TaxTMI 
TaxTMI 
2020 (1) TMI 648
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....rming an amount of Rs. 66,67,569/- as an income ordered by AO towards interest earned on application of fund received from Govt. of India for implementation of the projects." 3. Ground no. 1 is against the action of Ld. CIT(A) in confirming the disallowance of Rs. 1,11,44,319/- claimed by the assessee towards payment of leave encashment as per actuarial valuation. 4. At the outset itself, we note that the similar issue had come up before this Tribunal in M/s. S. R. Batliboi & Co. vs. DCIT, ITA No. 1598/Kol/2011 for AY 2007-08 wherein the Tribunal vide para 4 has held as under: "4. After hearing rival submissions and going through the facts and circumstances of the case and the order of the Tribunal cited supra, we find that the issue is dealt by the Coordinate bench of this Tribunal as under: "3. At the outset, ld. senior counsel for the assessee submitted that in all these three appeals, the issue relates to allowability of provision for leave encashment in terms of sub-section (f) of section 43B of the Income Tax Act. The assessee had advanced its claim relying on the decision of the Hon'ble Kolkata High Court in the case of M/s. Exide Industries Ltd. repo....
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....istical purposes." 5. In view of the aforesaid decision of the coordinate bench on a similar issue, we set aside the order of the Ld. CIT(A) and restore the matter back to the file of the AO for adjudication to await the final outcome of the Hon'ble Apex Court in SLP (Civil) 22889 of 2008 in M/s. Exide Industries Ltd. case and decide this issue as per the decision of Hon'ble Apex court in M/s. Exide Industries Ltd., supra. Thus, this ground of appeal of assessee is allowed for statistical purposes. 6. Ground no. 2 is against the action of the Ld. CIT(A) in confirming the disallowance of Rs. 3,48,426/- ordered by the AO towards actual loss in respect of quantity loss and quality deterioration claimed by the respective parties. 7. Brief facts of the case as noted by the AO are that during the previous year, the assessee had made a provision of claims of Rs. 5,70,410/- which represents provision made for the year 2010-l1 on account of prospective claims for sale of jute to customers on account of quality and short weight of deliveries of jute. The assessee through a written submission stated that "corporation makes provision on expected claims from mill parties on account of ....
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....ing and delivery thereon to mills. Such losses are incidental to business and were booked in accounts over the years following the accounting convention and principal as actual business liability. The amount of Rs. 5,70,410/- was accounted for as liability for claims which is genuine one and not a mere provision. As per evidenced produced before AO that there was claim bills of Rs. 2,22,076/- already raised by a customer forwards weight and quality loss and other claims are raised subsequently. All necessary claim bills pending to the corporation for settlement of claim was produced to the AO to establish that liability was provided on realistic basis as because corporation owns the liability for such settlement of claims to its debtors. So addition of Rs. 5,70,410/- made by AO towards provision for such losses is not justified as such loss is inevitable to the corporation and if not allowed to deviate from general principle of business." 8. After perusal of the aforesaid submission of the assessee, the Ld. CIT(A) has given partial relief to the assessee by noting as under: "I have considered the material before me. The A.O. had disallowed the appellant's claim for ....
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....d by the AO. According to the Ld. AR, a report is submitted after a joint inspection is carried out by experts and thereafter, the liability becomes an ascertained liability and not an unascertained liability as alleged by the authorities below. It was also brought to our notice that the amount in question has been disbursed in subsequent years. We note that during the first appellate proceedings before the Ld. CIT(A), the assessee had produced bills for claims of Rs. 2,22,074/- out of the claim of Rs. 5,70,410/-, therefore, the Ld. CIT(A) has given relief to the assessee to that amount (after verification by AO) and confirmed the disallowance of Rs. 3,48,426/-. However, during the hearing before us, when we asked the Ld. AR for supporting evidence/material for submitting that any evidence to support its claim that the liability is an ascertained liability as per the expert report etc. the Ld. AR submitted that the assessee has paid the amount of liability in respect of the claims by buyer for weight loss as well as for deterioration of quality following the prescribed formalities in vogue in the jute trade against provision of such liability and there is a system of assessment of ....
