TaxTMI 
TaxTMI 
2012 (12) TMI 248
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....xtricably interlinked with the business of the assessee and the same ought to have been treated by the Ld. A.O as business income of the assessed enterprise, after reducing the cost of expenditure thereof and hence the deduction U/s. 801A of the income ought to have been determined accordingly and the taxable income under normal provision of the Act ought to have been followed accordingly. 3. That without prejudice to above, and assuming but not admitting that the aforesaid receipts/ income are to be excluded in computing the "Power Profits" u/s. 801A, the Ld. AO as well as the CIT (A) ought to have taken into account the expenditure incurred against the aforesaid receipts booked as expenses in appropriate recorded heads of accounts & shown in the debit side of the Profit & Loss Account so as to determine the exact income / receipt which could have been subject to tax or to be excluded in computing the deduction of 'power profit' U/s. 801A of the Act. 4. For that the profit on sale of fixed item being not an item for computing normal income under the head business & profession ought to have been excluded from the other receipts. 5. For that the disallowance of Rs.5,20,000 ....
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....der the normal provisions of the Act was "Nil" and the consequently the tax payable under normal computation was "Nil". Accordingly OPGC was liable for MAT u/s. 115JB of the Act and MAT u/s. 115JB of the Act was also paid. Finding some mistake in the calculation of depreciation consequent to I.T. Act in past years, the revised return was filed on 10.05.2005. The return filed was selected for scrutiny & accordingly notices u/s. 143(2) & 142(4) of the Act was issued. In response to notice U/s. 142(1)/143(2) of the I.T. Act, the assessee appeared before the Ld. Assessing Officer from time to time. In course of appearance, the assessee was noticed by the Ld. A.O. proposing to treat the other income as disclosed in schedule-10 of the Audited Accounts, as not eligible for deduction U/s. 80 IA of the I.T. Act, 1961 & hence taxable. Referring to the other income as disclosed in the schedule-10 of the financial statement such as: (i) interest from investment/deposits amounting to Rs. 10,37,36,363 (ii) interest income from employees & others amounting to Rs.37,07,457 (iii) receipt of rent & electricity charges amounting to Rs. 32,31,054 (iv) sundry receipt amounting to Rs. 63,82,....
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....penses written off. The aforesaid treatment of charging off 1/7th of the total expenditure in the books of account are also in consonance with the provision of the Income Tax Act as has been pronounced by the Hon'ble Supreme Court in Madras Industrial Investment Corporation Ltd V. CIT(1997)2251TR 802. The order U/s. 143(3) of the IT. Act, was passed by the Ld, A.O. on dated 21.12.2006. In the said order, the Ld. A.O. while computing the income under normal provisions of the Act has ignored, misconstrued/ not appreciated the facts as placed before him and on the contrary to the provisions of the statute as well as law not only denied the claim U/s. 801A of the IT. Act, 1961, as claimed by the assessee (restricting the same to the tune of Rs. 1,71,69,11,069) but also disallowed the Bond expenses amounting to Rs. 60,48,223, donation to the Chief Ministers Relief fund of Rs. 20,20,000, periphery development expenses to the tune of Rs. 5,20,000. The alternative submission of the assessee company that the income excluded from the 'Power Profits' under different heads having some direct expenses against such income / receipts are to be determined after reducing the cost expended and the r....
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....um total of the net result of the operation of the OPGC, which is solely and only engaged in power generation and accordingly, all the receipts and expenditure relates to power generation. As OPGC is wholly engaged in the business of generation of power, it is an industrial undertaking and accordingly the Net Profit is entitled to deduction u/s. 80IA of the Act. The Income Tax return for the financial year 2003-04 relevant to the Asst. Year 2004-05, was filed voluntarily on 31.10.2004 i.e., within the due date U/s. 139(1) of the I.T. Act, 1961. OPGC's Net Profit as per P/L account is Rs. 1,47,57,27,710. Taking into account the eligible deduction U/s. 80IA of the Act in respect of Profits/ gains derived by the assessee enterprise from business of generation of power i.e., "Power Profits" [for the said year for Rs. 1,50,22,16,908], the taxable income under the normal provisions of the Act was "Nil" and consequently the tax payable under normal computation was "Nil". Accordingly OPGC was liable for MAT U/s. 115JB of the Act and MAT U/s. 115JB of the Act was duly paid. Revised return was filed on 10.05.2005 disclosing total income at Rs.171,69,11,069 all of which was claimed as deducti....
