2025 (7) TMI 369 - AT - Income Tax

Educational society payments allowed as statutory obligations under NCWA, not employee welfare expenses under section 40A(9)

The ITAT Hyderabad allowed the assessee's appeal on multiple grounds. The tribunal deleted the disallowance of payments to an educational society under ... Disallowance of payment/grant made to Singareni Educational Society u/s 40A(9) - Assessee submitted that the said educational society is a body constituted for running educational institutions established by the assessee for the benefit of its employees - AO disallowed the claim of the assessee by holding that the payment in question made by the assessee to the educational society would not be an allowable expenses u/s 40A(9) as this payment is not made for the expenses provided u/s 36(1)(iv) &(iv) - HELD THAT:- We note that this issue has been now considered and decided by the Hon'ble jurisdictional High Court in assessee’s own case for the A.Ys 2006-07 to 2008-09 [2024 (2) TMI 1498 - TELANGANA HIGH COURT] held that the benefit extended by the assessee as per the NCWA was an obligation under the statutory document as held in case of Mohan Mahto v. Central Coal Field Ltd [2007 (9) TMI 727 - SUPREME COURT] and therefore, the same is not considered as an expenditure incurred towards employees welfare but for discharging the statutory obligation. Following the judgement of the Hon'ble jurisdictional High Court where the assessee has incurred the expenditure towards electricity expenditure of the employees/ workers as per the terms of the said NCWA, the education provided by the assessee to the employees in terms of the NCWA cannot be given a different treatment and therefore, the issue is now covered by the judgment of the Hon'ble jurisdictional High Court in favour of the assessee. Accordingly, the addition made by the AO and sustained by the learned CIT (A) is deleted. Investment Allowance u/s 32AC disallowed - DR submitted AO has not only disallowed the claim of the assessee by treating the same as not falling in the ambit of manufacturing/production of goods or article but also on the factual aspect that the assessee has failed to prove that the alleged plant & machinery was set up/installed during the period relevant to the A.Y 2015-16 and 2016-17 - HELD THAT:- Despite the amendment in section 32(1)(iia) of the Act, no corresponding amendment is made in section 32AC of the Act and therefore, the intention of the Legislature is clear that the benefit of section 32AC(1) is not available to a company engaged in the business of generation of power. To maintain the rule of consistency, we follow the earlier decision in the case of ACIT vs. Hinduja National Power Corporation Ltd [2025 (4) TMI 81 - ITAT HYDERABAD] and consequently, this issue is decided against the assessee and the impugned order of the learned CIT (A) for the A.Ys 2015-16 and 2016-17 are upheld. Disallowance u/s 40(a)(ia) - TDS u/s 194A - TDS on interest on land compensation deposited in court as per court order - HELD THAT:- we note that this issue is covered by the decision of this Tribunal in assessee’s own case for the A.Y 2009-10 to 2011- 12 [2021 (5) TMI 735 - ITAT HYDERABAD] and further for the A.Ys 2012-13 [2021 (10) TMI 1468 - ITAT HYDERABAD], AY 2013-14 & AY 2014-15 [2021 (5) TMI 914 - ITAT HYDERABAD] held that Interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be in the income of the year in which it is received. Now coming to the case on hand, it is clear that the assessee has deposited the amount with the Court, but, it has not actually paid to the actual recipients directly i.e., pattadars. On analysis of the above cited section and Circulars, it is clear that the assessee is not responsible for deducting tax deduction at source and assessee is also not sure that when the amount shall be paid to the actual recipients/pattadars. In our considered opinion, the addition made in this regard is not sustainable in the eyes of law and, therefore, the addition is deleted. Accordingly, grounds raised on this issue are allowed in favour of the assessee. Disallowance of expenditure incurred for the development of the coal mines which was abandoned - nature of expenses - HELD THAT:- As decided in own case for the A.Y 2015-16 assessee has debited to the capital expenditure in the P&L account in respect of those mines which are not in operation or the mines were unsuccessful for coal mines. It is also clear that the breakups were filed before the CIT(A) which has been incorporated by him in his order. We find that in most of the cases mines were closed and no operations could be carried out, the capital work in progress relating to that mine development expenditure could not be capitalized. Therefore, the capital work in progress relating to the mine development expenditure incurred was written off since no asset could be created. Any expenditure which does not bring any additional advantage to the business of the assessee is revenue expenditure. The expenditure was basically of revenue nature and incurred wholly and exclusively for the purpose of business. As decided in the case of Hindustan Aluminum Corporation Ltd. [1986 (1) TMI 88 - CALCUTTA HIGH COURT] was applicable and following that decision held that the expenditure was allowable as incurred wholly and exclusively for the purpose of the assessee's business. Claim of depreciation @ 15% was restricted by AO to 10% but allowed by the CIT (A) - assessee is engaged in the business