TaxTMI 
TaxTMI 
2020 (1) TMI 1609
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....stries Ltd. v Union of India (292 ITR 470). The appellant prays that the same may be allowed. GROUND NO. 2: On the facts and in the circumstances of the case and the law, the Ld. CIT(A) erred in confirming the disallowance made u/s. 40(a)(ia) of the Act, pertaining to provision for expense of Rs.17,57,71,673/- made on "best estimate" basis and in reliance of the decision of ITAT Ahmedabad in the case of Bank of Maharashtra vs ITO (TDS), Anand (38 SOT 432). The appellant prays that the same may be allowed. GROUND NO.3: On the facts and in the circumstances of the case and the law, the Ld. CIT(A) erred in confirming the additions made by A.O of the Short-term Capital Gains of Rs 1,71,55,197/- which was earned from sale of units of 'Mutual Fund1 invested out of idle funds of borrowings of the project division. The appellant prays that nothing is taxable as short term capital gain In view of the circumstances, facts and the law. GROUND NO. 4: On the facts and in the circumstances of the case and the law, the Ld. CIT(A) erred by ordering suo-moto enhancement of the interest Income of Rs 4,68,46,632/- under the head 'Income from other sources' earned from i....
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....; 3 As per return of income 19,11,27,544 Capital Gain 4. Short term capital gain as per return 1,98,46,728 Add: STCG adjusted against project cost 1,71,55,197 3,70,01,925 5 Gross total income 433,99,54,336 6 Less: Deduction u/s 80G 97,60,000 7 Income after deduction under Chapter VI-A 433,01,94,336 8 Add: Surplus from PSF funds offered as per assessee's return of income 51,03,65,280 9 Total income 484,05,59,616 4. Being aggrieved by the assessment order, the assessee has filed an appeal before the Ld.CIT(A). The Ld.CIT(A) has disposed of appeal filed by the assessee vide, its order dated 16/01/2018, where he has allowed partial relief, in respect of various additions made by the Ld. AO, however confirmed additions made by the ld. AO towards disallowances of provision for encashment of leaves, disallowances of year end provision, u/s. 40(a)(ia), for non deduction of tax at source, additions made by the Ld. AO towards short term capital gains on sale of units of mutual funds invested out of idle funds of borrowing of the project division and additions towards Passenger Se....
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....ion of Hon'ble Supreme Court, in the case of Exide Industries Ltd. (supra). In this regard, he relied upon the decision of ITAT, Mumbai, in the case of Birla Sunlife asset Management company Ltd. in ITA No. 5457/Mum/2013, dated 30/06/2015. 7. The ld. DR, on the other hand strongly supported order of the Ld. AO, as well as the Ld.CIT(A), however he fairly accepted the issue may be set aside to the file of the Ld. AO to decide in accordance with the final outcome of the final order of the Hon'ble Supreme Court in the case of Exide Industries Ltd. case. 8. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. It is an admitted fact that the provision of section 43B(f) had been held to be constitutionally invalid by the Hon'ble Kolkata High court in the case of Exide Industries Ltd (Supra). On the basis of said decision, the assessee has claimed deduction for provision for leave encashment, as if provision of section 43B(f) is not in the statute. But, fact remains that subsequently, the Hon'ble Supreme Court has stayed operation of the decision of Hon'ble Kolkata High court in the case of Excide Industries Limited (....
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....ds and the excess provision, if any has been reversed subsequently, as and when, the final payment is made to the service providers. The Ld. AR, further submitted that the assessee has been following consistent method of making provision for expenditure at the end of the financial years, on the basis of estimates provided by the department heads. He, further submitted that the assessee, neither claims any double deduction, nor there is any tax impact on the income of the assessee for the main reason that the assessee has huge losses and the entire exercise is tax neutral. He, further submitted that out of the total provision of Rs. 17,57,71,673/-, the assesee has subsequently deducted tax at source, in respect of expenditure of Rs. 7,73,42,027/-. However, at the time of payment of this provision, the assessee had not claimed any deduction. He, further submitted that the assesee had inadvertently included a sum of Rs. 2.25 crores towards unbilled revenue and this amount represents discount given to the party, but wrongly credited to provision account, instead of party account and this error has been rectified subsequently. Similarly, the balance provision of Rs. 7,59,29,646/- has be....
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....e above factual back ground, if you examine the claim of the assessee towards provision for year under expenses, we found that during the year under consideration, the assesee has made provision of total expenditure of Rs. 59,40,33,948/-. This provision comprised expenditure of Rs. 16,54,10,394/-, on which the assessee was not required to deduct any tax at source. Further, it also included expenditure of Rs. 25,28,51,881/-, on which TDS has been deducted and paid before the due date of filing the return of income. This fact has not been disputed by the Ld. AO. The resultant balance amount of Rs. 17,57,71,673/- was disallowed by the Ld. AO verifying only couple of instances, which have been referred in the appellate order. It is the claim of the assessee before us that, out of total provision of Rs. 17,57,71,673/-, the assessee had subsequently deducted tax at source, in respect of expenditure of Rs. 7,73,42,027/-. However, at the time of payment of this provision, the assessee had not claimed any deduction. Similarly, it was the claim of the assessee that it had inadvertently included therein provision for reduction in unbilled revenue of Rs. 2.25 crores and this amount represents ....
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....eversal, as a case may be. 13. The next issue that came up for our consideration from ground NO.3 and 4 of assessee appeal is confirmation of addition of Rs. 1,71,55,197/-, on account of short term capital gain from transfer of units of mutual funds invested out of idle funds of borrowings of the project division and consequent enhancement of interest income from fixed deposits of Rs. 4,68,46,632/- under the head income from other sources. The facts with regard to the impugned disputes are that the assessee had temporarily invested projects funds in making investments in mutual funds units and earned income of Rs.1,71,55,197/- on its sales and also, earned interest income from fixed deposits amounting to Rs. 4,68,46,632/-. The assessee has credited short term capital gain earned from sale of units of mutual funds and interest income earned from fixed deposits to the capital work-in-progress of the project, because the gain was inextricably linked with the project funds. The Ld. AO rejected the contentions of the assessee and added Rs. 1,71,55,197/- to the income of the assessee as short term capital gain. Similarly, the assesee has earned interest from fixed deposits kept in banks....
