2014 (10) TMI 942 - AT - Income Tax

Tribunal rules interest income of Rs. 3,46,97,166/- belongs to WBERC, not assessee. Interest income not taxable.

DCIT, Circle-2, Kolkata Versus M/s West Bengal State Electricity Transmission Co. Ltd.

The tribunal dismissed the Revenue's appeal, ruling that the interest income of Rs. 3,46,97,166/- belonged to WBERC and not the assessee. It concluded ... Accrual of income - Interest income - income out of the investment made out of balance of UI charges which belonged to WBERC which was a Commission formed by the Government - Held that:- This Interest did not belong to the assessee nor it was an income in the hands of SLDC and the said income should not be considered in the assessment of the assessee. It is a fact that the Income arising out of the Investments made out of the Balance of UI charges, actually belonged to WBERC which was a Commission formed by the Government and consequently such interest being the income of the Government, there should not arise any taxability thereof. The moneys lying in the UI account always belonged to the Government, viz. under the name of WBERC. It was only for the convenience in the matter of making investment in deposits of UI balances that the PAN of the assessee had been utilized. However, just because of utilization of PAN resulting in showing the TDS in Form No.26AS, could not be considered as any alleged income in the hands of the assessee. The Assessing Officer was repeatedly requested by the assessee to go through the relevant documents explaining how UI charges were being recovered, utilisation of UI charges and investments required to be made. This interest income of ₹ 3,46,97, 166/- belongs to WBERC and not of the assessee. - Decided in favour of assessee. MAT computation - Held that:- As this interest income does not belong to the assessee. Hence, this issue has become academic and in the hands of the assessee, this income cannot be added while computing the income u/s.115JB of the Act. This issue of the Revenue's appeal is dismissed. Issues Involved:1. Deletion of addition on account of interest income.2. Computation of book profit under Section 115JB of the Income Tax Act.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Interest Income:The first issue pertains to the deletion by the Commissioner of Income Tax (Appeals) [CIT(A)] of the addition made by the Assessing Officer (AO) on account of interest income amounting to Rs. 3,46,97,166/-. The Revenue contended that the CIT(A) erred in law and facts by observing that the interest income did not belong to the assessee company and by deleting the addition without providing reasons.The assessee argued that the interest income was earned on deposits made with Axis Bank Ltd. and that these deposits were related to West Bengal State Electricity Transmission Co. Ltd. (WBSETCL), a West Bengal Government Enterprise. The deposits were made under the directive of the West Bengal Electricity Regulatory Commission (WBERC) as part of the State Load Dispatch Centre (SLDC) UI Fund. The interest income was not offered as income by the assessee because it was argued that the funds and the interest thereon belonged to WBERC, not the assessee.The AO, however, added the interest income to the assessee's total income, stating that the SLDC was merely a custodian of the account and did not have proprietary rights to the funds or incidental incomes. The AO maintained that the funds deposited were the assessee's and thus, the interest income should be taxed in the hands of the assessee.Upon appeal, the CIT(A) deleted the addition, agreeing with the assessee's contention that the interest income belonged to WBERC. The CIT(A) noted that the funds and interest income were regulated by the WBERC and that a trust under the name SLDC-UI-Fund-WBSETCL was created to manage these funds. The CIT(A) concluded that the interest income was actually the income of the government and not taxable in the hands of the assessee.The tribunal upheld the CIT(A)'s decision, stating that the interest income of Rs. 3,46,97,166/- belonged to WBERC and not the assessee. The tribunal noted that the PAN of the assessee was used for convenience, but this did not change the ownership of the funds or the interest income. The tribunal confirmed that the interest income was not taxable in the hands of the assessee, thus dismissing the Revenue's appeal on this issue.2. Computation of Book Profit under Section 115JB of the Income Tax Act:The second issue involved the computation of book profit under Section 115JB of the Income Tax Act. The AO included the interest income of Rs. 3,46,97,166/- while computing the book profit under Section 115JB. The CIT(A) deleted this addition, stating that the interest income did not belong to the assessee and thus should not be included in the book profit.The tribunal noted that this issue was consequential to the first issue. Since it had already been determined that the interest income did not belong to the assessee, it could not be included in the computation of book profit under Section 115JB. Therefore, the tribunal dismissed the Revenue's appeal on this issue as well.Conclusion:In conclusion, the tribunal dismissed the Revenue's appeal, confirming that the interest income of Rs. 3,46,97,166/- belonged to WBERC and not the assessee, and thus, it should not be taxed in the hands of the assessee nor included in the computation of book profit under Section 115JB.