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.... return filed vide acknowledgement dated 10th May 2005 and added / disallowed the following expenses: Sl. No. Particulars of disallowances Amount in Rs. 1. Expenses on issue of Bonds 60,48,223 2. Periphery development expenses 5,20,000 3. Donation 20,20,000 Considering Other Receipts disclosed at Schedule -10 of financial statement as profits not derived from the activities of generation of power as Income from Other Sources i.e., at Rs.13,13,63,554, the A.O. restricted the deduction U/s. 80IA of the I.T. Act at Rs. 159,41,35,738 & determined Net Taxable Income at Rs. 13,13,63,554. However, since the normal computation of tax under the provisions of income tax was less than the computation of tax U/s. 115JB (MAT), the learned A.O. assessed the tax payable U/s. 115JB which was more than the normal tax. But the learned CIT(A) in a routine manner confirmed the assessment except deleting the disallowance of Rs. 60,48,223 under the head expenses on issue of bond written off. 3.2. The learned AR of the assessee continued his submission that aggrieved with the orders of assessment as well as the orders of the Ld. CIT (A), the assessee is in appeal....
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....show the origin of information of". 2. CIT v. Sportking India Limited [2009] 324 ITR 283 (Del)- Held -"There is no reason why keeping in account the intent of the provision of section 80-IA and the fact that an industrial undertaking has already been established and is running (i.e., investment done, machinery purchased, employment and revenue generated etc) a restricted interpretation be given to the expression 'derived from any business of an industrial undertaking". 3. Commissioner of Income Tax V. Seshasayee Paper & Board Ltd. [1994] 207 ITR, Page-80 (Madras) . It has been held that derive from business -includes income connected with business - it need not be directly derived from business. 4. ACIT v. Maxcare Laboratories Ltd [2005] 273 ITR (A.T) 1"- Held- even for determining the profits and gains' derived from any business of industrial undertaking", manufacturing or producing any article or thing include sale proceeds of such article or thing of scrap generated during the course of such manufacturing activity. It is not possible to close eyes to the event which amounts to increase in the sale consideration. After all what is to be determined is the profit and ga....
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....ovides better terms of employment. As a part of conditions of employment, the assessee company provides different advances/ loans such as Computer Loan, Housing Building Loans, assistance for Cyclone affected employees, Vehicle loan, at a concessional rate of interest. The Supported Rules / approvals for grant of above advances are annexed herewith at Annexure -II for perusal and proper appreciation. The arrangements as above which has been made between the assessee and its employees are pertaining to the business of generation of power and therefore interest received from the employees on such advance/loans are receipts in the normal course of carrying out its business and therefore have a direct nexus with the income of generation of power and are to be considered as derived income. (ii) Rent, water charges & electricity charges received from township Quarters/Market complex etc. of Rs. 3231054. The generation plant of the assessee as stated earlier is situated at a very remote village namely Banerpalli in the district of Jharsuguda. In and around the plant side, there is no accommodation available wherein the assessee can accommodate its employees and their families. As it....