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....of said investments needs to be set off with capital work in progress of the project till, such time, the project was under implementation. The ld. AR, further submitted that although, the ld. AO, as well as the Ld.CIT(A) have heavily relied upon the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali chemicals and fertilizers Ltd. (supra), but, if you go through the facts of the present case, the decision of Hon'ble Supreme court has no application, because in that case there was no discussion about linking of funds of the project to the investments. He, further submitted that whereas the Hon'ble Supreme Court in the case of CIT vs Bokaro Steel Ltd. 236 ITR 215 had considered an identical issue and after considering judgment of Tuticorin Alkali chemicals and fertilizers Ltd. (supra) held that when, funds are inextricably linked with the project, then any income earned out of said funds needs to be set off with capital work-inprogress. In this regard, he relied upon various judicial precedents, including the decision of ITAT, Mumbai bench, in the case of Iceland star Mall developers Pvt.Ltd. vs ACIT in ITA No. 5078/Mum/2014. 15. The Ld. DR, on the other hand, strong....
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....e of the assessee that since the interest on borrowed project fund is being added to capital work-in-progress and that project is not completed,, the income earned from investment should be reduced from the capital work-in-progress as fund utilized for investment is raised for the project and it is inextricably linked with the setting up of the project. 17. In order to ascertain the nature of investment, it is pertinent to note the terms and conditions in respect of funds borrowed and its utilization. The agreement dated 26.09.2007 was entered into between the assessee and IDBI led consortium, pursuant to which the assessee had arranged to borrow Rs. 4,231 crores. A copy of the said agreement is filed at pages 193 - 241 of the PB. Further, our attention is invited to the clauses (E), (E) and (F) of the recital portions at page 199 of the PB, which read as under: "(E) To enable the Borrower to meet the Project Costs, the Lenders at the request of the Borrower have agreed to lend and advance to the Borrower and the Borrower has agreed to borrow from each of them their respective rupee loans in aggregate not exceeding INR 4231 Crores (Rupees Four Thousand Two Hundred Thirty One Cro....
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....e with the agreement. Further, the assessee was obliged to invest the idle funds as per clause 13 of the agreement and the relevant portion (pages 223 to 225 of the PB) is extracted below "13 A UTHORISED INVESTMENTS 13.1 Power to invest The Borrower may require, subject to as provided in this Agreement, that such part of the amounts standing to the credit of Retention Accounts as it considers prudent shall be invested from time to time in Athorised Investments in accordance with this clause. 13.2 Procedure for Investment (a) Power to Invest So long as the Account Bank is not notified of an Even of Default by the Lender Agents, the Account Bank shall invest in Authorised Investments on the instructions of the Borrower, as provided in this Agreement from such part of the amounts standing to the credit of any of the Retention Accounts, in each case with respect to those amounts next anticipated to be transferred or withdrawn, having a scheduled maturity no later than such next anticipated cash withdrawal or transfer from such Account in accordance with this Agreement. .... ..... (d) Maturity The Borrower shall at all times procure that there are maintained a sprea....
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.... income earned would go to reduce the cost of the project and hence, such income should be reduced from the capital work-in-progress. 22. In this respect, our attention is invited to the order of the Hon'ble Tribunal, Mumbai Bench, in the case of Island Star Mall Developers P. Ltd. v ACT (ITA no. 5078/Mum/2014) which is filed at pages 248 to 257 of the PB. In that case, the assessee had borrowed funds from the bank and it was utilized in investing in ultra-short term fixed deposits. The interest income earned thereon of Rs. 7,35,674/- was credited to capital work-in-progress by the assessee. The Assessing Officer treated this income as 'income from other sources' u/s. 56 of the Act and the CIT(A) upheld the order of the Assessing Officer. On further appeal, the assessee relied on judgment of the Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (315 ITR 238) and claimed that the interest earned should be reduced from the workin- progress as the FDRs were inextricably linked to setting-up of the project. The DR relied on the ratio of the Supreme Court in this case of Tuticorin Alkali Chemicals and Fertilisers Ltd. (227 ITR 172). Accepting the cont....
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....icorin Alkali Chemical [1997] 227 ITR 172 is that if funds have been borrowed for setting up of a plant and if the funds are "surplus" and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head "Income from other sources". On the other hand, the ratio of the Supreme Court judgment in Bokaro Steel Ltd., [1999] 236 ITR 315 to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise "inextricably linked" to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses." 8. In the case before the Hon'ble Delhi High Court, issue related to the treatment to be accorded to the interest earned the monies received as share capital by the assessee which were temporarily put in a fixed deposit awaiting acquisition of land which had run into legal entanglements. The Revenue treated such income as income under the head "Income From Other Sources". As per the Hon'ble High Court, since the funds infused in the assessee were inextricably linked with the setting up of the plant, the inter....
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....41 : (2000) 243 ITR 2 (SC) . In this case,- the company had deposited certain amount with the bank to open letter of credit for purchase of machinery for setting up plant. On the money so deposited, it earned interest. In that background, this Court observed that this is not a case where any surplus shares capital money which was lying idle had been deposited in the bank for the purpose of earning interest. The deposit of money Is directly linked with the purchase of plant and machinery. 12. The common rationale that is followed in all these judgment if, that if there is any surplus money which is lying idle and It has been deposited in the bank for the purpose of earning interest then it is liable to be taxed as income from other sources but if the income accrued is merely incidental and not the prime purpose of doing the act in question which resulted into accrual of some additional income then the income is not liable to be assessed and is eligible to be claimed as deduction. Putting the above rationale in terms of the present case, if the share application money that is received is deposited in the bank in light of the statutory mandatory requirement then the accrued interest....
