TaxTMI 
TaxTMI 
2021 (11) TMI 638
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....t, 'the Act'), being aggrieved by the rejection of its claim on the income from the nature of interest received by the assessee in DRDO/ISRO accounts (for short 'FD A/cs'). The details of the Assessment Years etc are stated in the following tabular form: Sl. No. Assessment Year & Date of Assessment Order Order of Commissioner of Income Tax Income Tax Appellate Tribunal ITA No. 1 2009-10; 30.03.2014 ITA NO.25/TVM/CIT(A), TVPM/2014-15 DT.06.01.2016 ITA NO.100/COCH/2016 DTD 1.12.2017 15/2018 2 2010-11; 21.03.2013 ITA NO.8/TVM/CIT(A), TVPM/2013-14 DT.06.01.2016 ITA NO.101/COCH/2016 DTD 1.12.2017 17/2018 3 2011-12; 27.03.2014 ITA NO.26/TVM/CIT(A), TVPM/2014-15 DT.06.01.2016 ITA NO.102/COCH/2016 DTD 1.12.2017 16/2018 2.2 The circumstances surrounding the controversy and the arguments on the fact and the law are substantially similar in all the three appeals. The learned counsel have treated ITA No.15/2018 as the lead case for referring to the circumstances, the conclusion recorded by the authorities under the Act and have stated that the other two appeals could be disposed of by referring to the circumstances and contentions considered in ITA N....
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....d in FD A/cs. 3.3 In October 2008 a Memorandum of Understanding (MoU) between the DRDO, Ministry of Defence, Government of India and assessee were entered into. In terms of the said MoU the DRDO recognized/empowered the assessee to act as the implementing agent of DRDO in the Integrated Guided Missile Development Programme for achieving the indigenous capability to launch operational Missiles and support the Missile Programmes by manufacturing and delivering Motor Cases, Nozzles, Booster Motors, Control system Components, Reaction Control Systems, Propellant Tankages, Gas Bottles etc. Considering the strategic importance of the project and the role the assessee has undertaken to play as the implementing agent of DRDO in the Integrated Guided Missile Development Programme, DRDO had transferred Rs. 50 crores to set up a Missile Integration Complex at the factory premises of the assessee at Thiruvananthapuram. It is contextual to advert to the role of the assessee as custodian of funds under subject MoU to appreciate the case of the assessee and the Revenue with regard to the interest earned from FD A/cs. Article 5.4 of the MoU reads thus: "The Company may exercise the option to ta....
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....ks. The assessee earned interest on the Fixed Deposit amount of Rs. 75 crores kept and maintained by it as custodian of DRDO and ISRO. The account in the assessee books of account is separate and the deposit since is made by the assessee, the Banks have effected TDS and issued a TDS certificate in favour of the assessee during the Assessment Years - 2009-10, 2010-11 and 2011-12. 3.6 On 26.09.2009, the assessee filed tax return for the Assessment Year 2009-10 declaring total loss of Rs. 1,21,56,832/-. The assessment was completed vide order dated 23.12.2011 determining Nil income. The Revenue initiated proceedings under Section 147 and issued notice under Section 148 to the assessee on the ground that the assessee has not offered as income the interest collected from Fixed Deposits accounts of the funds received from DRDO/ISRO Facilities. The interest received in the subject Assessment Year is as follows: "(i) Interest on DRDO Facilities Fund : Rs. 5,35,19,890 (ii) Interest on ISRO Facilities Fund : Rs. 1,13,57,345 Total : Rs. 6,48,77,235" The assessee, in response to the notice, stated that the funds from which the interest was realised belonged to the Depart....
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....avour of DRDO/ISRO. The record discloses that the interest received by the assessee was shown as income in the books of account of the assessee-Company and tax deducted at-source was claimed by the assessee in the returns of income filed by the assessee for the respective Assessment Years. The Tribunal, to appreciate whether the interest income is computable to the assessee or DRDO/ISRO observed that if at all it is the income of DRDO/ISRO the interest ought to have been directly credited to the accounts of DRDO/ISRO. The Tribunal noted that the funds, together with the interest, have been returned to DRDO may not hold good for the return of funds together with interest was subsequent to the previous year in which the interest was earned by the assessee and, therefore, constitutes the income of the assessee. With the above consideration and conclusion, the Tribunal dismissed the appeal filed by the assessee. 5. Senior Advocate Mr Joseph Markos makes no bones in assailing the orders under appeal. He argues that there are two ways to look at the findings recorded by the Tribunal and the authorities under the Act, firstly, convince the Court on the inherent illegality or infirmity in....
