMSELF. HE COULD NOT HAVE RECEIVED THE SALARY WHICH HE DID BUT FOR THE SAID PAYMENT OF TAX. THE OBLIGATION PLACED UPON BALLARPUR BY VIRTUE OF SECTION 195 OF THE INCOME - TAX ACT CANNOT ALSO BE IGNORED IN THIS CONTEXT. IT WOULD BE UNREALISTIC TO SAY THAT THE SAID PAY MENT HAD NO INTEGRAL CONNECTION WITH THE SALARY RECEIVED BY THE ASSESSEE. WE ARE, THEREFORE, OF THE OPINION THAT THE HIGH COURT AND THE AUTHORITIES TINDER THE ACT WERE RIGHT IN HOLDING THAT THE SAID TAX AMOUNT IS LIABLE TO BE INCLUDED IN THE INCOME OF TH E ASSESSEE DURING THE SAID TWO ASSESSMENT YEARS. 29. BHARAT COMMERCE AND INDUSTRIES LTD. VS. CIT (1998) 230 ITR 733 (SC) IT HAS BEEN OBSERVED AND HELD AS UNDER (PAGE 738 - 739): - LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON A DECISION OF THIS COU RT IN MAHALAKSHMI SUGAR MILLS CO. V. CIT [1980] 123 ITR 429. THE ASSESSEE IN THAT CASE HAD CLAIMED DEDUCTION OF INTEREST PAID ON ARREARS OF SUGARCANE CESS. THIS WAS HELD BY THIS COURT AS A PART OF THE ASSESSEES LIABILITY TO PAY CESS AND WAS HELD TO BE DED UCTIBLE. THE RATIO OF THIS JUDGMENT ALSO CAN HAVE NO APPLICATION HERE. THE PAYMENT OF SUGARCANE CESS IS VERY MUCH A PART OF THE ASSESSEES BUSINESS EXPENSE. ANY INTEREST ON ARREARS OF CESS WOULD, THEREFORE, TAKE COLOUR FROM THE CESS WHICH IS PAYABLE. IT IS AN INDIRECT TAX WHICH HAS TO BE PAID IN THE 7 COURSE OF CARRYING ON BUSINESS. IT IS REQUIRED TO BE DEDUCTED IN ORDER TO ARRIVE AT THE NET PROFITS OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. WE ARE HERE NOT CONCERNED WITH THE PAYMENT OF ANY INDIRECT TA X WHICH THE ASSESSEE MAY HAVE TO PAY IN THE COURSE OF HIS BUSINESS. WE ARE CONCERNED WITH THE TAX WHICH WAS REQUIRED TO BE PAID AFTER THE ASCERTAINMENT OF THE NET INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. INTEREST WHICH IS PAID FOR DELAYED P AYMENT OF ADVANCE TAX ON SUCH INCOME CANNOT BE CONSIDERED AS EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. UNDER THE INCOME - TAX ACT, THE PAYMENT OF SUCH INTEREST IS INEXTRICABLY CONNECTED WITH THE ASSESSEES TAX LIABILITY. IF INCOME - TAX I TSELF IS NOT A PERMISSIBLE DEDUCTION UNDER SECTION 37, ANY INTEREST PAYABLE FOR DEFAULT COMMITTED BY THE ASSESSEE IN DISCHARGING HIS STATUTORY OBLIGATION UNDER THE INCOME TAX ACT, WHICH IS CALCULATED WITH REFERENCE TO THE TAX ON INCOME CANNOT BE ALLOWED AS A DEDUCTION. 30. NOW LET US CONSIDER THE DECISIONS RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE. 31. IN SIEMENS AKTIONGESELLSCHAFT (SUPRA) IT HAS BEEN INTER ALIA OBSERVED AND HELD AT PLACITUM 57 TO 59 AT PAGE 340 - 341 AS UNDER: - THAT LEAVES US WI TH THE LAST CONTENTION AS TO WHETHER THE AMOUNTS BY WAY OF REIMBURSEMENT ARE LIABLE TO TAX. TO ANSWER THAT ISSUE, WE MAY GAINFULLY REFER TO THE JUDGMENT OF A DIVISION BENCH OF THE DELHI HIGH