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....t with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. v, CIT[1997] 227ITR 172, will not be attracted. The more appropriate decision in the factual situation in the present case is in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC). The appeal is dismissed. There will be no order as to costs-" 25. The assessee has relied upon also to another judgment of the Hon'ble Supreme Court in the case of CIT v. Karnataka Power Corporation (247 ITR 268). In this case, the Revenue had filed appeal before the Supreme Court against the order of the High Court wherein it was held that interest receipts and hire charges received from contractor were capital in nature a....
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....n the business could not be classified as "income from other sources". We find that CIT(A) has followed these decisions for granting relief to the assessee. Therefore, we see no reason to interfere with the order of the CIT(A) on this issue." 27. Coming to judgment relied upon by the Ld.CIT(A) in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v CIT ( 227 ITR 172) wherein it was held that interest earned on the surplus funds kept in short term deposits will be chargeable u/s. 56 of the Act. In that case, the assessee had chosen not to keep its surplus capital idle but decided to invest it fruitfully. It is submitted that the CIT(A) has overlooked the following vital observations of the Supreme Court; " There is another aspect of this matter. The company, in this case, is at liberty to use the interest income as it likes. It is under no obligation to utilize this interest income to reduce its liability to pay interest to its creditors. It can reinvest the interest income in land or shares, it can purchase securities, it can buy house property, it can also set up another line of business, it may even pay dividends out of this income to its shareholders....." 28. From ....
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....the assessee arising out of investments which were made by using borrowed funds. In this respect, our attention is invited to the order of the Tribunal, Mumbai Bench, in the case of DCIT v. Shri Fritz D, Silva in ITA no. 236/Mum/2010 dated 08.05.2015. In this case, the interest cost incurred for acquisition of shares was considered as cost of shares by the assessee while computing income under the head 'Capital Gains'. The Assessing Officer held that such interest paid by the assessee cannot be considered as expenditure while computing income under the head 'Capital Gain'. Accordingly, the Assessing Officer re-computed capital gain at Rs. 1,98,58,1017- as against capital gain computed by the assessee at Rs. 62,469/-. The CIT(A), by relying on the judgment of the Delhi High Court in the case of Mithilesh Kumar (92 ITR 9), accepted the contention of the assessee. Therefore, the Assessing Officer filed appeal before the Tribunal. After considering rival contentions and judgment of the Madras High Court in the case of Trishul Investments Ltd. (305 ITR 434), the Tribunal affirmed the order passed by the CIT(A). The relevant observations of the Tribunal are extracted belo....
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....n our view, the legal position as propounded by the Hon'ble Madras High Court in the case of Tn'shul Investments Ltd (supra) supports the plea of the assessee that interest paid for acquisition of the shares would partake the character of cost of shares and, therefore, assessee had rightly capitalized the interest along with the cost of acquisition for the purpose of computing capital gains. The conclusion of the CIT(A) thus deserves to be affirmed. " 31. Further, the co-ordinate Tribunal Mumbai Bench, in the case of J. F. Laboratories Ltd. v ITO (96 ITD 448) has been relied upon, in this case, the assessee utilized borrowed funds for investing in term deposits for earning interest. The assessee claimed that the interest earned on term deposits was deductible from project cost. However, the Assessing Officer held that gross interest receipts ought to be brought to tax as 'income from other sources'. The CIT(A) upheld the assessment order. On further appeal, it was pleaded before the Tribunal that gross interest could not be brought to tax without considering the question of deductibility of expenditure incurred by the assessee including interest on borrowed funds ....
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.... Id. DR has laid great emphasis on the phraseology of section 57(iii) and has relied upon the Bombay High Court decision in the case of Globe Theatres Pvt Ltd. (supra) and the Delhi High Court decision in the case of Siddho Mal & Sons (supra). In these cases, the Hon'ble Courts were called upon to adjudicate the deducibility of certain expenses under section 10(2)(xv) of the Indian Income-tax Act, 1922, which corresponds to section 37(1) of the Income-tax Act, 1961. In these cases, it was observed that while deciding as to whether a particular amount is laid out or expended wholly or exclusively for the purposes of business, it must be considered as to whether the expense has been incurred with the sole object of furthering the trade or business interest of the assessee, unalloyed or unmixed with any other private or non-business consideration. If the expenditure is partly attributable for non-business purposes, the same cannot be allowed as a legitimate business expenses. In our view, the ratio of these cases prescribes that before allowing any expenditure or part thereof under section 37(1), it must be ensured that the expenditure has been incurred wholly and exclusively for ....
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.... Ambani, the ITAT, Mumbai Bench observed that the interest paid on loan used for acquiring jewellery cannot be said to have been incurred for making or earning income chargeable to tax under section 56. In our view, the assessee's claim for apportionment is clearly supported from the various judicial pronouncements and we feel that the view expressed by the ITA T, Indore Bench, with due respect, cannot be accepted having regard to the Supreme Court and Gujarat High Court decisions relied upon by the Id. counsel for the assessee. Further, as already mentioned above, the principle of apportionment was already accepted by the Tribunal when the matter was restored back to the Assessing Officer and in our view, the Assessing Officer was duty bound to verify the details filed before him to find out what portion of the expenditure is referable to the loan on which interest income is earned, which is chargeable to tax under section 56. These details have been reproduced by the Id. C1T(A) at pages 2 to 4 of his order and for proper understanding of the factual position, it would be worthwhile to reproduce below the statement of average/ad-hoc allocations of cost of borrowing and adminis....