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....me on such fund earned by investment of the said fund considering the fact that the interest so accrued is not the income of the corporation but is the income of the fund. The said receipts are capital in nature, as the corporation is not the owner of the fund and also considering the fact that the unspent portion of the fund is to be refunded after implementation of the project. The TDS on such investment is made by the authorities for simply compliance purpose and has nothing to with recognition of income." The submission of the assessee is carefully perused. But, the interest income earned by the asses is definitely in the nature of revenue receipts and the TDS on such income has also been claimed by the assessee in its return of income. Hence, reason cited by the assessee for non-inclusion of income component does not hold much water. Accordingly, I am of the opinion that the receipt of interest is revenue in nature and has to be included in the total income of the assessee. Hence, total interest earned to the tune of Rs. 66,67,569/- is added back to the total income of the assessee." 13. Aggrieved, the assessee preferred an appeal before the Ld. C....
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....he A.O. found from note No.5A of schedule 18 to notes to accounts that the appellant had earned total interest of Rs. 66,67,S69/- which was not shown as income. The appellant has claimed that although TDS was deducted on the interest/accrued earned but the said income was not offered for taxation being capital in nature. The A.O. held that the interest income of Rs. 66,67,569/- was in the nature of revenue receipt and TDS was deducted thereon and the amount was brought to tax as appellant's income. The appellant's AR has stated that the Ministry provided for implementation of different schemes and idle funds were maintained in short deposit of banks and the amount was short term interest earned from such funds. It was further argued that the appellant had shown such funds on the liability side of the balance sheet and the interest of income of Rs. 66,67,569/- was credited to the fund account and that it did not hold any proprietary ownership over the said funds. After careful consideration and on perusal of the material on record, it is found that the appellant has not disputed the fact that the impugned amount of interest income of Rs. 66,67,569/- was derived from short t....
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....s conditions given in letter no. 6/12/2009 Jute Export Govt. of India, Ministry of Textiles dated March 15, 2010. According to Ld. AR, at times, when the funds are utilized is deposited in bank by the assessee for temporary short term periods which in turn yielded interest income to the tune of Rs. 66,67,569/- which was again ploughed back to the fund earmarked for the scheme and which is used only for the implementation of the scheme and not utilized for any other purposes. The Ld. AR drew our attention to the Govt. of India, Ministry of Textiles letter no. 6/12/2009 dated 15.03.2010 subject reads "Release of funds to Jute Corporation of India (JCI), Kolkata, for the implementation of the schemes of Mini Mission-III of Jute Technology Mission (JTM) for the year 2009-10 for General States" and contended that the amount given for the grant-in-aid given from the Govt. can only be utilized for that purpose and not for any other purposes. And the Ld. AR drew our attention to clause vi) which reads as under: "vi) the JCI is not permitted to divert the grant-in-aid received from Govt. or to entrust the execution of the scheme for which the grant is made to another institution....
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....er with document vouchers, etc., as evidence of actual expenditure. We note the that account of JCI would be subject to audit by Comptroller and Auditor General of India in accordance with the provision of Comptroller and Auditor Generals duties (Power and Conditions of the Services ) Act, 1971. We note that the JCI is not permitted to divert the grant-in-aid received from Govt. or to entrust the execution of the scheme for which the grant is made to another institution as such diversion of grant-in-aid, though for utilization on the same or similar object amount to mis-utilisation of the grant. In case where after having received the grant-in-aid from the Govt. the grantee institution itself is not in a position to execute or to complete the assignments, it would be required to refund forthwith to the Govt., the entire amount of grant-in-aid received by it together with penal interest, as applicable. However, we note from the papers submitted before us that the assessee though had shown the grant received as well as interest earned together, but the total disbursement is less compared to the grant which is evident from a perusal of financials submitted before us which is reproduce....
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....s a matter of fact. If assessee is able to prove that the grant in aid received from Govt. was in fact deposited in separate bank account and the interest yielded from the same was also deposited back in to the separate bank account and disbursed to the beneficiary then the interest income cannot be termed as 'income' of the assessee, since there would be diversion of income by overriding title/charge. In similar case, in ITA Nos. 150 & 386/K/2018 A.Y 2012-13 in the case of W.B State Electricity Distribution Co. Ltd.:- the Tribunal has upheld the assessee's contention that interest yielded from grain-in-aid was not the income of the assessee, since there was diversion of income by overriding charge. For understanding the principle, the same is reproduced herein below:- "7. Now we shall take up the assessee's appeal being ITA No. 150/Kol/2018. Although as many as six grounds are raised by the assessee in this appeal, the common solitary issue involved therein relates to the addition of Rs. 21,48,33,731/- made by the Assessing Officer and confirmed by the Id. CIT(Appeals) on account of interest on Fixed Deposits made by the assessee out of capital subsidy received f....