of coal mines and he is extracting coal from open cast mines as well as underground mines - HELD THAT:- Issue covered by the decision of this Tribunal in assessee’s own case for the A.Y 2011-12 [2021 (5) TMI 735 - ITAT HYDERABAD] A.Ys 2012-13 [2021 (10) TMI 1468 - ITAT HYDERABAD], AY 2013-14 & AY 2014-15 [2021 (5) TMI 914 - ITAT HYDERABAD] as per the schedule of depreciation, the roads are falling in the asset as building and not as plant and machinery. However, in the case of the assessee, the work carried out by the assessee is within the Mines and very much part and parcel of the coal mines of the assessee. Undisputedly, the coal mines are considered as plant and machinery for the purpose of depreciation and therefore, any work carried out in the Mines which is essential for the operations of extraction of the coal from the Mines will partake the character of plant and machinery. Accordingly, we do not find any merits in the contention of the learned DR on this issue. Issues: (i) Whether payments/grants made to Singareni Educational Society are disallowable under section 40A(9) of the Income-tax Act, 1961; (ii) Whether the assessee is entitled to investment allowance under section 32AC of the Income-tax Act, 1961 in respect of power generation plant and machinery claimed for the relevant assessment years; (iii) Whether disallowance under section 40(a)(ia) for non-deduction of TDS (section 194) was rightly deleted by the CIT(A); (iv) Whether expenditure incurred on abandoned mine development represents revenue expenditure allowable under section 37 or capital expenditure; (v) Whether depreciation on certain mine-related civil works is to be allowed at 15% as plant and machinery or restricted to 10% as building.Issue (i): Applicability of section 40A(9) to grants paid to Singareni Educational Society.Analysis: The payments were made to an educational society established to run schools and colleges pursuant to terms in the National Coal Wage Agreement (NCWA). The NCWA has binding force and creates a statutory obligation to provide such facilities. Precedent and prior decisions in the assessee's own case treat similar expenditures made to comply with NCWA as not being employee-welfare donations outside the statutory obligation.Conclusion: In favour of the Assessee; disallowance under section 40A(9) deleted for the relevant assessment years.Issue (ii): Entitlement to investment allowance under section 32AC for power generation assets.Analysis: Section 32AC confines investment allowance to companies engaged in manufacture or production of any article or thing. The statutory text and provisos (and related provisions in section 32(1)(iia), 32AD) do not extend the benefit to enterprises engaged in generation, transmission or distribution of power. Precedent applying statutory interpretation and strict construction of exemption/deduction provisions supports limiting the benefit to the class specified by Parliament.Conclusion: Against the Assessee; investment allowance under section 32AC refused for the power generation assets for the years in question.Issue (iii): Validity of deletion of disallowance under section 40(a)(ia) for non-deduction of TDS under section 194.Analysis: The facts show deposits/payments made pursuant to court directions or in contexts where ultimate beneficiaries/ownership were not finally ascertainable at the time of deposit. Prior Tribunal orders in the assessee's own case and applicable administrative clarifications address TDS responsibility in such situations.Conclusion: In favour of the Assessee; deletion of the section 40(a)(ia) addition upheld.Issue (iv): Characterisation of expenditure on abandoned mine development (revenue v. capital).Analysis: Expenditure on mine development that did not result in creation of an enduring asset and where projects were abandoned was treated as not bringing into existence any capital asset; relevant authorities support allowing such amounts as revenue expenditure when no asset came into existence.Conclusion: In favour of the Assessee; such expenditures allowed as revenue expenditure.Issue (v): Rate of depreciation on mine-related civil works (15% plant and machinery v. 10% building).Analysis: Works performed wholly within and as integral to coal mines, necessary for extraction operations, functionally form part of plant and machinery for the mines. Authorities and earlier Tribunal decisions in the assessee's own case treating similar mine works as plant and machinery were applied.Conclusion: In favour of the Assessee; depreciation at 15% allowed on the contested mine-related works.Final Conclusion: The appeals result in mixed outcomes: the payments to the educational society, the deletion of TDS-related disallowance, the treatment of abandoned mine-development expenditure as revenue, and the 15% depreciation classification are allowed for the assessee; the claim for investment allowance under section 32AC for power generation assets is rejected. The combined effect is that the assessee's appeals are partly allowed (2015-16 and 2016-17) and allowed (2020-21), while the Revenue's appeals are dismissed.Ratio Decidendi: Where statute expressly confines a deduction or allowance to a specified class of assessees, the provision must be read strictly and the benefit cannot be extended to classes not enumerated; a payment made to fulfil a binding statutory obligation under a recognised wage settlement is not disallowable under section 40A(9) as a voluntary contribution.