TaxTMI 
TaxTMI 
2012 (12) TMI 670
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....loss of Rs. 24,76,00,058/- under the normal provisions of the Income Tax Act, 1961 (the Act) and at a book profit of Rs. 76,12,67,288/- u/s 115JB of the Act vide order dtd. 31-01-2006 passed u/s 143(3) of the Act. On appeal, the ld. CIT(A) partly allowed the appeal. 3. Being aggrieved by the order of the ld. CIT(A) the assessee and Revenue both are in appeal before us. ITA No. 5318/Mum/2007 (By assessee) 4. Ground No. 1 reads as under:- "1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in not directing to allow the deduction u/s 80IA on the net interest income viz a) Interest on employee loans & advances, b) Interest on margin money and c) Interest income on dues towards Income Tax refund adjustment from Essar Project Ltd." 5. Brief facts of the above issue are that the A.O. observed that the assessee has declared income of Rs. 1,48,58,920/- under the head 'interest income'. From the break-up of the same, the A.O. observed that the following items of interest income required to be assessed as income from other sources as the same do not relate to assessee's power business:- Sr. No. Nat....
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....e head business income and, hence, he treated the said interest on sales tax refund as 'income from other sources' and accordingly the A.O. assessed the following interest income under the head 'income from other sources':- Sr. No. Nature of Interest Income Amount (Rs) 1. Interest Income - Essar Projects Ltd. 58,40,165 2. Interest on employees loans & advances 1,39,610 3. Interest - Bank/Margin deposits 22,51,879 4. Interest income - ICD 1,26,198 5. Interest on sales tax refund 18,59,835 TOTAL 1,02,17,687 6. On appeal, the ld. CIT(A) following the appellate order for the assessment years 2000-01 & 2001-02 held that (a) interest on margin money deposit and interest on employee loans are assessable under the head income from business or profession, (b) interest from Essar Projects Ltd. and Essar Services Ltd. is assessable as income from other sources & (c) interest on sales tax refund is assessable as income from business. He further held that deduction u/s 80IA would not be available on any of the above interest incomes. 7. At the time of hearing the learned Sr. counsel for the assessee, at the outset, submits that the Tribunal in assessee's own case i....
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.... "On the facts and in the circumstances of the case, the learned CIT(A) erred confirming addition made by AO towards, provision for Income Tax 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 Tax 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 consideration, 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 income 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....
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....is agreed to be reimbursed by both the companies as per copy of agreement appearing at page 3 to 146 of the assessee's 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. This 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 purchasers 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 not 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 claimed 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 ....
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....nal 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 the 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 reali....
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....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 levied 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 computing 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 of 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 purp....
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....yment 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 sales 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 income"; 27. In Chowringhee Sales Bureau P. Ltd. CIT, (1973 87 ITR 542 (SC) it has been held (Headnote) :-  ....
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....d the authorities tinder the Act were right in holding that the said tax amount is liable to be included in the income of the 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 court 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 assessee's liability to pay cess and was held to be deductible. The ratio of this judgment also can have no application here. The payment of sugarcane cess is very much a part of the assessee's 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 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 tax which the assessee may have to pay....
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....l 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 Dunlop 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 follows : "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 Divi....
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....s)". 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 computed 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 government 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 receipts 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....
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.... 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 reimbursement 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. Under 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 tax upo....
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.... for the assessee in the case of Emami Ltd. vs. CIT (2011) 337 ITR 470 (Cal.) and other cases after providing reasonable opportunity of being heard to the assessee. The additional ground taken by the assessee is, therefore, partly allowed for statistical purpose. ITA No. 5725/Mum/2007 (By Revenue) 46. Ground No. 1 reads as under:- "1. On the facts and in the circumstances of the case and as per law, the Ld.CIT(A) erred in deleting the addition of Rs. 1,02,17,687/- made on account of interest income earned under various heads which were treated as income from other sources as against income from business and profession". 47. At the time of hearing both the parties have agreed that the facts of the above ground are similar to ground No. 1 of assessee's appeal, therefore, the plea taken by them may be considered while deciding the above ground taken by the Revenue. 48. After hearing the rival parties and perusing the material available on record we find that the facts are not in dispute inasmuch as it is also not in dispute that the impugned issue is covered in favour of the assessee by the order of the Tribunal dtd. 11-8-2008 (supra) wherein vide para 13 of th....
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....e interest paid amounting to Rs. 97,63,398/- based on the average cost of funds after verification". 52. At the time of hearing, both the parties have agreed that this issue is covered in favour of the assessee by the order of the Tribunal in assessee's own case for the A.Y. 2000-01 and 2001-02 (supra), therefore, the issue may be decided accordingly. 53. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the parties that the issue is covered in favour of the assessee by the order of the Tribunal (supra) wherein it has been held vide para 14 & 15 of the order dtd. 11-8-2008 as under:- "14. Ground No. 2 taken by the revenue reads as under:- "On the facts and in the circumstances of the case and as per law, the ld. CIT(A) has erred in directing the Assessing Officer to allow proportionate interest calculated on average rate on 11.69% on the amount borrowed for the purpose of lending from the interest income earned of Rs. 9,87,24,470/- on such investment ignoring the detailed reasoning given by the Assessing Officer in his order." ....
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....ould go back to the file of the A.O. and accordingly we set aside the order passed by the Revenue on this account and send back the matter to the file of the A.O. to decide the same afresh in the light of the aforesaid amended provisions of the Act and according to law after providing reasonable opportunity of being heard to the assessee. The ground taken by the Revenue is, therefore, partly allowed for statistical purpose. 58. Ground No. 4 reads as under:- "4. On the facts and in the circumstances of the case and as per law, the Ld. CIT(A) erred in deleting the addition of Rs. 11.07 crores for computing income u/s. 115JB of the I.T. Act without appreciating the method provided at Part-Il & Part-Ill of Schedule- 6 of the Companies Act 1956". 59. Brief facts of the above issue have already been mentioned in para 12 of this order. On appeal, the ld. CIT(A) directed the A.O. to delete the above addition of Rs. 11.07 crores made by him while computing the book profit u/s 115JB of the Act vide his finding recorded in para 3.6 of his order which is reproduced as under:- . "3.6 As regards addition of provision of tax recoverable for the purpose of....