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....t of its case on this issue:- "60. For construction of capital asset required for electrification in the rural areas, Government of India sanctioned a project called Rajiv Gandhi GraminVidyutikaranYojana (RGGVY). This is plan scheme of the Government of India. 61. The said scheme was initiated Wholly and exclusively for development of Rural Electricity Infrastructure and Household Electrification. The main emphasis under the scheme was given to effect electricity connection to all rural household belonging to Below Poverty Line (BPL). 62. Rural Electrification Corporation Limited (RECL) is acting as Nodal agency of the project. State owned power utilities and Central Public Sector Undertakings (CPSUs) are acting as implementing agencies of the RGGW Project. 63. Funding of the project is done by Government of India through the Nodal agency RECL. 64. The entire fund of the project was available to the implementing agencies from Government of India through Rural Electrification Corporation Limited (REEL). 65. 90% of the cost of the project is available to the implementing agencies as Capital Subsidy. 66. Balance 10% of the....
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....e by the Assessing Officer on account of interest for the following reasons given in his impugned order:- "I have considered the material before me. It is observed that there is no dispute on the fact the appellant company was maintaining its accounts on mercantile basis, and the impugned interest income of Rs. 21,48,33,731/- had arisen and accrued to the appellant for the relevant financial year ending 31.03.2012. The appellant has mainly argued that the interest income was not taxable being capital receipts in its hands and alternatively was not real income on account of diversion of income at source. It is not in dispute that the appellant company had invested the amount of gran t received by it in fixed deposits with commercial banks, on which interest income of Rs. 21,48,33,731/- was received/accrued during the previous year relevant to the AY 2012-13 under consideration. In the appellant's case, no material was placed on record by the appellant that there was any surrender of the impugned interest income to the Central Government or the sanctioning authority by the company. The appellant has stated that as per the terms and conditions of the RGGVY scheme....
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....nterest income earned by the assessee from the taxation under the Income Tax Act. On the issue of diversion of income, the factors to be considered were enunciated by the Hon 'ble Apex Court in the case of MotiLalChhadamiLal v. Commissioner of Income-tax in [1991] 56 TAXMAN 4A (Se), wherein it was held that, "Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied". The appellant has stated that as per the terms and conditions of t....
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....een issued just to take out the interest income earned by the assessee from the taxation under the Income Tax Act. The A/R has relied upon the ratio of decision of the Calcutta High Court in CIT v. A. Tosh & Sons Pvt. Ltd. (1987) 166 ITR 867 (Cal), which is found to be distinguishable as the facts of the said case are found to be distinct from the facts and circumstances of the appellant's case wherein the interest earned on fixed deposit made out of surplus left-with the assessee out of the taxes and rebate raised on behalf of foreign buyers and paid to the Government was held as not taxable in its hands. However, in the appellant's case, the interest income has not been paid to the Central Government by the appellant company. Thus, the ratio of the said decision is found to be not applicable to the appellant's case. In the case of CIT -vs.- Sunil J. Kinariwala (2003) 259 ITR 10, the Apex Court, after referring to the decisions of the Privy Council in the case of Raja Bejoy Singh Dudhuria -vs. - CIT (1933) 1 ITR 135 (PC) and P.C. Mullick -vs.- CIT (1938) 6 ITR 206 (PC); of the Apex Court in the case of Sitaldas Tirathdas (supra), K.A. Ramachar -vs.- C....
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.... of the fact that income has not been resulted or accrued to the assessee. After debiting the debtors account and not reversing that entry but taking the interest merely in suspense account cannot be such evidence to show that no real Income has accrued to the assessee or been treated as such by the assessee. (8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within wellrecognized limits. In the case of Kedarnath jute Mfg. Co. Ltd. (1971) 82 ITR 363 (Sc), the Hon'ble Apex Court has held that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. In tile case of Kedarnath Jute Mfg. Co. Ltd. (supra) the Apex Court has held the provision of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive m the matter.....