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....during the implementation period of the project. Hence, we direct the Ld.AO to delete additions made towards short term capital gain derived from sale of units of mutual funds. We, further direct the ld. AO to delete enhancement made by the ld. CIT(A) towards interest income earned from fixed deposits with banks invested out of idle funds of project. 34. The next issue that came up for our consideration from ground NO.5 of assessee appeal is dismissal of additional ground taken by the assesee claiming passenger service fees -security component of Rs.51,03,65,280/- not to be in the nature of income and the same ought to have been excluded from the total income of the assesee. The assessee has filed an additional ground before the Ld.CIT(A) claiming exclusion of passenger service fee- security component of Rs.51,03,65,280/- from the total income. The Ld.CIT(A) has admitted additional ground filed by the assessee, but rejected the contention of the assessee, on the ground that said income being passenger service fee-security component is income of the assessee assessable under the head income from other sources. 35. The ld. AR for the assessee, at the time of hearing submitted that....
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....ssesses by the decision of ITAT for AY 2008-09 37. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. It is an admitted fact that the Tribunal had considered an identical issue for AY 2008-09 in ITA No.2760/Mum/2012 and after considering relevant facts, including agreement between the assesee and the AAI and also instructions, dated 19/01/2019 issued by MOCA held that PSF-SC collected by the assessee could not be characterized as income u/s 2(24) r.w.s 5 of the I.T.Act, 1961, on the ground that the assessee has collected PSF exclusively for the purpose of security of the airport and also the assessee does not have any control over utilization of funds except for the stated purpose, as per agreement between the parties. We, further noted that although, the Tribunal, further observed that in case, there was any violation in utilization of the funds, as per the agreed terms, then the Ld. AO would be at liberty to treat such misappropriation as income of the assessee. But, said observations has been expunged in MA.239/Mum/2017 by the Tribunal. Form the above, it is very clear that the issue is fully covered in fav....
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....m all the passengers embarking at the airport. The said fee was initially collected by the concerned airline and then handed over to the assessee company for the sake of administrative convenience. As per terms, the PSF was chargeable @ Rs.200 per passenger, out of which Rs.70/- (i.e. 35% of PSF) was for use of assessee company for passenger facilitation services and the balance amount of Rs.130/- (i.e. 65% of PSF) was to be utilised for payment to security agency designated by the central government for providing security services at airport and the said component was called as Passenger Service Fee- Security Component (in short referred to as PSF-SC). The said portion i.e. Rs.130/- (65% of PSF) was deposited in an 'Escrow Account' pending utilisation. 14.9. During the year under consideration, the assessee included passenger facilitation component of PSF (i.e. Rs.70/- being 35% of PSF) as income of the assessee company. But the balance amount of Rs.130/- (i.e. 65%) portion was kept in separate 'Escrow Account' for which separate books of account were maintained in accordance with the Standard Operating Procedure (SOP) formulated by MOCA and, therefore, the same was not included....
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....administration of tax would become impossible. Therefore, if an amount is taxable under the law, assessee is bound to pay tax thereon and if an amount is not taxable under the Incometax law, then the tax cannot be recovered from the assessee without authority of law merely because assessee offered the same to tax during the course of assessment proceedings. Law in this regard is well settled now, and to begin with, reference is made on the landmark judgment of Hon'ble Delhi High Court in the case of CIT vs Bharat General Reinsurance Co Ltd 81 ITR 303 (Del.) Relevant portion from it is reproduced below: "It was true that the assessee itself had included that dividend income in its return for the year in question, but there was no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quite apart from it, it was incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included ....
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....operly instructed, is overassessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected." [Para 20] 14.13. In the case of CIT vs Lucknow Public Educational Society 318 ITR 223, it was observed by Hon'ble Allahabad High Court that the income tax department should not take undue advantage of the ignorance of the assessee in view of Board's Circular No. 14(XL-35)/1955, dated 11-4- 1955. 14.14. In the case of Nirmala L Mehta vs CIT 269 ITR 1, Hon'ble Bombay High Court, relying upon Article 265 of Constitution of India held that acquiescence cannot take away from the taxpayer, the relief he is entitled where tax is levied or collected without authority of law and, therefore, merely because the taxpayer offered a receipt to tax, that cannot take away its right in contending that the said amount was not chargeable to tax. 14.15. In the case of Balmukund Acharya vs DCIT 310 ITR 310 (Bom), Hon'ble Bombay High Court observed that the Apex Court and various High Courts have ruled that authorities under the Income-tax law are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act.....
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....ced, therefore, the amount collected by the assessee in the form of PSF-SC was in the nature of income of the assessee and liable to be taxed in its hands. In support of its view, reliance has been placed by the Board on the judgement of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau vs CIT 87 ITR 547 (SC) with a view to fortify its opinion. Subsequently, Ministry of Civil Aviation's office issued an order dated 19-01-2009 laying down accounting audit procedure in respect of PSF-SC. It was intended to act as Standard Operating Procedure (SOP) for accounting / audit of PSF-SC by the airport operator. In the aforesaid document, the whole procedure was duly explained how the amount has to be collected and to be kept in escrow account and to be disbursed for the purpose of security. Relying upon the Office Memorandum issued by the CBDT dated 30-06-2008, it was mentioned therein that the tax component may be charged to the PSF-SC account in proportion to its liability on standalone basis. The assessee was of the opinion that the aforesaid amount was not taxable in the hands of the assessee company, and therefore, while filing the return the same was not included in the ta....
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....the assessee before us, Hon'ble Allahabad High Court explained correct application of aforesaid judgment in the case of CIT vs. Sita Ram Sri Kishan Das 141 ITR 685 (All). In this case, the facts were that said assessee was a commission agent and was accountable for the recovery (called as Market Fee) which he made from the sellers of agricultural produce in terms of Krishi Utpadan Mandi Rules framed under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964. The Revenue treated the amount so collected by the agent as part of its taxable income being a trading receipt in view of judgment of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau vs CIT 87 ITR 547 (SC), supra. After analysing the facts of the case, it was held by the Hon'ble Court that the market fee realised by the commission agent does not form part of his trading receipt as he (the commission agent) held this amount only as a trustee for and on behalf of the Market Committee. Hon'ble Court applied the judgment of Hon'ble Supreme Court in the case of CIT vs. Sitaldas Tirathdas 41 ITR 367 (SC) and distinguished that of Chowringhee Sales Bureau P. Ltd. vs. CIT, supra. 14.20. Thus, at the outset, it is clearly visibl....