COURT IN CIT V. INDUSTRIAL ENGINEERING PROJECTS P. LTD. [1993] 202 ITR 1014. THE LEARNED DIVISION BENCH OF THE DELHI HIGH COURT WAS PLEASED TO HOLD THAT REIMBURSEMENT OF EXPENSES CAN, UNDER NO CIRCUMSTANCES, BE REGARDED AS A REVENUE RECEIPT AND IN THE PRESENT CASE THE TRIBUNAL HAD FOUND THAT THE ASSESSEE RECEIVED NO SUMS IN EXCESS OF EXPENSES INCURRED. A SIMILAR ISSUE HAD ALSO COME UP FOR CONSIDERATION BEFORE THE DIVISION BENCH OF THE CALCUTTA HIGH COURT IN CIT V. DUNLOP RUBBER CO. LTD. [1983] 142 ITR 493 (CAL). THE LEARNED DIVISION BENCH WAS ANSWERING THE FOLLOW ING QUESTION : ' WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AMOUNTS RECEIVED BY THE ASSESSEE (ENGLISH COMPANY) FROM M/S. DUNLOP RUBBER CO. (INDIA) LTD. (INDIAN COMPANY) AS PER AGREEMENT DATED JULY 29, 1957, CONSTITUTED INCOME ASSESS ABLE TO TAX ?' ON CONSIDERING THE ISSUE THE LEARNED BENCH NOTED THAT THE TRIBUNAL WAS OF THE VIEW THAT WHAT WAS RECOUPED BY THE ENGLISH COMPANY WAS PART OF THE EXPENSES INCURRED BY IT. THE LEARNED COURT UPHELD THE SAID FINDING. THE LEARNED BENCH WAS PLEASED TO HOLD THAT SHARING OF EXPENSES OF THE RESEARCH UTILISED BY THE SUBSIDIARIES AS WELL AS THE HEAD OFFICE ORGANISATION WOULD NOT BE INCOME WHICH WOULD BE ASSESSABLE TO TAX. A SIMILAR VIEW WAS TAKEN IN CIT V. STEWARDS AND LLOYDS OF INDIA LTD. [1987 ] 165 ITR 416. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEW EXPRESSED BY THE DELHI AND CALCUTTA HIGH COURTS. 32. IN KRUPP UDHE GMBH (SUPRA) IT HAS BEEN HELD AS UNDER (PARA 6): 6. THE QUESTION AS TO WHETHER A REIMBURSEMENT FOR EXPENSES WOULD FORM PART OF THE TAXABLE INCOME IS NOT RES - INTEGRA IN SO FAR AS THIS COURT IS CONCERNED. IN COMMISSIONER OF INCOME TAX V/S. SIEMENS AKTIONGESELLSCHAFT5, A DIVISION BENCH OF THIS COURT HELD THAT IT WAS IN AGREEMENT WITH THE VIEW TAKEN BY THE CALCUTTA HIGH COURT IN DU NLOP RUBBER COMPANY LIMITED (SUPRA) AND BY THE DELHI HIGH COURT IN COMMISSIONER OF INCOME TAX V/S. INDUSTRIAL ENGINEERING PROJECTS (P) LTD. (1993) 109 CTR (DEL) 73 : (1993) 202 ITR 1014 (DEL). THE OBSERVATIONS OF THIS COURT IN SIEMENS (SUPRA) ARE AS FOLLO WS : '33. THAT LEAVES US WITH THE LAST CONTENTION AS TO WHETHER THE AMOUNTS BY WAY OF REIMBURSEMENT ARE LIABLE TO TAX. TO ANSWER THAT ISSUE, WE MAY GAINFULLY REFER TO THE JUDGMENT OF A DIVISION BENCH OF THE DELHI HIGH COURT IN CIT V . INDUSTRIAL ENGINEERIN G PRODUCTS (P) LTD., (SUPRA). THE LEARNED DIVISION BENCH OF THE DELHI HIGH COURT WAS PLEASED TO HOLD THAT REIMBURSEMENT OF EXPENSES CAN, UNDER NO CIRCUMSTANCES, BE REGARDED AS A REVENUE RECEIPT AND IN THE PRESENT CASE THE TRIBUNAL HAD FOUND THAT THE ASSESS EE RECEIVED NO SUMS IN EXCESS OF EXPENSES INCURRED. A SIMILAR ISSUE HAD ALSO COME UP FOR CONSIDERATION BEFORE THE DIVISION BENCH OF THE CALCUTTA HIGH COURT IN