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....nder an existing obligation. In fact, the orders Issued by the Central Government were for treating the amount of interest after its receipt in the hands of the appellant *company. In view thereof, I am of the opinion that the appellant's alternative claim of the theory of real income is also not applicable to the facts of the present case inasmuch as the interest has accrued to the appellant which it had retained as income in its own hands, and the interest income has arisen from the fixed deposits are liable to be taxed as income in the hands of the appellant company as held by the Hon'ble Supreme Court in. the case of State Bank of Travancore, (supra). Therefore, it is held that the A.G was correct in treating the impugned amount of interest income Rs. 21,48,33,731/- as revenue receipts in the hands of the appellant company, and addition thereof is confirmed. Thus, ground no. 5 & 6 are not allowed". 11. The Id. Counsel for the assessee invited our attention to the copy of letter dated 25.09.2008 issued by the Government of India, Ministry of Power while releasing the funds to Rural Electrification Corporation Limited (REC) under Rajiv Gandhi GraminVaidu....
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.... liable to be remitted back to the Government Account, which was duly done by the assessee. He contended that the said interest thus was not in the nature of income earned by the assessee and as per the specific terms of the Government of India, it was diverted even at the inception by an overriding charge in favour of the Government of India. In support of this contention, he relied on the decision of the Hon'ble Calcutta High Court in the case of CIT -vs.- A. Tosh & Sons Pvt. Limited [166 ITR 867], wherein it was held that when it was clear under the agreements that the assessee would be entitled to receive the excise duty rebate and customs duty drawback only on the account of the foreign buyers and not on its own account and the assessee was also under an obligation under the agreements to remit the said amounts received to the foreign buyers. It, followed that the said amounts never reached the hands of the assesese as its own receipt or income and the assessee had received the same. on behalf of its foreign buyers. It was held that the said amounts were never the real income of the assessee as they were diverted even at the inception by an overriding title in favour of the fo....
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.... page no. 71 of the paper book) and pointed out that the said letters were specifically addressed to the assessee giving the reference of the earlier correspondence, which is sufficient to show that the assessee-company was involved in the Project as Implementing Agency and the correspondence of REC and Government of India, Ministry of Power relied upon by him is a relevant evidence to decide the issue under consideration involved in the assessee's case. 14. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the Rural Electrification Programme was implemented by the Government of India, Ministry of Power through Rural Electrification Corporation Limited (in short REC) called Rajiv Gandhi GraminVidyutikaranYojana and for implementation of the same, various Implementing Agencies were appointed by the REC including the assesseecompany. While releasing funds for the said Programme in the form of capital subsidy vide letter dated 25.09.2008, it was specifically stipulated by the Government of India, Ministry of Power that a separate account will be maintained in respect of the capital subsid....
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....sidy, there was an overriding charge, which was enforceable in law. This position gets further fortified by the fact that the Government of India, Ministry of Power subsequently decided to recover the amount of interest in question earned by the REC as well as the Implementing Agencies including the assessee-company and the same was indeed" remitted back by the assessee-company finally to the Government of India, Ministry of Power. 16. At the time of hearing before us, the Id. D.R. has contended that the assessee-company was an Executing Agency and not the Implementing Agency. However, as rightly contended by the Id. Counsel for the assesese, there is no difference between the Implementing Agency and the Executing Agency and both of them are one and the same. Moreover the fact that the relevant correspondence meant for Implementing Agencies was addressed by the Ministry of Power, Government of India as well as REC specifically to the assessee-company clearly establishes that the assessee-company was an Implementing Agency and the interest in question received by it for and on behalf of the Government of India, Ministry of Power and subsequently remitted back was in the cap....
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....e interest belonged to Government of India and was diverted at source. In our opinion, this decision of the Ahmedabad Bench of this Tribunal in the case of National Dairy Development Board (supra) relied upon by the Id. D.R. actually supports the case of the assessee, inasmuch as, the assessee-company as per the letter dated 25.09.2008 issued by the Government of India, Ministry of Power while releasing the funds was under an obligation to adjust the interest amount in question against the capital subsidy receivable from the Government and the said interest amount having been finally remitted back by it entirely to the Government of India, Ministry of Power, it cannot be said to have accruedto the assessee as income and it was a case of diversion of interest income at source. 19. It is observed that the decision of the Hon'ble Calcutta High Court in the case of CIT -vs.- A. Tosh & Sons Pvt. Limited (supra) relied upon by the Id. Counsel for the assessee also fully supports the case of the assessee. In the said case, the assessee had exported tea to foreign countries and under the agreements entered into with the foreign buyers, any refund or rebate of taxes and duties ....