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....me from property". Also he relied on the decision of Commissioner of Income -tax V. Modi Industries Ltd., (1994) 210 ITR 1 (Delhi), vide heads notes - INCOME FROM BUSINES OR INCOME HOUSE PROPERTY OR PORTION OCCUPIED BY ASSESSEE FOR PURPOSE OF BUSINESS "OCCUPY" MEANING OF -PROPERTY ORIGINALLY OCCUPIED BY EMPLOYEES/DIRECTORS OF ASSESSEE COMPANY -CONTNUING TO BE OCCUPIED BY THEM AS NOMINEES OF MANAGIING AGENTS -FINDING THAT ASSESSEE FOUND IT EXPEDIENT TO ALLOW THEIR OCCUPATION TO BE COMPUTED AS INCOME FROM BUSINESS ACTUAL EXPENSES TOWARDS REPAIRS AND DEPRECIATION ALLOWABLE-INCOME -TAX ACT, 1961, ss.14,22. (iii) Sundry receipts like sale of tender paper, liquidated damage recovered, earnest money forfeited, Misc. storage charges recovery from contractor and insurance claim received amounting to Rs. 63,82,041. The learned AR of the assessee furnished the break of these receipts as under : Particulars Amount (Rs.) Sale of Tender Papers 5,04,630 Reimbursement of Water Pumping Charges 26,82,737 Liquidated damage Recovered 4,67,206 Vehicle Higher Charges 10,400 Earnest Money Forfeited 20,637 Other Misc. Receipts like penalty, ground 5,97,664 ....
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....w of the above, the learned AR of the assessee contended that all the above receipts are in course of operation & maintenance of the plant. Hence are receipt /incomes having direct nexus to the generation of power and are therefore are derived from generation of power. (v) Sale of scraps: In this respect the learned AR of the assessee submitted that the assessee company in course of operation & maintaining its plant effects purchase of different raw materials, spares, stores and consumables for its power plant. The costs of such containers, packing materials, are part of the cost of the manufactured product. After use of these stores, spares, consumable, packing materials, containers etc are disposed off and being directly relatable to the generation activity of the industrial undertaking. The income from sale of scraps is derived income from the industrial undertaking. For denying the claim of the assessee that the sale of scrap and insurance claims are not derived income and as such are not allowable as eligible profits for the purpose of Section 80-IA, the Ld. CIT has placed reliance on the decisions in the case of Pandian Chemicals Ltd V. Commissioner of Income Tax....
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....I-Held, yes. " The learned AR of the assessee further relied on the decision in the case of 1. Sony India (P) Ltd V. Dy.Commissioner Income Tax 315 ITR ,page-150 ( Delhi) vide head notes -"INDUSTRIAL UNDERTAKING INCOME SALE OF SCRAP -INCLUDIEBLE IN PROFITS FOR PURPOSES OF DEDUCTION -INCOME-TAX ACT, 1961,S.80-IA." 2. Dy .Commissioner of Income Tax V. Core Health Care Ltd (2009), 308 ITR ,Page-263 (Gujurat) The Assessing Officer was of the view that while computing the relief under sections 80HH and 80-I of the Act, the amount of Rs.26, 64, 113,being miscellaneous income on sale of containers ,had to be excluded as being ineligible for deduction under the provisions, as it was not derived from the industrial undertaking .The Commissioner (Appeals ) did not agree with the Assessing Officer and the Tribunal confirmed the order passed by the Commissioner (Appeals).On appeal to the High Court. (iii) That it was an accepted position that the empty containers, which were sold ,were containers in which raw material in bulk had been purchased by the assessee. The cost of the containers was part of the manufactured product and was thus directly relatable to the manufactu....
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.... as per Section 43(6) is arrived after deduction of sale proceeds for charging depreciation under section 32 of the Income Tax Act. Therefore, the profit on sale of fixed assets could not be an item for computing normal income under business and profession as envisages u/s 28 of the Income Tax Act and therefore are to be excluded. On a plain reading of the explanations offered herein above, it is apparent that the income as disclosed in the schedule-10 in respect of (1) interest income from employees & others (2) receipt of rent & electricity charges (3) sundry receipt (4) sale of scraps & (5) Profit on sale of surplus stock being derived from the only source of business i.e., generation of power & and hence are to be considered as allowable deduction U/s. 80IA of the I.T. Act while computing the income under the normal provisions of the I.T. Act, 1961. 3.4. Alternatively, the learned AR of the assessee submitted that without prejudice to the above, it is alternatively submitted that all the receipts from different heads such as: interest income from employees and others, receipt of rent and electricity charges, sundry receipts etc, having a definite expenditure, which has been ....