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....to claim refund of TDS, for neither DRDO nor ISRO, being Government Departments, is not under any obligation to pay income tax. The refunded TDS was directed to the returned to the respective Departments. Therefore, he contends that after the entire amount was returned, upon receipt from the Department the income tax if is levied on the assessee, the assessee would be paying tax on an element which does not constitute income from any standpoint of view and also that the assessee would be made to pay through its nose towards income tax for unearned income. The findings are more recorded without appreciating the niceties involved right from the day on which the amount has been entrusted as a fund in favour of the BATL-holding Company and, therefore, in favour of the assessee. 5.2 The findings recorded by the Tribunal and the authorities are beyond the admitted circumstances of the case and suffer from patent illegality and failure to appreciate the MoU etc., is a substantial question of law. By referring to the overriding title adverted to by the Tribunal he argues that the concept of overriding title does not arise in the fact situation of the present appeal. For, throughout the im....
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....e assessee, as has been rightly held by the Assessing Officer, could make all the difference for determining whether interest income constitutes computable income of the assessee or not. The TDS was received by the assessee, the Tribunal has taken note of the effect of the concept of overriding title, and for all the reasons recorded in the orders under appeal, he prays for dismissing the appeal. 5. The appellant raises the following substantial questions of law: "1) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the interest received from banks on deposits of surplus funds received by the Appellant from DRDO/ISRO, both Government of India Departments, for setting up specific projects on their behalf and returned to the DRDONSRO is to be assessed in the hands of the Appellant? 2) Whether on the facts and in the circumstances of the case interest on deposits out of funds provided by the DRDO/ISRO, both Government of India Departments, for specific projects is taxable? 5.1 At the outset let us refer to the decisions relied on by the assessee and examine to what extent the ratio laid down in those cases would be applica....
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....overnment of India and the Government of Karnataka only for the purpose of implementation of megacity scheme. By independently examining the circumstances and appreciating the finding recorded by the Tribunal, the Division Bench dismissed the appeal filed by the Revenue. The decision appreciates the claim of assessee that the substance of the receipt of transferred funds is an aspect for reckoning. 6. The decision of Karnataka Urban Infrastructure Development and Finance Corporation was relied on by another Division Bench in Commissioner of Income Tax v. Karnataka Urban Infrastructure Development and Finance Corporation (2009) 315 ITR 301 (Karn). Commissioner of Income-Tax v. Delhi State Industrial Development (2007) 295 ITR 419 (Del) is a case where the development authority treated the interest earned from the deposits made by the assessee of the funds transferred by the Government as income of the assessee. The assessee invested the funds in banks and earned interest. Delhi State Industrial Development, as assumed by the Revenue in the case on hand, separated the fund from interest earned thereon and claimed interest as income from other sources. The C&AG audited the accounts o....
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....ect of interest income which the petitioner may receive." 8. The ITAT, Cochin Bench in M/s.Vizhinjam International Seaport Ltd v. The Income Tax Officer, Ward 2(4), Trivandrum Order dated 15.06.2016 in ITA No.07/Coch/2016 of ITAT, Cochin Bench has taken a similar view while appreciating the character of interest received by the assessee, whether constitutes income or not. Keeping the above decisions in perspective, let us examine the circumstances which have bearing on appreciating whether the interest received by the assessee could form part of the income of the assessee or the assessee is merely a custodian of the funds of DRDO/ISRO for implementation of Government projects. 9. In the case on hand, we prefer to appreciate whether the interest earned from the investment made by the assessee whether constitutes income of the assessee or the assessee is a mere recipient as custodian of the respective Departments, by examining the documents which have bearing on the issue. For we are convinced that the Revenue and the Tribunal have neither considered the MoUs in right perspective nor, if considered, concluded the issue with unavailable conclusion. This is both a perverse finding wa....
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....nsfer to DRDO/ISRO. From the documents which are not disputed by the Revenue, it is very clear that the assessee was merely allowed to operate the funds for the exclusive benefit of respective Government Departments and funds do not belong to the assessee. The assessee will not have any claim over the funds it was holding for and on behalf of DRDO/ISRO. 9.2 Further, the respective MoUs provide for the transfer of facility acquired through the assessee at a given point of time subject to assessee paying the value of equipment so purchased by the assessee in the execution of obligation under respective MoUs. From this circumstance, it is very clear that the facilities established at Thiruvananthapuram continued to be with the respective Departments. It could be one situation, if such an arrangement is introduced by an assessee and the Department has a reason to believe that such arrangement has been introduced only as a subterfuge or design to avoid payment of tax by the person who transfers the funds and the assessee who receives the fund and parks them in its name, however, claims exemption from payment of Income Tax. In the case on hand, the assessee is a subsidiary of a Governme....