CIT V. DUNLOP RUBBER CO. LIMITED (SUPRA). THE LEARNED DIVISION BENCH WAS ANSWERING THE FOLLOWING QUESTION : 8 WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AMOUNTS RECEIVED BY THE ASSESSEE (ENGLISH COMPANY) FROM M/S. DUNLOP RUBBER CO. (INDIA) LTD., (INDIAN COMPANY) AS PER AGREEMENT DT. 29TH JAN., 1957 CONSTITUTED INCOME ASSESSABLE TO TAX ? ON CONSIDERING THE ISSUE THE LEARNED BENCH NOTED THAT THE TRIBUNAL WAS OF THE VIEW THAT WHAT WAS RECOUPED BY THE ENGLISH COMPANY WAS PART OF THE EXPENSES INCURRED BY IT. THE LEARNED COURT UPHELD THE SAID FINDING. THE LEARNED BENCH WAS PLEASED TO HOL D THAT SHARING OF EXPENSES OF THE RESEARCH UTILISED BY THE SUBSIDIARIES AS WELL AS THE HEAD OFFICE ORGANISATION WOULD NOT BE INCOME WHICH WOULD BE ASSESSABLE TO TAX. A SIMILAR VIEW WAS TAKEN IN CIT V. STEWARTS & LLOYDS OF INDIA LTD., (SUPRA). CONSEQUENTLY, IN VIEW OF THE JUDGMENT IN SIEMENS, THE FIRST AND SECOND ISSUE WOULD NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW SINCE THEY ARE COVERED AGAINST THE REVENUE. 33 IN MAHINDRA & MAHINDRA LTD. (SUPRA) IT HAS BEEN OBSERVED AND HELD AT PLACITUM D AT PAGE 403 AS U NDER: - REIMBURSEMENT OF EXPENSES DOES NOT HAVE THE INCOME ELEMENT AND, HENCE, CANNOT ASSUME THE CHARACTER OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. 34. IN SCHLUMBERGER ASIA SERVICES LTD. (SUPRA) IT HAS BEEN HELD (HEADNOTE): HELD, DISMISSING T HE APPEAL, THAT REIMBURSEMENT TOWARDS THE CUSTOMS DUTY PAID BY THE ASSESSEE, BEING STATUTORY IN NATURE, COULD NOT FORM PART OF AMOUNT FOR THE PURPOSES OF DEEMED PROFITS, UNLIKE THE OTHER AMOUNTS RECEIVED TOWARDS REIMBURSEMENT. THEREFORE, THERE WAS NO REASO N TO INTERFERE WITH THE ORDERS PASSED BY THE TRIBUNAL AFFIRMING THE VIEW TAKEN BY THE COMMISSIONER (APPEALS). 35. IN MITCHELL DRILLING INTERNATIONAL PTY. LTD (SUPRA) IT HAS BEEN HELD THAT SERVICE TAX IS NOT PART OF THE GROSS RECEIPTS THAT IS TO BE COMPU TED FOR THE PURPOSES OF TAXATION U/S 44BB OF THE I.T. ACT. 36. IN LOUIS BERGER INTERNATIONAL INC. (SUPRA) IT HAS BEEN HELD THAT THE THE REIMBURSEMENT OF SERVICE TAX CANNOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. 37. IN ISLAMIC REPUBLIC OF IRAN SHIPPING (SUPRA) IT HAS BEEN HELD AS UNDER: - THEREFORE, WE ARE OF THE VIEW, THAT SERVICE TAX WHICH IS A STATUTORY LIABILITY, WOULD NOT INVOLVE ANY ELEMENT OF PROFITS AND A SERVICE PROVIDER IS COLLECTING THE SAME FROM ITS CUSTOMERS ON BEHALF OF THE GOVERNM ENT AND, ACCORDINGLY, SAME CANNOT BE INCLUDED IN THE TOTAL RECEIPTS FOR DETERMINING THE PRESUMPTIVE INCOME. THEREFORE, WE SET ASIDE THE ORDER OF THE DRP IN THIS REGARD AND DIRECT THE ASSESSING OFFICER NOT TO INCLUDE THE AMOUNT OF SERVICE TAX IN THE TOTAL R ECEIPTS FOR DETERMINING THE INCOME U/S.44B. 38. IN VEOLIA EAU - COMPAGNIE (SUPRA) IT HAS BEEN HELD THAT .. HENCE REIMBURSEMENT OF SERVICE TAX CANNOT FORM PART OF THE TAXABLE INCOME OF THE ASSESSE. 