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.... legal force of binding effect. Further, it has been provided in section 119 that orders, instructions and directions shall be binding upon the incometax authorities. It is noted that Income-tax Appellate Tribunal does not fall under the list of Income-tax Authorities as has been provided in section 116 of the Act. Thus, these orders, instructions and directions shall not be binding upon the Income-tax Appellate Tribunal. Further it is noted that these have been held to be not binding upon the CIT(A) as stated above. Therefore, there is no question of there being any binding effect upon the Income-tax Appellate Tribunal of any such communication issued by the Board. 14.23. It is noted by us that this issue is not res integra, as it has been settled by Hon'ble jurisdictional High Court and Hon'ble Supreme Court in many cases. It was held by Hon'ble Bombay High Court in the case of Banque Nationale De Paris vs CIT (supra) that circulars cannot override or detract from the provisions of the Act in as much as section 119 of the Act has empowered the CBDT to issue orders, instructions or directions for the proper administration of the Act. Hon'ble High Court has taken into considerati....
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.... clarification has no authority in the eyes of law and the same has been rightly ignored by the assessee as well as by the appellate courts while determining the taxability of the impugned amount. 14.25. Thus, the aforesaid discussion take us to the third issue wherein we have been called upon to decide whether the impugned amount of PSF-SC collected by the assessee company on behalf of MOCA as per the relevant regulations for the purposes of meeting security expenses can be characterised as income in the hands of the assessee company and made liable to tax in its hands. 14.26. The brief facts related to the issue have already been narrated by us in earlier part of our order and just to recapitulate the relevant part of it, the licensee of an airport in terms of provisions of Rule 88 of Aircraft Rule, 1937, is responsible for collecting a fee from embarking passengers referred to as Passenger Service Fee (PSF) @ Rs.200/- per ticket. Portion of PSF being 35% was on account of providing passenger facilitation and was to be retained by the airport operator for providing passenger related services and the balance 65% of PSF represents security component to be utilised for payment o....
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.... receipts are fiduciary in nature, thereby ignoring the mandatory instructions issued by the Ministry of Civil Aviation from time to time under which, the assessee functions as an Airport Operator-the receipts being fiduciary in nature, and the mandatory instructions issued by the Ministry of Civil Aviation from time to time under which, the assessee functions as an Airport Operator make it taxable. When confronted by the second reconfirmation by the Ministry of Civil Aviation on 15.11.2010, the appellant had no other option, but to offer the receipts to tax for A.Y. 2008-09. Thus, as stated by the appellant on merits and in law that although the receipts of PSF (SC) in the hands of the appellant do not partake the character of income and by the 'Doctrine of Overriding Title' as they are to be utilized for security purposes-the issue being highly debatable and a legal difference of opinion being there the same has been offered for taxation. Hence I confirm this addition by the A.O. and thus, this ground of appeal is dismissed." 14.28. It is noted by us that both of the authorities got influenced and swayed away with the opinion expressed by the CBDT/MOCA and admission mad....
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....ected per passenger by such airport operator would be deposited in the Escrow account by the Airport Operator for payments to be made to CISF. The Escrow account would be subject to Government Audit of CAG. iv. In case any amount remains, this will be transferred to AAI by the airport operator through a process of mutual consultation for payment to CISF deployed for security purposes at other airports. In case of a dispute, the matter may be referred to the Ministry, of Civil Aviation whose decision will be treated as final and binding on both parties. 2. The new procedure will be effective from 01.042006. 3. This issues with the approval of the Minister of State for Civil Aviation (Independent charge)." 14.31. Subsequently another order was passed by MOCA dated 20th June, 2007 wherein it was inter alia clarified that security component of PSF was not regular revenue of the airport operator and the aforesaid amount will be utilised at the airport concerned only to meet security related expenses of that airport. Relevant part of the order is reproduced below:- "ORDER Sub: Collection of Passenger Service Fee (PSF) at Greenfield / Private airports - regarding. In this ....
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....der these circumstances, it is clear that assessee merely acted as a conduit or a trustee for collection and disposal of the impugned amount of PSF-SC. Under these circumstances, the aforesaid amount could not have been characterised as 'income' u/s 2(24), section 5 or any other provisions of the Income-tax Act, 1961. 14.33. It is noted that subsequently MOCA issued another order dated 19-01- 2009 containing Standard Operating Procedures for accounting / audit of Passenger Service Fee (Security Component) by the airport operators. The aforesaid order contained whole procedure in detail for collection and disbursement of the said amount. Relevant portion of the same is reproduced hereunder, for the sake of better clarity on facts related to conditions attached with regard to collection and disbursement of the aforesaid amount: "2. Nature of Security component of PSF: 2.1 Aviation security is an activity reserved for the Government of India. Force deployment at the airports, security requirements including the requirement of capital items and specifications thereof are laid down by the Government/Bureau of Civil Aviation Security (BCAS). As stated above, PSF is levied under Rul....
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....ty related expenses in terms of MOCA order dated 20.6.2007 or any other decision of MOCA/BCAS or any other Government agency, from time to time. iii) Deployment of Surplus: Any surplus standing at the credit of the Escrow Account should be deployed by the Escrow Bank in its own Deposit Account. On maturity or otherwise, the proceeds, shall be credited in Escrow Account. 14.34. The perusal of the above order containing SOP makes it clear that the amount collected by the airport operator is to be kept separately in 'Escrow Account' and the same is held by the airport operator in fiduciary capacity. It becomes further clear that the amount of any surplus left in the said account could not have been utilised for any purpose other than security related expenses. Under these circumstances, it was clearly not having any characteristics of income in the hands of the assessee company. The said SOP also contained certain guidelines with respect to taxability of the impugned amount. In our view, MOCA is not the designated authority to determine the taxability of the said amount as has also been discussed by us in detail in earlier part of our order and, therefore, to that extent, the obse....