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....es Ltd (2004) 266 ITR 170 (Mad) Supreme Court has upheld the decision & observed that 'the concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care & concern for the society at large & locality in which business is located particular. Being a good Corporate Citizen brings goodwill of the local community as also with regulatory agencies & society at large, thereby creating an atmosphere in which business can succeed in a greater measure with the aid of such goodwill ....." While deciding a similar matter the Hon'ble I.T.A.T, Cuttack Bench, Cuttack in the case of Orissa Forest Development Corporation Ltd V. Joint C.I.T, reported in (2002) 80 ITD, Page-300, Cuttack, explained the concepts in a very lucid manner. It has observed that the overall needs of the business running over a long span of time were envisaged in business expediency. Furthermore, under the modern-day concepts, even social and similar other obligations were also required to be considered as part of the business obligations of a businessman. A person is a social animal, who lives in a society and as many facts of life such as: religious, soc....
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....e Company, in developing the social relations with Institutions/Organizations, to maintain its core strength of workers at the site as well as for the safety of plant and machinery, the project work and to create goodwill for the purpose of his business. On the above premises of facts and the provisions of law, the learned AR of the assessee contended that by making payments to different associations/organizations, the assessee Company was participating in the development/welfare of the state with the assurance of the people in and around the sites, the safety of its men and machinery including the project works. The question whether the expenditure incurred by the Assessee Company to be allowed as business expenditure by way of donation to such type of funds came up for consideration before the Honourable Madras High Court, in the case of CIT V. Cheran Transport Corporation Ltd., 1996, 219 ITR, Page-203, Madras and the court has held that the said payment should be regarded as payments made for business purpose and deductable as business expenditure. Your honour may appreciate that these donations has directly helped the Assessee Company in carrying its business, which r....
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.... business referred to in sub-section (3) to [(11), (hA) and (JiB)] (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. From the reading of both the sections it is evident that the deduction is with respect to the profits and gains derived from any business or undertaking or an enterprise. Thus both the sections are pari materia. 4.1. The learned DR stated that it has been held by various courts including the Apex Court that in order to claim deduction u/s 801A or 801B of the IT Act 1961 the income should be derived from the business or undertaking or an enterprise. In case the nexus of the income with the business or undertaking or an enterprise is not established by the assessee the claim of deduction u/s 801A or 801B of the IT Act 1961 will not be allowed. In support of this, he placed reliance on the following decisions. (a) Apex Court in the case of Pandian Chemicals L....
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.... increases the net profit proportionately. On the other hand, according to the Department, DEPB credit/duty drawback receipt do not come within first degree source as the said incentives flow from incentive Schemes enacted by the Government of India or from section 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source is the incentive scheme/provisions of the Customs Act. In this connection, Department places heavy reliance on the judgment of this Court in Sterling Food's case (supra). Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to manufacture. (see CIT v. Kirloskar Oil Engines Ltd. [1968] 157 ITR 762 (Bom.). 15. Continuing our analysis of sections 80-IA /80-lB it may be mentioned that sub-section 913) of section 80-lB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA, so far as may be, applicable to the eligible business under section 80-I, 801A and 80-lB as having a common Scheme. On perusal of sub-section (5) of section 80- IA, it is noticed t....
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....2008 dated 12/08/2011 has held as follows: "(iii) We have considered the case laws relied by both the sides noted and discussed, but we find that the provision of Section 801B of the Act is in pan material with the provisions of Section 8OHH and 801 of the Act, wherein Hon 'ble Apex Court in Sterling Food, Pandian Chemicals Ltd and Cambay Electric Supply Industrial Co Ltd (supra) has discussed the expOression in the context of these sections that the use of expression profits and gains derived from an industrial undertaking, there is distinction between the expressions "derived from" and attributable to ". Hon'ble Apex Court held that only such business profits that have a direct nexus to the essential business activity of the assessee can qualify for deduction under section 8OHH of the Act. Inasmuch as both sections 8OHH and 80-I use the expression "profits and gains derived from an industrial undertaking", the burden is on the àssessee to show that the income earned from an activity, the profits from which are claimed to qualify for deduction, has an immediate and direct nexus to the essential activity of the industrial undertaking. Hence, our answer to first questio....