39. IN SUDARSHAN CHEMICALS INDUSTRIES LTD. (SUPRA ) IT HAS BEEN HELD THAT (HEADNOTE) : UNDER SECTION 80HHC(1) OF THE INCOME - TAX ACT, 1961, IT IS, INTER ALIA, PROVIDED THAT WHERE AN ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF ANY GOODS, THERE SHALL BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSE SSEE, A DEDUCTION OF THE PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOODS. IN OTHER WORDS, IN COMPUTING THE TOTAL INCOME OF SUCH AN ASSESSEE, PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORTS ARE DEDUCTIBLE. THE ABOVE EXPRESSION, NAMELY, PROFI TS DERIVED FROM EXPORTS ALSO FINDS PLACE IN SECTION 80HHC(3)(A). IT SAYS THAT WHERE THE EXPORT IS OF GOODS, THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS. IN FACT, THE EARLIER SECTION 80HHC(3) CONSISTED OF TWO PARTS, NAMELY, WHERE THE ASSESSEE CARRIED ON A BUSINESS AS 100 PER CENT. EXPORTER AND SECONDLY WHERE THE ASSESSEE CARRIED ON A COMPOSI TE BUSINESS. IN THE LATTER CASE, IT WAS PROVIDED THAT THE PROFITS DERIVED FROM EXPORTS SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER BEA RS TO THE TOTAL TURNOVER. THE EMPHASIS IS ON THE WORDS PROFITS DERIVED FROM THE EXPORTS. THEREFORE, WEIGHTAGE MUST BE GIVEN TO SUCH PROFITS. SUCH PROFITS CANNOT BE REDUCED ARTIFICIALLY BY INCLUDING STATUTORY LEVIES IN THE DENOMINATOR, NAMELY, TOTAL 9 TURNO VER. THEREFORE, THE TURNOVER SHOULD BE RESTRICTED TO SUCH RECEIPTS WHICH HAVE AN ELEMENT OF PROFIT IN IT. IT IS ONLY THE ACTUAL SALE PRICE WHICH IS RELEVANT. ANYTHING CHARGED BY THE ASSESSEE BY WAY OF EXCISE DUTY AND SALES TAX CANNOT BE TAKEN INTO ACCOUNT AS THEY DO NOT HAVE ANY ELEMENT OF PROFIT. EVEN, ACCORDING TO ACCOUNTING PRINCIPLES, SUCH LEVIES DO NOT FORM PART OF THE PROFIT AND LOSS ACCOUNT. IN FACT, THEY ARE SHOWN AS LIABILITY IN THE BALANCE - SHEET. IN THE CIRCUMSTANCES, THE ABOVE TWO ITEMS CANNOT BE INCLUDED IN THE TOTAL TURNOVER. SECTION 80HHC IS A SEPARATE CODE BY ITSELF. HENCE, THE GENERAL DEFINITION OF THE WORD TURNOVER OR THE CASE LAW DEALING WITH THE SAID DEFINITION UNDER THE SALES TAX ACT WHICH IS A STATE LEVY, CANNOT BE IMPORTED INTO SECTION 80HHC OF THE ACT. 40. THERE IS NO QUARREL WITH THE PRINCIPLE ENUNCIATED IN THE AFORESAID DECISIONS RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE. HOWEVER, THE FACTS OF THE PRESENT CASE ARE ENTIRELY DIFFERENT. WE ARE HERE NOT CONCERNED WITH THE REIMB URSEMENT OF ANY EXPENSES ALLOWABLE UNDER THE ACT OR PAYMENT OF ANY INDIRECT TAX WHICH THE ASSESSEE MAY HAVE TO PAY IN THE COURSE OF HIS BUSINESS. IN FACT, WE ARE CONCERNED WITH THE TAX WHICH WAS REQUIRED TO BE PAID AFTER ASCERTAINMENT OF THE NET INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR, NOT DEDUCTIBLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, ALL THE DECISIONS RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 41. UNDE R THE ACT, THE DEFINITION OF INCOME IN CLAUSE (24) OF SECTION 2 IS AN INCLUSIVE DEFINITION. ANYTHING WHICH CAN PROPERLY BE DESCRIBED AS INCOME IS TAXABLE UNLESS, OF COURSE, IT IS EXEMPTED UNDER ONE OR THE OTHER PROVISIONS OF THE ACT. IT IS FROM THE SAID ANGLE WE ARE OF THE OPINION THAT THE AMOUNT PAID BY THE POWER PURCHASERS BY WAY OF TAX ON THE AMOUNT OF TARIFF CHARGES RECEIVED BY THE ASSESSEE CAN BE TREATED AS THE INCOME OF THE ASSESSEE. IT CANNOT BE OVERLOOKED THAT THE SAID AMOUNT IS NOTHING BUT A TA X UPON THE PAYMENTS RECEIVED BY THE ASSESSEE. BY VIRTUE OF THE OBLIGATION UNDERTAKEN BY THE POWER PURCHASERS TO REIMBURSE THE TAX TO THE ASSESSEE DOES NOT MEAN THAT IT IS NOT THE INCOME IN THE HANDS OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES AND KEEPING IN VIEW THE RATIO OF THE DECISIONS REFERRED IN PARA 25 TO 29 OF THIS ORDER, WE HOLD THAT THE PAYMENT OF TAX RECEIVED BY THE ASSESSEE IS A PART OF TARIFF CHARGES AS PER AGREEMENTS (SUPRA) AND, HENCE, IT IS AN INCOME IN THE HANDS OF THE ASSESSEE AND, THEREFORE, THE SAID AMOUNT WITHOUT ALLOWING ANY DEDUCTION IS LIABLE TO BE INCLUDED IN THE INCOME OF THE ASSESSEE. ACCORDINGLY, THE LD. CIT(A) WAS FULLY JUSTIFIED IN UPHOLDING THE ORDER OF THE A.O. IN TREATING THE SAME AS INCOME. THE GROUN D TAKEN BY THE ASSESSEE IS, THEREFORE, REJECTED . 6. FROM THE ABOVE IT IS EVIDENT THE ISSUE ADJUDICATED BY THE TRIBUNAL IN FAVOUR OF THE REVENUE IS IDENTICAL AND TRIBUNAL MADE REFERENCE TO PLETHORA OF DECISION IN THIS REGARD. ON PERUSAL OF THE ABOVE ORDER OF THE TRIBUNAL , WE FIND THAT IT IS A BINDING ON US TO FOLLOWING THE SAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE. ACCORDINGLY, GROUND NO.1 IS DECIDED AG AINST THE ASSESSEE AND THE GROUND IS THEREFORE DISMISSED . 7. REGARDING GROUND NO.2 , LD COUNSE L MENTIONED THAT THE ISSUE RELATES TO THE DISALLOWANCE OF EXPENDITURE OF RS. 2,69,64,162/ - U/S 14A READ WITH RULE - 8D OF THE IT RULES, 1963. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO THE ADDITIONAL GROUND FILED BY THE ASSESSEE VIDE LETTER 21.9.20 13 ARGUING THAT THE ADDITIONAL GROUND BEING LEGAL IN NATURE MAY BE ADMITTED AND THE SAID ADDITIONAL GROUND READS AS UNDER: THE LD CIT (A), WHILE UPHOLDING THE DISALLOWANCE OF RS. 2,69,64,162/ - U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 ERRED IN NOT HOLDING THAT IN ANY CASE, SUCH DISALLOWED SUM COULD NOT BE ADDED BACK TO THE COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT. THE LD CIT (A) OUGHT TO HAVE DIRECTED THE AO NOT TO ADDED BACK RS. 2,69,64,162/ - WHILE COMPUTING BOOK PROFIT U/ S 115JB OF THE ACT. 10 8. IN THIS REGARD, LD COUNSEL ALSO BROUGHT OUR