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.... does so, not as part of his income, but for and on behalf of the person to whom it is payable." 14.38. Subsequently, in many judgments, various courts have, from time to time, analysed the law in this regard and suggested various tests to find out whether in a give facts it was a case of 'diversion' or 'application' of income. We find that the Hon'ble Allahabad High Court in the case of U.P. Bhumi Sudhar Nigam vs CIT 280 ITR 197 (All) formulated a set of four tests to find out whether in a given situation, it would be a case of diversion of income by overriding title or not. The Hon'ble Court, after analysing various other judgments suggested following principles:- (i) If a third person becomes entitled to receive an amount under an obligation of an assessee even before he could claim to receive it as his income, there would be a diversion of income by overriding title but when after receipt of the income by the assessee, the same is passed on to a third person in discharge of the obligation of the assessee, it will be a case of application of income by the assessee and not of diversion of income by overriding title. If income does not result at all, there cannot be a tax, eve....
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....rriding title. In a matter before Hon'ble Bombay High Court in the case of Somaiya Organo Chemicals Ltd vs CIT 216 ITR 291 (Bom), the facts were that a portion of the sales price was transferred to a separate fund for building up adequate storage facilities under a statutory obligation, it was held to be diverted at source by overriding title could not form part of assessee's income. 14.42. Ld. Counsel had also relied upon before us the judgment of Hon'ble Madras High Court in the case of CIT vs Salem Co-operative Sugar Mills Ltd (supra). The facts in this case were that the said assessee was a cooperative society, carrying on business of manufacturing and sale of sugar and in terms of Molasses Control (Amendment) Order dated 06-02-1972, transferred a sum in conformity with the statutory obligation cast by the above order and claimed it as deduction in the computation of its total income for the assessment year 1975- 76, which was disputed by the Revenue but allowed by the Tribunal. Hon'ble High Court affirmed Tribunal's order and observed that even before collection of the amount as directed by the Central Government under the Molasses Control ('Amendment) Order, the assesse....
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....account of Airport Authority of India for meeting security expenses. We had directed the assessee as well as the Ld. CIT-DR to examine requisite facts and inform us whether there was surplus or deficit in the escrow account finally. The information provided by the Assessing Officer, through Ld. CIT-DR, vide his letter dated 06-09-2016 reveals that upto the assessment year 2013-14 though there was surplus in the said account, but from A.Y. 2014-15 onwards, there was huge deficit, meaning thereby, the expenditure was more than the amount of collection. As per the terms of SOP issued by MOCA, if ultimately there was some deficit, then it was required to be funded by Government of India, and if there was ever any surplus (i.e. unspent amount), it was to be transferred to the account of Airport Authority of India (AAI). Thus, viewed from this angle also, there was no question of there being any income in this exercise, much less, any income, which could be characterised as taxable income in the hands of the assessee company. Thus, we have no hesitation in holding that the aforesaid amount is not taxable as income in the hands of the assessee company. The AO is directed to recompute the ....
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....evenue expenditure without appreciating that these expenses result in. enduring benefit to the assessee and hence is capital expenditure," 2(b) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to treat the expenditure incurred towards various expenditure such as realignment of nallah's in forecourt of proposed integrated Terminal, reallocation of CPWD staff and other operational expenditure as revenue expenditure ignoring the ratio of the decision of the Hon'ble Supreme Court in the case of CIT Vs. Mangayarkarasi Mills (315ITR1H) wherein it was held that replacement expenditure is neither current repairs nor revenue in nature which is squarely applicable to the assessee's case." 3(a) "On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in deleting the disallowance paid as retrenchment compensation to AAI for the relevant assessment year 2013-14." 3(b) "On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in holding that retrenchment compensation is allowable as a deduction u/s 37(1) of the Income -tax Act, 1961." 3(c) "On th....
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....red in holding that once an amount is held to be in the nature of tax, it cannot be subjected to further tax without appreciating that such amount constitutes construction receipt in the assessee's hands and hence liable to be taxed." 5(a) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance u/s. 14 A, without appreciating the fact that the AO. has properly recorded his satisfaction for invoking the provisions of Rule 8D and therefore since Rule 8D is invoked, the disallowance has to be worked out as per the formula prescribed therein and there is no scope for any deviation therefrom. 5(b)"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance u/s, 14A observing that since there is no exempt income, no disallowance can be made u/s. 14A without appreciating that as held in this decision of Special Bench of ITAT, Delhi in the case of Chemiinvest 121 ITD 318 (Delhi) (513), provisions of section 14A are applicable even through no exempt income has been earned during the year," 6. "On the facts and in the circumstances of the case and in law, whether the....
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....ll as the order of the Tribunal for A.Y. 2007-08 and find that the Tribunal has already decided this issue in favour of the assessee vide its order dated 14-02-2014 with the following observations: "We have carefully considered the orders of authorities below and submissions made by Ld. Representatives of the parties. We have also considered the relevant Articles of "OMDA" and the cases relied upon by the parties before the authorities-below (supra) as well as the cases referred before us. 10.1 The assessee is a Joint Venture company. it has entered into an agreement with "AAI" and under the agreement i.e. "OMDA", the assessee has been granted exclusive right, and authority to undertake some of the functions of "AAI" being functions of operation, maintenance; development, design, construction, up gradation, modernization, finance and management of Airport for an initial term of 30 years, which is extendable for a further period of 30 years on the same terms and conditions as applicable for the initial period, as per Article 18.1 of 'OMDA". Under the terms and conditions of OMDA", the assessee paid a sum of Rs.150 crores to "AAI" as upfront fee m described under Article 11.1....
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....ld that a right given to member of Stock-Exchange to carry on the business at the premises of the Stock-Exchange is a business or commercial right which is akin to license in terms of section 32(1)(ii) of the Act, therefore, eligible for depreciation. Their lordships have held that right to participate in the market is an economic and money value, itself satisfies the test of being a license. There is no dispute to the fact that the said payment of Rs.150 crores paid to "AAI" has not resulted to the assessee in the acquisition of any "tangible assets" like building, machinery, plants or furniture, Therefore the said payment of Rs.150 crores has not resulted into acquisition of tangible assets". Thus, the assessee has only acquired right to collect charges from the users of the Airport preemies, which is a business or commercial right in the form of license and therefore it is an Intangible assets" as per section 32(1)(ii) of the Act. The Hon'ble Delhi High Court In the case of Hindustan Coca Cola Beverages Pvt Ltd (supra) has also held that the assets which are included in the definition of "intangible assets" include, along with other things, any other business or commercial r....
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....nclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. 45. The next issue that came up for our consideration from ground No.2(a) and 2(b) of revenue appeal is disallowances of various expenditure such as realignment of Nallah, reallocation of CPWD staff, etc., as revenue expenditure The Ld. AO had considered such expenditure as capital in nature. However, the Ld.CIT(A) allowed such expenditure by following the orders of his predecessors and orders of the Tribunal in assessee's own case for earlier assessment years. 46. The Ld. AR for the assessee, at the time of hearing submitted that this issue is also covered in favour of the assessee by the decision of ITAT, 'B' bench for AY 2012-13 in ITA No.4382/Mum/2015, where it was held that expenditure incurred for realignment of Nallah and reallocation of CPWD staff etc., are revenue in nature. 47. The Ld. DR, on the other hand, fairly accepted that the issue is covered in favour of the assessee by the order of the Tribunal for earlier years. 48. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that an identical issue had....
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.... nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. ................................................................................................ .............. The Test of enduring benefit is, therefore, no certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particulars facts and circumstances of a given case." (Emphasis Supplied) The undisputed facts placed before us are that the assessee under the OMDA agreement with Airport Authority of India is operating, maintaining, managing developing the Mumbai Airport as per the international standard. Other obligations relate to overall management, development etc. As per the terms of OMDA, the assessee has to discharge various obligations in maintaining and operating the airport so as to bring it to the international standard. Thus, the assessee has to incur various expenses for such development and maintenance of the airport. During the year, the assessee has incurred the expenditure on various activities. The assessee has incurred the expenditure in maint....
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....ry. The assessee made payment of Rs. 8.48 crores to the UPPCL, which was the only customer, for construction of a transmission line and other supporting work for supply of power. When the said expenditure was held as capital expenditure by the Assessing Officer, the Hon'ble High Court held as under: "that the power transmission lines which were laid by the assessee were, upon erection, to constitute the exclusive property of the UPPCL. The UPPCL was the Mumbai International Airport P Ltd. 14 only consumer of the electricity generated by the assessee. The assessee incurred the expenditure to facilitate its own business. The fixed capital of the assessee was untouched and there was no capital accretion for the assessee. The expenditure which was incurred by the assessee in the laying of transmission lines was clearly on revenue account. Upon the erection of transmission lines, they were to vest absolutely in the UPPCL. The expenditure which was incurred by the assessee was for facilitating the efficient conduct of its business since the assessee had to supply electricity to its sole consumer the UPPCL. This was not an advantage of a capital nature." 24. Further, we noted that Hon....
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....le Supreme Court in the case of L H Sugar Factory And Oil Mills (P.) Ltd. vs. CIT [1980] 125 ITR 293 (SC), held as under: "Held, that, in the present case, the bridge was built by the Government and the assessee did not acquire any ownership over the bridge by paying contribution towards construction of the bridge. The assessee received no addition to the value of any of the assets owned by it for the payment. The bridge merely facilitated the movement of the workmen to gain access to the assessee's factory and for the movement of the goods over the bridge. The payment of contribution was made to the Government for construction of a new bridge in place of the old one which became unserviceable. The expenditure incurred was revenue expenditure in respect of the assessment year 1991-92." 27. In view of the aforesaid discussion, we do not find any infirmity in the order of the CIT(A) treating the said expenditure to be a revenue expenditure. It is accordingly upheld. Ground nos. 3 & 4 for A.Y. 2009-10, ground nos. 2 & 3 for A.Y. 2010-11 and ground no.2 for A.Y. 2011-12 are dismissed. Respectfully following the said order of the Tribunal, we confirm the order of the CIT(A) and di....
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....conditions. As per clause 6.14 in Chapter 6 of the OMDA, the assessee is obliged to make an offer of employment to a minimum of 60% General Employees at any time during the Operation support period but not later than three months prior to the expiry of the operation support period, that it wants to employ, an option to accept or reject the offer by employees. This clause further provides that if less than 60% of the general employees accept the offer of employment made by the assessee, then assessee shall pay to the Airports Authority of India retrenchment compensation for such number of general employees as represented by the difference between 60% of the general employees accepting the offer of employment made by the assessee. Thus, this clause specifically deals with the treatment of the retrenchment compensation to be paid to the Airports Authority of India at the occurrence of the events maintained in the said clause. The operational support period of three years has expired during the impugned assessment years under consideration and, accordingly, Airports Authority of India issued invoice dated 08.03.2010 for its claim towards retrenchment compensation amounting to Rs.....
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....the assessee from the block of plant and machinery and depreciation had been claimed on reduced amount of block of assets. However, the Ld. AO has treated development fees so collected as business income, since, it was collected and utilized for the purpose of business of the assesee. 56. The Ld. AR for the assesee submitted that this issue is covered in favour of the assessee by the decision of ITAT, Mumbai, 'B' bench in assessee own case for AY 2012-13, where under identical set of facts, the tribunal held that development fee collected from the passengers is in the nature of capital receipt and not exigible for tax. 57. The ld. DR, on the other hand, fairly accepted that this issue is covered in favour of the assessee by the orders of Tribunal for earlier years. 58. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that a similar issue had been considered by the co-ordinate bench in assessee's own case for earlier assessment years and after considering relevant facts, it was held that development fees collected from passengers could not be regarded as income of the assesee within the meaning of s....
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....ernment of India for levy of Development Fee for meeting out the said shortfall at such rates as may be approved by the Ministry. Pursuant to section 22A of the AAI Act, 1994, the Ministry has conveyed the approval of the Central Government u/s.22A of AAI Act authorizing the appellant to collect the Development Fee vide letter dated 27.02.2009, a copy of which has been filed by the appellant during the appellate proceedings. The appellant has been permitted by the Ministry of Civil Aviation. Government of India to charge fee of Rs.100 from departing domestic passengers and Rs.600 from departing international passengers. There are certain conditions attached with the collection of Development Fee. The fee so collected has to be spent mainly for development of 'Aeronautical Assets' only. The appellant cannot spend any amount from the collected Development Fee at will and has to maintain an account of the same which is subject to supervision and audit from the Central Government. The appellant has been permitted to collect amount only for 48 months and the same cannot be exceeded funding gap of Rs.1,543/- crores. The Ministry of Civil Aviation has vide F.No. AV.24011/001/2009-....
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....me to time. Further, Clause (g) of this letter stipulates that the amounts collected through Development Fee would under no circumstances exceed the ceiling of Rs. 1,543 crores and in case of cost escalation beyond Rs. 9,802 crores the escalation would have to be brought in by the appellant through other sources. Clause (h) of the said letter provides that in case of excess collection, the same cannot be utilized by the appellant for any purpose whatsoever without the prior approval of Regulator or the Government. Further, Clause (h) of the said letter also stipulates for downward revision of the amount of Development fee to be calculated in certain case. 9.8 Based on the above, it is evident that the levy of Development Fee is solely for the purpose of bridging the funding gap in connection with the development of Aeronautical Assets. For convenience, such Development Fee would be collected by various Airlines at the time they sell the tickets to the passengers and would be paid to appellant. Accordingly, the airlines are collecting the Development Fee levied u/s 22A of AAI Act from the passengers and paying the same to the appellant towards meeting the funding gap for devel....
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....g out the distinguishing factors between Development Fee and Toll Charges. After a careful perusal of the distinguishing factors between the two, I find that the Development Fee and Toll Charges are being levied and collected entirely on different footings and context. The origin of the Development Fee is from the provision of section 22A of the AAI, 1994 and the same is held to be cess or tax and to be used strictly for the purpose of subsection (a), (b) & (c) of section 22A of AAI Act. Thus, 1 notice that the collection of Development Fee has a legal backing and in the nature of cess or tax being collected with the approval of Ministry of Civil Aviation, Government of India/ Regulatory Authority as prescribed U/s.22A of the Act. This view has been confirmed by the Hon'ble Supreme Court in the case of Consumer Online Foundation vs. UOI & Ors (supra). So far as the collection of Toll Charges is concerned, the same is collected to recover the capital cost, operating and maintaining cost along with profit. The Toll Charges are determined as per the policy of the Government of India and are not in the nature of tax or cess. The Toll Charges are treated as revenue receipts in the h....
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.... Union of India & others, cited supra, wherein it has been held the Development Fee is a receipt in the nature of cess or tax for generating revenue for the specific 'purposes mentioned in clause (a),(b) & (c) of section 22A of the AAI Act. Further, it is pertinent to note once amount held to be in the nature of tax, it cannot be subject to further tax. It is also seen that various restrictions have also been imposed by the Central Government to ensure that the Development fee so collected is utilized only for the purpose of development of 'Aeronautical Assets' as per provisions of section 22A of the AAI Act. Further, a certificate from a Chartered Accountant has also been placed on record certifying the utilization of the Development fee so collected only for the purposes of acquiring /constructing the Aeronautical Assets. Accordingly, the collection of Development fee is therefore, meant only for specific purpose of acquisition / construction of capital assets and therefore, it is on capital account and not on revenue account. Thus, the nature of the receipt is capital and not revenue. Accordingly, I hold that the receipts of Rs.2,87,83,48,538/- on account of Developm....
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.... of his predecessor in the assessee's own case for A.Ys. 2010-11 and 2011-12, decided the issue in favour of the assessee. 59. In this view of the matter and consistent with view taken by the co-ordinate bench, we are inclined to uphold, the findings of the Ld.CIT(A) and reject ground taken by the revenue. 60. The next issue that came up for our consideration from ground No. 5(a) and 5(b) of revenue appeal is deletion of disallowances u/s.14A of the Act, r.w.s Rule 8D of I.T.Rules, 1962. The facts with regard to the impugned disputes are that during the year under consideration, the assessee had not earned any exempt income. However, since the assesee had made investments in equity shares of fully own subsidiary, the ld. AO sought to invoke provision of section 14A r.w.Rule 8D of I.T.Rules, 1962 and accordingly, made disallowances of Rs.5,500 to the total income of the assessee as well as added the same, while computing book profit u/s 115JB of the I.T.Act,1961 61. The Ld. AR for the assessee, at the time of hearing submitted that this issue is also covered in favour of the assessee by the decision of ITAT 'B' bench for AY 2012-13, where under identical set of facts, the Tribun....
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....red in favour of the assessee. 66. We have head both the parties, perused the material available on record and gone through orders of the authorities below. It is an admitted fact that the assesee had remitted employees contribution to ESIC before filing the return of income. In fact, the payments have been made within due date as per respective statute and delay is only on the part of banks in realizing the cheques. Once, the payments have been made on or before due date of filing return of income, then they same cannot be disallowed u/s 36(1)(va) r.w.s.43B of the I.T.Act, 1961. This legal proposition is supported by the decision of Hon'ble Bombay High Court, in the case of Hindustan Organics Chemicals Ltd. (supra) and Ghatge Patil Trasnports Ltd. (supra). Therefore, by respectfully following the above two decisions, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. 67. The next issue that came up for our consideration from ground No.7 of revenue appeal is disallowances of excess depreciation on taxiways and aprons as plant and machinery as against depreciation by treating the same as building. The Ld. AO has noted that the assesee h....