2016 (4) TMI 1238 - AT - Income Tax

Appeals partly allowed: strategic investments excluded, verification required.

The Tribunal partly allowed the appeals in the case. The first ground was dismissed as it awaited the High Court decision. The second ground was partly ... Taxing of sales tax benefit received under power policy in respect of wind mills - revenue or capital receipt - application of ' purpose test' - whether the said subsidy was for the purpose of giving an incentive to set up the infrastructure in the form of windmill to generate power in the State and not to meet the cost of the windmill? - Held that:- In the return of income for Ay 2005-06, the sales tax benefit related to the assessee’s wind farm project in Maharashtra, was treated by the assessee as a capital receipt. The said receipt was on account of transfer of sales tax benefit/ entitlement to M/s Tata Motors Ltd. under the agreement for Transfer of Sales Tax Incentive available from Wind Farm Project. In the assessment order, the said amount was taxed as revenue receipt. The CIT(A) and the ITAT confirmed the taxing of the said benefit as revenue receipt. Taxing of sales-tax subsidy as revenue receipts instead of capital, it has been admitted by both the parties that, this issue has been decided against the assessee by the Tribunal and the matter is admitted before the Hon’ble High Court. The assessee has filed declaration under section 158A(1) claiming that identical question of law is pending before the Hon’ble High Court and whatever may be the final decision on the question of law, the same shall be followed and assessee will not raise any question before any appellate authority or before the High Court under section 260A. - Decided against assessee. Disallowance of expenditure under section 14A r.w. Rule 8D - Held that:- So far as disallowance under section 14A is concerned, the same is required to be made, as the assessee has earned exempt income for which no expenditure has been allocated or offered for the purpose of disallowance under section 14A. Only issue canvassed before us by the Ld. Counsel is that, investment made in the partnership firm should be removed from the working of Rule 8D and accordingly disallowance should be calculated and modified. To this extent, we agree with the contention raised by the Ld. Counsel and direct the AO that, in so far as investment in partnership firm is concerned, which is a strategic investment, the same should be excluded from the working of the value of average investment as provided in Rule 8D(2)(iii). Accordingly, disallowance under section 14A r.w. Rule 8D(2) should be worked out after removing the investment made in partnership firm from the average investment. Disallowance of claim of deduction under section 80IA(4) - interest on delayed payment of sale proceeds - Held that:- It is noticed that the nature of interest is on account of delayed payment of sale proceeds and not on some fixed deposits. The allowability of deduction under section 80IA on such an interest, i.e. on delayed payment of sale proceeds stands covered by the decision in the case of CIT vs. Vidhyut Corporation [2010 (4) TMI 229 - BOMBAY HIGH COURT]. The Tribunal also in AY 2009-10 in assessee’s own case after following the principle laid down by the Hon’ble jurisdictional High Court in the above case has decided this issue as held what was received by the assessee from the purchaser was a component of interest towards delayed payment of the price of the goods sold, supplied and delivered by the assessee. There could be no dispute about the position that the price realized by the assessee from the sale of goods manufactured by the price realized by the assessee from the sale of goods manufactured by the industrial undertaking constituted a component of the profits and gains derived from the eligible business. The purchaser, on account of the delay in payment of the sale price also paid interest to the assessee. This formed a component of the sale price also paid interest to the assessee. This formed a component of the sale price and was paid towards the lag which had occurred in the payment of the price of the goods sold by the assessee. On these facts, therefore, the payment of interest on account of the delay in payment of the sale price of the goods supplied by the undertaking partook of the same nature and character as the sale consideration - Decided in favour of assessee Issues Involved:1. Taxing of sales tax benefit received under power policy in respect of windmills.2. Disallowance of expenses under Section 14A read with Rule 8D.3. Disallowance of claim for deduction under Section 80-IA(iv).4. Levy of interest under Section 234-C.Detailed Analysis:1. Taxing of Sales Tax Benefit Received Under Power Policy in Respect of Windmills:The primary issue was whether the sales tax subsidy received by the assessee under the power policy of the State Government for setting up windmills should be treated as a capital receipt or a revenue receipt. The assessee argued that the subsidy was a capital receipt, not liable to tax, as it was an incentive for setting up infrastructure. However, the CIT(A) and the Tribunal treated the subsidy as a revenue receipt liable to tax. The matter was already pending before the Hon'ble High Court, and the assessee had filed a declaration under Section 158A(1) agreeing to abide by the High Court's final decision. Consequently, this ground was dismissed.2. Disallowance of Expenses Under Section 14A Read with Rule 8D:The assessee had shown dividend income from mutual funds and shares, which is exempt from tax. The AO disallowed Rs. 26,009/- under Section 14A read with Rule 8D, which the CIT(A) confirmed. The assessee contended that the investment in the partnership firm should be excluded from the calculation as it was a strategic investment with no share income received in the year. The Tribunal agreed and directed the AO to exclude the investment in the partnership firm from the average investment calculation under Rule 8D(2)(iii) and recalculate the disallowance.3. Disallowance of Claim for Deduction Under Section 80-IA(iv):The issue was whether the interest income on delayed payment of sale proceeds qualified for deduction under Section 80-IA(iv). The assessee argued that such interest should be considered as income from eligible business, citing the Bombay High Court's decision in CIT vs. Vidhyut Corporation. The Tribunal agreed, noting that the interest was on account of delayed payment for the sale of power generated by the windmill, thus partaking the same nature as the sale consideration. The AO was directed to verify the nature of the delayed payment interest and decide accordingly.4. Levy of Interest Under Section 234-C:The assessee contested the levy of interest under Section 234-C amounting to Rs. 8,759/-. However, no arguments were presented before the Tribunal on this issue, leading to its dismissal as not pressed.Conclusion:The Tribunal's consolidated order addressed each ground of appeal comprehensively. Ground No. 1 was dismissed due to the pending High Court decision. Ground No. 2 was partly allowed, directing the AO to exclude strategic investments from the disallowance calculation. Ground No. 3 was allowed, directing the AO to verify and apply the jurisdictional High Court's decision. Ground No. 4 was dismissed due to lack of argument. The appeals were thus partly allowed.