ATTENTION TO THE LETTER CONTAINING THE PRAYER FOR ADMITTING THE ADDITIONAL GROUND IN VIEW OF THE VARIOUS DECISIONS WHICH READ AS UNDER: I. NATIONAL THERMAL POWER CORPORATION VS. CIT [229 ITR 383 (SC)] II. JUTE CORPORATION OF INDIA LTD VS. CIT [187 ITR 688 (SC)] III. AHMEDABAD ELECTRICITY CO. LTD VS. CIT [199 ITR 351 (BOM) (FB)] 9. ON THE OTHER HAND, LD DR DUTIFULLY OPPOSED THE ADMISSION OF THE ADDITIONAL GROUND AND ALSO FILED CERTAIN DECISIONS OF THE TRIBUNAL IN FAVOUR OF THE REVENUE IN THIS REGARD. DURING THE REBUTTAL TIME, LD COUNSEL MENTIONED THAT THE ADDITIONAL GROUND AND GROUND NO.2 MAY BE REMANDED TO THE FILE OF THE AO FOR FRESH CONSIDERATION OF THE ISSUE. CONSIDERING THE FACT THAT THE REVENUE AUTHORITIES HAVE NOT REJECTED THE ARGUMENTS TAKEN BEFORE THE AO THAT NO EXPENDITURE IS INCURRED FOR EARNING OF THE EXEMPT INCOME , LD DR HAS NO OBJECTION IN THIS REGARD. PARTIES HAVE FILED SET OF DECISIONS IN THEIR RESPECT FAVOUR AND REQUESTED US FOR CON SIDERING THE SAME. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE ADDITIONAL GROUND FILED BY THE ASSESSEE. ON THE ISSUE OF ADMISSION OF ADDITIONAL GROUND, WE FIND THE ISSUE RAISED IN THE SAID GROUND UN DISPUTEDLY A LEGAL ONE AND IT GOES TO THE ROOT OF THE MATTER. THEREFORE, WE ADMIT THE SAME. ON HEARING BOTH THE LD REPRESENTATIVE OF THE PARTIES AND C ONSIDERING THE CONCURRENCE OF BOTH THE PARTIES TO SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND REM AND THE MATTER TO THE FILES OF THE AO FOR ADJUDICATING THE ISSUE AFRESH AFTER TAKING INTO CONSIDERATION OF THE ADDITIONAL GROUND , WE FIND THERE IS MERIT AND WE ORDER ACCORDINGLY. VARIOUS DECISIONS OF THE TRIBUNAL FILED BEFORE US AND ALSO THE RELEVANT PRECE DENTS IN FORCE IN THIS REGARD SHOULD BE CONSIDERED BY THE AQO IN THE REMAND PROCEEDINGS. W E REMIT THE MATTER TO THE FILES OF THE AO FOR DECIDING THE ISSUE AFRESH IN ACCORDANCE WITH LAW . DURING THE SET AS IDE PROCEEDINGS, AO SHALL GRANT A REASONABLE OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.2 AND THE ADDITIONAL GROUND RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 11 ./I.T.A. NO.7413/M/2011 ( BY REVENUE) 11. THIS APPEAL FILED BY THE REVENUE ON 3.11.2011 IS AGAINST THE ORDER OF THE CIT (A) - 9, MUMBAI DATED 8.8.2011 FOR THE ASSESSMENT YEAR 2008 - 2009. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN IN LAW, THE LD CIT (A ) ERRED IN DIRECTING THE AO TO TREAT THE INTEREST INCOME ON LOAN GIVEN TO EMPLOYEES, MARGIN DEPOSITS AND CONVERTING DEBENTURE AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES AS ASSESSED BY THE ASSESSING OFFICER. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE AO TO DE LETE THE PROVISIONS OF THE INCOME TAX RECOVERABLE FROM THE CUSTOMERS AMOUNTING TO RS. 3,96,76,000 / - FOR THE PURPOSE TO COMPUTE THE BOOK PROFITS U/S 115JB OF THE ACT. 12. AT THE OUTSET, LD COUNSEL FILED A CHART AND MENTIONED THAT G ROUND NO.1 RELATES TO THE TREATING OF THE INTEREST INCOME (I) ON LOAN GIVEN TO THE EMPLOYEES, MARGIN DEPOSITS AND (II) CONVERTIBLE DEBENTURES AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHE R SOURCES AS ASSESSED BY THE AO. LD COUNSEL MENTIONED THAT THE FIRST LIMB OF THE GROUND IS COVERED AND DECIDED IN FAVOUR OF THE ASSESSEE VIDE THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2000 - 2001 TO 2001 - 2002 IN ITA NO.6430/M/2003 AND ITA NO.439/M/2005, ORDER DATED 11.8.2008 VIDE PARA 12 TO 16 OF THE TRIBUNALS ORDER. LD COUNSEL READ OUT THE SAID PARAS WHICH ARE AS UNDER: 12. AS FAR AS THE ISSUE BEFORE US CONCERNED, IN OUR OPINION, THE LIMITED CONTROVERSY IS WHETHER THE SAID INTEREST INC OME CAN BE ASSESSED UNDER THE HEAD PROFITS AND GAINS OF THE BUSINESS AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. WE MAKE IT CLEAR AS SUBMITTED BY THE LD COUNSEL THAT WE ARE NOT CONSIDERING WHETHER THE SAID INCOME IS DERIVED FROM INDUSTRIAL UNDER TAKING BUT WE HAVE TO ONLY CONSIDER WHETHER THE SAID INCOME SHOULD BE ASSESSED UNDER THE HEAD PROFITS AND GAINS OF THE BUSINESS. OUR ANSWER IS YES FOR THE TWO REASONS (I) FOR AY 1998 - 99 AD 1999 - 2000 THE REVENUE HAS NOT CHALLENGED THE FINDING OF THE CI T (A) ON THIS ISSUE AND WHICH HAS REACHED FINALITY AND (II) THOUGH IN THE STRICT SENSE, THIS CANNOT BE TREATED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING BUT IT MAY BE THE INCOME ATTRIBUTABLE TO THE INDUSTRIAL UNDERTAKING AS IT HAS SOME NEXUS WITH T HE BUSINESS OF THE INDUSTRIAL UNDERTAKING. MOREOVER, IN THE CASE OF KOSHIKA TELECOM LTD (SUPRA), THE HONBLE DELHI HIGH COURT HAS HELD THAT THE DEPOSIT FOR MARGIN MONEY KEPT BY THE ASSESSEE WITH THE BANK FOR SECURING THE BANK GUARANTEE WAS INEXTRICABLY LI NKED WITH THE BUSINESS OF THE ASSESSEE AND HENCE, IT HAS TO BE TREATED AS INCOME FROM BUSINESS INCOME. 13. AFTER CONSIDERING THE FACTS OF THE CASE AS DISCUSSED ABOVE, WE ARE OF THE OPINION THAT THE CIT (A) HAS RIGHTLY HELD THAT INTEREST FROM MARGIN MONEY K EPT WITH THE BANK AS WELL AS THE INTEREST ON THE LOANS TO THE EMPLOYEES IS TO BE ASSESSED AS THE BUSINESS INCOME . WE MADE IT CLEAR, AS SUBMITTED BY THE LD COUNSEL THAT FOR LIMITED PURPOSE OF DETERMINING THE HEAD OF INCOME AND THIS ISSUE IS NOT DECIDED ON T HE ISSUE THAT WHETHER FOR CLAIMING DEDUCTION U/S 80IA / 80IB THIS INCOME SHOULD BE 12 TREATED AS PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING. GROUND NO.1 TAKEN BY THE REVENUE IS DISMISSED. 