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....lectricity by the GRIDCO. In the above circumstances, we hold that the assessee is not entitled to deduction u/s. 801A w.r.t. other income of Rs. 24,97,18,456 as mentioned in ground nos.2 and 5 taken by the appellant. Therefore, these grounds raised by the assessee are rejected" 4.3. With respect to the sale of scrap and insurance claim, the learned DR submitted that as the sale of scrap or insurance claim is not relating to power generation, the said income does not have first degree source of income. Hence the income from sale of scrap and insurance claim was not eligible for deduction u/s 801A of the IT Act 1961. 4.4. With respect to the sale of misc receipts, sale of tender papers, other recoveries, rent and electricity charges from employees, interest from employees, the learned DR submitted that these incomes are not relating to power generation, the said income does not have first degree source of income. Further as recorded by the CIT Appeal in paragraph 6.3 of his order this issue is also covered against the assessee by the order of the ITAT Cuttack for AY 2003-2004. Hence the income from misc receipts, sale of tender papers, other recoveries, rent and electricity ch....
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....e allowed only if it is established that there is an element of commercial expediency. The operative part of the judgment is reproduced below: "Let us now pass on to the facts of the case at hand. The opposite party is a state owned Corporation which donated a sum of rupees one lakh to the Chief Minister's Relief Fund. The onus ofproof that a particular expenditure laid out or expended for the purpose of his business is on the assessee. Since the party claims entitlement of deduction, it is for it to adduce necessary evidence to show that the payment made by it was with a view to secure benefit to its business. There is nothing on referred to establish that the donation of the amount to the Chief Minister's Relief Fund was directly connected with and related to carrying on its business. No such finding has also been recorded by the Tribunal, As the opposite party has failed to lay necessary factual matrix for its entitlement to deduction, the question has to be answered in favour of the Revenue which we do as follows ". "On the facts and in the circumstances of the case, donation of rupees one lakh made by the opposite party to the Chief Minister's Relief Fund is not allowabl....
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....ipts. It is otherwise submitted that "Not pressed" cannot be acknowledged as a concession. The learned AR of the assessee submitted that in the context aforesaid and on the facts and particular circumstances of the case and on the basis of the submissions made by him in the written submission, the income earned by the assessee under the head (1) interest income from employees & others (2) receipt of rent & electricity charges (3) sundry receipt (4) sale of scraps & (5) Profit on sale of surplus stock having a direct nexus with the income of generation of power, the only business of the assessee, are to be considered as "derived income" from the business of generation of power and accordingly eligible for deduction U/s. 801A of the I.T. Act and on the facts as well as settled position of law, the order of the Ld. Assessing Officer as well as CIT (A) may be set aside. 6. We have heard the rival contentions and perused the material available on record. We have also perused the Paper Book furnished by the assessee and also perused the case laws cited at the Bar. 7. Considering the facts and circumstances of the case in the light of the submissions made by both the parties and on ....
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....when the assessee claims identical question of law pending before the Hon'ble High Court or Supreme Court. Concession for interest income may dilute for consideration of other income as factual finding as narrated by the learned AR of the assessee which have been stated above against which the Revenue has not been able to state any controverting material. The credit for minimum alternate tax availed by the assessee therefore could only be at best adjusted by the Assessing Officer was the sole issue insofar as there is no loss of revenue for the impugned Assessment Year when the assessee was required to pay only the minimum alternate tax. This credit has to be carry forward requires consideration by adjudication of the issue by the Hon'ble High Court. Grounds No.1 to 4 are, therefore, dismissed as covered against the assessee by the decision of the Tribunal in assessee's own case for the earlier years. 8. On the next issue with respect to the disallowance of Rs.5,20,000 [Ground No.5] on account of periphery development expenses , we are inclined to hold that the assessee was called for to pay this amount by the Collector of Bolangir. The learned DR's contention that this amount d....