13. CONSIDERING THE ABOVE SETTLED POSITION OF THE ISSUE, WE ARE OF THE OPINION THAT THIS PART (I) OF THE GROUND NO.1 RAISED BY THE REVENUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 14. THE SECOND LIMB OF THE GROUND NO.1 RELATES TO WHETHER THE INTEREST EARNED ON NON - CONVERTIBLE DEBENTURES SHOULD BE TREATED AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES AS TREATED BY THE AO . DURING THE FIRST APPELLATE PROCEEDINGS, CIT (A) CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE RELYING ON THE EARLIER ORDERS OF THE CIT (A) FOR THE AYS 2005 - 06 AND 2007 - 08. BEFORE US, LD COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND RELIED ON THE ORDER OF THE CIT (A) AND SUBMITTED THAT THE ASSESSEE EARNED INTEREST ON NCD OF RS. 4,89,767/ - ISSUED BY ESS AR OIL LIMITED IN THE COURSE OF THE BUSINESS OF THE APPELLANT. THEREFORE, THE INTEREST INCOME EARNED ON SUCH INVESTMENTS SHOULD BE CONSIDERED AS BUSINESS INCOME. 15. PER CONTRA, LD DR HEAVILY RELIED ON THE ORDER OF THE AO AND SUBMITTED THAT THESE RECEIP TS BEING INTEREST EARNED BY THE ASSESSEE ON THE DEBENTURES SHOULD BE TREATED AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. 16. WE HAVE HEAD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE US ON THE ISSUE OF TREATING THE INTEREST INCOME EARNED ON THE DEBENTURES. THE INTEREST INCOME RECEIVED BY THE ASSESSEE ON THE DEBENTURES CANNOT BE CONSIDERED AS BUSINESS INCOME AS HELD BY THE ASSESSEE RELYING ON THE DECISIONS OF THE REVENUE AUTHORITIES F OR THE EARLIER YEARS. IN PRINCIPLE, THE CLAIM OF THE ASSESSEE AND THE DECISION OF THE CIT (A) ARE NOT ACCEPTABLE CONSIDERING THE FACT THAT THE INTEREST BEING RELATED TO THE DEBENTURES, CANNOT BE CONSIDERED AS BUSINESS INCOME. AS SUCH, NO SUPPORTING MATERI AL WAS BROUGHT TO OUR NOTICE BY THE LD COUNSEL TO SUPPORT THE CLAIM OF THE ASSESSEE. THEREFORE, THE ORDER OF THE CIT (A) ON THIS ISSUE IS REVERSED AND THIS PART OF THE GROUND NO.1 RAISED BY THE REVENUE IS ALLOWED . 13 17. GROUND NO.2 RELATES TO CONFIRMING OF THE ADDITION FOR THE PROVISIONS OF THE INCOME TAX RECOVERABLE FROM THE CUSTOMERS AMOUNTING TO RS. 3,96,76,000/ - FOR THE PURPOSE OF COMPUTING THE BOOK PROFITS U/S 115JB OF THE ACT . THIS ISSUE IS IDENTICAL TO THE GROUND NO.1 RAISED BY THE ASSESSEE VIDE APP EAL ITA NO.7438/M/2011 (SUPRA) , WHICH IS ADJUDICATED BY US VID E PARAS 5 AND 6 OF THIS ORDER. IN THE ASSESSEES APPEAL, WE HAVE DECIDED THE MATTER IN FAVOUR OF THE REVENUE BY RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY 2003 - 2004 REPORTED IN 142 ITD 251 (MUM) (SUPRA). THEREFORE, FOLLOWING THE SAME, THE ISSUE RAISED BY THE REVENUE , VIDE GROUND NO.2 OF THIS APPEAL, IS DECIDED AGAINST THE ASSESSEE. A CCORDINGLY , THE GROUND NO.2 IS ALLOWED . 18. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED . ORDER PRONOU NCED IN THE OPEN COURT ON 24 TH SEPTEMBER , 2013. SD/ - SD/ - ( AMIT SHUKLA ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI ; 24 .9 .2013 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI