AI Drafter 
TaxTMI 
TaxTMI 
2020 (1) TMI 1609
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....n'ble Calcutta High Court in the case of Exide industries 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....
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....velopment fee g) Disallowance u/s 14A r.w.r8D h) Delayed payment of employees contribution of PF &ESIC Income from other sources 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 o....
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.... is on statute book. But, at the same time, it would not be entitled to make a claim in its return of income. The Ld. AR, further submitted that since, the matter is still pending before the Hon'ble Supreme Court, the matter may be set aside to the file of the Ld. AO and to decide the issue after final outcome of the decision 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 ....
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.... ground that, the provision was without any scientific basis and the liability had not accrued as on 31/03/2013. 10. The Ld. AR, for the assessee submitted that the Ld. AO and the Ld.CIT(A) did not truly appreciate the basis of provision made towards various expenditure, on the basis of estimates provided by the departments heads 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 subm....
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....claims, the assessee has dedcuted applicable TDS on said payment. We, further noted that the excess provision, if any is made, in respect of certain expenditure has been reversed, subsequently on payment of pending bills to the service providers. This practice has been followed right from last so many financial years. In the light of the 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 deduct....
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....sequent financial year and deduction of TDS on said amounts, as and when, payment is made to the parties. Hence, we restored the issue to the file of the Ld. AO with a direction that if any disallowances is made in the year under consideration, the Ld. AO shall consequently allow deductions to the assessee in the year of actual payment or reversal, 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 fro....
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.... mutual funds and fixed deposits made by the assessee, the said investments have been made for a period which varies from 03 days to 45 days. From the above, it is very clear that there is a direct nexus between the funds borrowed and funds invested and accordingly, where funds are inextricably linked with the project, then any income arised out 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 link....
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....ts disposal more funds disbursed than current requirement. Therefore, in order to reduce the cost of interest and to meet the stipulations of sanctioned loan, the assessee had invested such funds in the meantime in liquid investments like bank FD and mutual fund and earned income by way of interest on deposits and short term capital gain. It is the case 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 ....
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.... long as any sum is or may become payable under any Finance Document the Borrower shall, unless the Lender/Lenders Agent otherwise agree in wriging: (a)... (b)... (g) ensure that all amounts standing to the credit of any of the Retention Accounts are utilized/applied only in accordance with this Agreement: (h)...." 20. Thus, the assessee had no liberty to utilize the funds borrowed but it was obliged to utilize the funds only in accordance 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 ....
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....posit of the bank are filed at page 192 of the PB. On its perusal it can be seen that the assessee had invested in fixed deposit on 65 occasions for short period which varied from 8 days to 46 days. It is further submitted that there is direct nexus between the fund borrowed and fund invested. Therefore, the interest paid on borrowed amount needs to be taken into account while computing income from the investment. It is submitted that it is well settled is law that if the funds inextricably linked with the project are utilized in making income yielding investment, then such 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 ....
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....ilisers Ltd. (supra), as contended by the Revenue. The distinction in the application of the two aforesaid judgments of the Hon'ble Supreme Court has been aptly brought out by the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra) in the following words:- "In our opinion, the Tribunal has misconstrued the ratio of the judgment of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals [1997] 227ITR 172 and that of Bokaro Steel Ltd, [1999] 236 ITR 315. The test which permeates through the judgment of the Supreme Court in Tuticorin 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 re....
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.... of the assessee under the head "Income from other sources". The CIT(A) upheld the order of the Assessing Officer. However, the Tribunal, and later High Court, allowed the claim of the assessee. On further appeal by the Revenue, the Supreme Court upheld the order of the High Court and held that the rationale laid down in the case of Bokaro Steel Ltd. would apply. The relevant observations of the Supreme Court are extracted below for the sake of ready reference; "11. Further, the rationale of judgment of Bokaro Steel Ltd. (supra) was followed in CIT vs. Karnal Co-operative Sugar Mills Lid. (2000) 161 CTR (SC) 241 : (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....
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....lier. Such interest income being directly relatable to the terms of the contract for acquiring a business asset should go to reduce the cost of the asset acquired out of the transaction. Hence, the interest could not be taxed as income from other sources, but should reduce the cost of assets acquired out of the transaction. The Revenue filed appeal before the Hon'ble Supreme Court and the same was dismissed with following observations: "In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement 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 Alkal....
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....f the assessee. It is also to be noticed that the assessee was not paying any interest on such funds as it is its share capital which is meant were setting up of the project only. Such deposits are, in our opinion, inextricably linked with the project and are part of capital work-in-progress. The Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd., reported in (2009) 181 taxmann 249 (Del) and in the case of CIT Vs. Facor Power Ltd,, reported in (2016) 66 Taxmann.com have reiterated the principle laid down in the case of Bokaro Steel Ltd., (supra) to hold that 'the interest' earned on funds primarily bought for infusion in 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 as....
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....making investments giving rise to impugned income. The Assessing Officer has declined to consider the interest paid on the borrowed funds, which were utilized for making investment in Mutual Fund, for the reason that there is no provision for allowing interest expenses for computing, income under Chapter VII of the Act. The CIT(A) has upheld the order the Assessing Officer. Further, the CIT(A) has added interest earned on fixed deposit without granting any deduction for interest paid on borrowed funds utilized for making investment in fixed deposits. 30. It is submitted that interest paid on borrowed funds is required to be taken into account while computing the income of 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 consider....
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....n question were incurred on the funds utilized for acquisition of shares in the past In fact as per the Statement of Facts filed before the CIT(A), the assessee had tabulated the amount of interest capitalized along with the cost of shares, which were purchased in the past. The assessee had also asserted before the CIT(A) without rebuttal, that the interest cost so incurred in the past was not claimed as a deduction against any other income. Be that as it may, in so far as the factual position is concerned, there is no denial by the Revenue that monies borrowed have been utilized for acquisition of shares in question. Therefore, having regard to the factual findings of the CIT(A), in 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 Mumb....
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....u/s.57(iii) of the Act. After taking into account rival submissions, the Tribunal held that the directions were issued to the Assessing Officer after taking into account that the principle of apportionment of expenditure allowable u/s. 57(iii) was inherent. However, the Assessing Officer proceeded with assumption that the assessee's claim was not allowable at all u/s.57(iii) of the Act. The Tribunal rejected the contentions of the DR in respect of alienability of deduction and apportionment and directed the Assessing Officer to work out quantum of interest expenditure which is allowable u/s. 57(iii) of the Act. The relevant observations of the Tribunal are extracted below: "8. The 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 ....
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.... case of Smt. Padmavathi Jaikrishna (supra). In this case, the assessee derived income from other sources In the shape of interest dividend etc. Out of the interest of Rs. 26,986 paid by the assessee on monies borrowed, the ITO disallowed a sum of Rs. 10,239 on proportionate basis on the ground that to that extent the loan was used to discharge the assessee's liability for payment of incometax, wealth-tax and annuity deposits. In these circumstances, it was held by the Supreme Court that the Department was justified in disallowing the interest on the loan, which was not incurred for the purpose of making investment yielding interest and dividend income. Similarly, in the case of Ms. Ila R. 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 u....
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....igible for deduction of interest cost from the corresponding income arising out of investments made out of borrowed funds. Hence, we direct the Assessing Officer to grant such deduction while arriving at taxable income arising from such investment. However, this is without prejudice to the main finding that the income itself is not taxable and should go to reduce the cost of the project. 33. In this view of the matter and considering the ratio of case laws discussed hereinabove, we are of the considered view that short term capital gain derived from sale of units of mutual funds and interest earned from fixed deposits kept in banks out of idle funds of project is rightly credited to capital working progress account, 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 add....
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....s-Security component from the income of the assessee. 36. The Ld. DR on the other hand strongly supporting order of the Ld.CIT(A) submitted that although, the issue is decided in favour of the assessee for earlier assessment year 2008-09, but, there is a specific observations in the order of the Tribunal to the effect that in case any violations in utilization of funds, then the Ld. AO is at liberty to treat such misappropriation as income of the assesse. The Ld.CIT(A) based on said observations of the Tribunal has brought out various misappropriations, in respect of utilization of funds as per audit report of CAG. Therefore, it is incorrect on the part of the assesee to say that the issue has been fully covered in favour of the assesses 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 coll....
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....ed over all the three issues and few other allied issues which were germane to the issues before us and necessary for deciding these grounds, and all these issues are decided hereunder one by one. 14.8. With regard to the first issue, the brief facts and background brought before us are that in pursuance to process of privatisation of airports in India, the assessee company had entered into an agreement in the nature of OMDA with Airport Authority of India to operate, maintain, develop, design, construct, upgrade, modernise, finance and manage the Chhatrapati Shivaji International Airport at Mumbai (hereinafter called 'airport', in short). As per Rule 88 of the Aircraft Rules, 1937, the assessee was entitled to collect a fee termed as 'Passenger Services Fee (PSF) from 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....
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.... of law and would not make the aforesaid amount as liable to be taxed in the hands of the assessee, if the same is actually not liable to be taxed as per the provisions of the Income-tax Act. 14.10. We have analysed this issue. It is well settled position of law that an amount can be brought to tax in the hands of an assessee only in accordance with the provisions of Income tax Act. This fundamental position has been well explained and well settled in many judgments. It is well settled that there is no estoppels against law. No tax can be collected except with the authority of law as per clear mandate of Article 265 of Constitution of India. If the taxes are to be collected depending upon consent/concurrence of the taxpayers or otherwise, then it will lead to chaotic situation and 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 set....
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....ear position regarding the effect of the circular, it was obvious that in the instant case it was incumbent on the Income-tax officer to advise the assessee to claim relief under section 2(5)(a )(iii) if the proceeding or any other particulars before him at the stage of the original assessment indicated that the assessee was entitled to such relief under the provisions of the relevant Finance Act, 1965, so far as the order under reference was concerned......" 14.12. Further reference is placed upon another judgment in the case of S.R. Koshti 276 ITR 165 (Guj) in which relief was granted to assessee with following observations: "The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly 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 u....
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....ion takes us to the second issue wherein we have been called upon to decide about the binding legal force of the opinion expressed by CBDT and MOCA vide their office memorandum/ instructions for determining taxability of the impugned amount. It is admitted fact on record that the assessee company collected PSF-SC in view of the order issued by MOCA vide its order dated 09th May, 2006. The terms of the order have been modified / amended from time to time as per the requirements. One such order issued by MOCA was issued on 20th June, 2007. Subsequently, CBDT issued an Office Memorandum dated 30/06/2008 in pursuance to the request made by the concerned officials of MOCA regarding taxability of PSF-SC, wherein it has been observed that since the assessee company was collecting this amount in the course of business and assessee was rendering facilitation and securities services whether in-house or outsourced, 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 ....
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....d. The aforesaid judgment has different facts, wherein, the amount of sales-tax was received by the said assessee and deposited in its bank account. The funds got mixed in assessee's accounts. Thus, in case of non payment by the said assessee, the same became income of the seller (the said assessee), whereas the facts are totally different in the case before us. The amount here was collected purely in fiduciary capacity and the same was deposited in escrow account on which assessee had no control at all; the assessee had no discretion at all upon its usage. No reasoning has been made out by the CBDT while issuing its opinion as to how the said judgment was applicable on the facts of this case. It is noted by us that aforesaid judgment came up for consideration before many courts wherein its true meaning and scope of its applicability was explained time to time. In one such matter having similar facts as to 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 (....
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....er the Board has power to decide the taxability of a particular receipt nor has it got any power to interfere with the appellate functions of Commissioner (Appeals), which is judicial in nature. Thus, in view of the aforesaid legal scenario coupled with facts of this case as discussed above, we have strong doubts if at all the Board could have issued any instructions to decide the taxability of amount collected by the assessee company on account of PSF -SC in a purely fiduciary capacity. This task of determination of taxability has been left by the legislature upon the shoulders of the designated AO, who is obliged under the law to determine the same strictly in accordance with the provisions of the Income-tax Act, 1961. 14.22. Further, aforesaid clarification issued by the Board in this case is actually an "Office Memorandum". It is an interdepartmental communication. In our view, Office Memorandum would not carry the 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 Au....
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.... be binding on the authorities enshrined in the Act. 14.24. Thus, taking guidance from the aforesaid legal discussion as has been clarified by the Hon'ble jurisdictional High Court as well as by Hon'ble Supreme Court, it is clear that the Office Memorandum issued by CBDT to MOCA cannot hold an amount as taxable, if the same is otherwise not taxable as per the provisions of the Income-tax Act, 1961. Further, as far as the clarification issued by MOCA is concerned, it is noted that the role of MOCA was confined to issuing Standard Operating Procedures and other guidelines to the airport operators to ensure that funds collected by the assessee company in the fiduciary capacity on behalf of MOCA are properly kept and disbursed for the designated purposes only. It has no jurisdiction to determine the taxability of the impugned amount. It clearly had no jurisdiction in holding the same as taxable and, therefore, to that extent its order / 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 t....
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.... reveals that none of the authorities have made independent application of mind to independently determine whether the impugned amount could have been characterised as income in the hands of the assessee. Relevant part of order of Ld. CIT(A) is reproduced hereunder, for the sake of ready reference:- "I have considered the submissions and arguments of the appellant. It is undisputed that the Ministry of Civil Aviation had already issued its guidelines and instructions to the assessee on 19.01.2009, thereby clarifying the taxability aspect of PSF(SC) in the hands of the assessee notwithstanding the assessee's resistance and belief that such receipts are fiduciary in nature and not taxable. Further, the Ministry of civil Aviation reaffirmed its decision once again vide Instruction dated 15.11.2010. Therefore, the appellant had erroneously resisted from offering the receipts on account of PSF(SC) to tax purely on the basis of its own belief that PSF(SC) 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 fiduciar....
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....Venture. Companies to own and operate airports in the Country, the manner and mode of collection of Passenger Service Fee (PSF) at airports have been engaging the attention of the Government for some time. The matter has been deliberated with Airports Authority of India and other airport operators and it has now been decided that: - i. CISF will be deployed as per the assessment of BCAS at airports operated by JVCs or private operators also. ii. Passenger Service Fee (PSF) at airports would he collected by the respective Airport Operator, which could be AM, JVC, or a private operator. iii. The amount of PSF to be collected will he fixed by the Ministry of Civil Aviation. The amount will continue to be Rs.200/- per passenger till further orders. The airport operator would retain Rs.70/- towards passenger facilitation. An Escrow account would be opened whenever the airport operator is a JVC or private operator. This account will be operated by the airport operator (not by AM). Rs.130/- of the PSF collected 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 ....
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....lised at the airport concerned, only to meet security related expenses of that airport. The security agency designated in this regard was CISF. It is further noted that the funds so collected were to be deposited in an Escrow account which was subject to the government audit of CAG. Further, in case of any amount was left in the said account, it was to be mandatorily transferred to Airport Authority of India by the airport operator. Thus, from the above said facts and circumstances of the case and terms and conditions it is clear that the said amount was collected by the assessee on behalf of MOCA to be disbursed for security purposes to CISF deployed by the Ministry of Home Affairs. The amount was collected and retained purely in fiduciary capacity. The assessee had no discretion or freedom at all to utilise the aforesaid amount for any other purposes other than the designated purpose of meeting security expenses. So much so, even the surplus left if any, was not at the disposal of the assessee company but was to be mandatorily transferred to the account of Airport Authority of India as per the prescribed procedure. Under these circumstances, it is clear that assessee merely acted....
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....Escrow Account provisions, term and Termination, Representations and Warranties of Escrow Bank and JVC/Private operator and Miscellaneous provisions. 3.4 Parties to the Escrow Agreement would consist of JVC/Private operator and Escrow Bank. However, the Escrow Account Agreement will have a clause by which the MOCA will have supervening power to direct the Escrow Bank on the issues regarding operation as well as withdrawals from Escrow Account. 3.5 Escrow Account shall be maintained, controlled and operated by Escrow Bank under the Escrow Agreement as under: i) PSF (SC) Account: JVC/Private Operator shall deposit immediately all PSF (SC) collections into the PSF (SC) Account. ii) Withdrawal from PSF (SC) Account: The Escrow Bank shall allow withdrawal by JVC/Private Operators of amounts deposited into the PSF (SC) account only towards the following purposes, in the order of priority by descending under: a. To pay amounts towards taxes, including Income Tax on PSF(SC) income as per provisions of Income Tax Act, 1961, Service Tax or any other statutory does. b. To pay for security related expenses to Central Industrial Security For....
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....ent in the case of CIT vs Sitaldas Tirathdas 41 ITR 367 (SC) which is still followed in many other judgments by various courts all over the country. The relevant part of the judgment laying down an acid test to decide such issues is reproduced hereunder: "In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. 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 first is a ca....
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....unt was permitted or directed to be collected from the passengers with this clear understanding and prior stipulation that 65% of the same is meant for security agencies. Thus, the assessee merely acted as a collection agent. Thus, applying the first principle, the impugned amount would fall in the category of diversion of income. 14.40. As far as the other three principles are concerned, the crux of these three principles is to find out whether the assessee had, in substance, earned any income. In other words, these three principles suggest application of the concept of 'real income', which suggests that unless the income has been earned by a person in real sense, the same cannot be held as taxable income. There has to be first income and only then its taxability could be determined. It is noted by us that in the facts before us, no portion of the amount collected on behalf of AAI / MOCA is reported to have been retained by the assessee as its income in as much as nothing belonged to it. Thus, the impugned amount is clearly not taxable in the hands of the assessee. 14.41. It is further noted by us that in many cases, wherein under some requirement of law if the a....
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....gar Mills Ltd 269 ITR 397 (SC) and CIT vs Ambur Cooperative Sugar Mills Ltd 269 ITR 398 (SC) wherein it was held that the amount set apart towards molasses reserve fund constituted diversion of income by overriding title, and therefore, it was held to be excludible from assessee's total income. Similarly, in the case of CIT vs Bijli Cotton Mills Pvt Ltd 116 ITR 60 (SC), the Hon'ble Supreme Court held that when right from the inception, amount of 'Dharmada' was collected and held by the assessee company under an obligation to spend for charitable purposes only, then those amounts were not its trading receipts and was not taxable as business income. 14.44. Before parting with, we have also analysed the facts about utilization of the impugned amount. The Escrow Account maintained by the assessee is simply a pool created by the MOCA through assessee for meeting security expenses. Under these circumstances, if at all any income can be computed, that would be possible only if any surplus arises, which is not possible to happen since entire amount collected by Assessee Company is deposited in Escrow Account which is earmarked wholly and exclusively for meeting security expenses. ....
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....e assessee towards security of airport and to be utilized as per terms of agreement between the parties could not be regarded as income of the assessee and hence, needs to be excluded from total income. Therefore, we direct the Ld. AO to exclude PSF-SC of Rs.51,03,65,280/- from total income of the assesee. 39. In the result, appeal filed by the assessee is allowed for statistical purposes. ITA No.2385/Mum/2018:- 40. The revenue has raised the following grounds of appeal: 1) "On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred n deleting the disallowance of 25% depreciation on upfront fees of Rs. 150 crore without considering the fact that the assesses has not acquired any absolute rights on the Airport, so as to equate it with a license, but invested the AAI has granted the assessee the right to perform certain functions during the contract period of 30 years and hence the assesses is entitled for deduction only the proportionate amount i.e. l/30lh of Rs. 150 crore." 2(a)"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 ....
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....d in the circumstances of the case and in law, the learned CIT(A) erred in holding that Development Fee collected by the assessee from the embarking passengers at the Chhatrapati Shivaji International Airport, Mumbai during the Financial Year 2012-13, relevant for the assessment year 2013-14, is a capital receipt and not a revenue receipt." 4(b) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that Development Fee collected by the assessee company is a capital receipt based on its application for acquisition of capital assets without appreciating the fact that application of receipts does not determine the nature and taxability of the receipts," 4(c) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in relying on the decision of the Hon'ble Supreme Court in the case of Consumer Online Foundation vs.r Union of India & Others without appreciating that in that case the issue before the Hon'ble Apex Court was whether the assesse company as a lessee of AAI, can collect development fee from the embarking passengers at the Chhatrapati Shiavaji International Airport, Mumbai and the....
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....the assesee. The assesse had paid Rs.153.85 crores to AAI, as per the terms of OMBA. The Ld. AO noted that this issue has been examined at length in AY 2007-08 and depreciation claimed thereon was disallowed. According to the Ld. AO, the assesee is entitled to claim depreciation @1/30th of entire expenditure and accordingly, allowed depreciation of Rs.5 crores as against depreciation claimed by the assesee @25% on upfront fees paid to AAI. 42. The Ld. AR for the assesee submitted that this issue is squarely covered in favour the assessee by the orders of the ITAT, Mumbai ''B'' bench in assessee own case for AY 2008-09 ITA No.3232/Mum/2012, where under identical set of facts, the Tribunal held that the assesee is entitled for depreciation @25% as applicable to intangible assets. The Ld. DR, on the other hand, fairly accepted that this issue is covered in favour of the assessee for AY 2008-09 onwards. 43. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that the co-ordinate bench of ITAT, Mumbai 'B' bench had considered an identical issue for AY 2007-08 onwards and after considering relevant facts....
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....es as to whether the assessee has got the lease right or license by making this one-time payment of Rs.150 crores to "AAI" as upfront fee. 10.2 That the AO has stated that the assessee has got lease hold rights for a period of 30 years and whereas the assessee has contended that the assessee has got a license for a period of 30 years and as such it is an Intangible assets" . Thus, the assessee is entitled for depreciation as per section 32(1)(ii) of the Act. We observe that the said amount of Rs.150 crores paid by assessee is non-refundable. The assessee has got the privilege under OMDA" to collect charges of the nature as mentioned in the agreement entered into i.e. "OMDA" from the users of Airport premises. We observe that it is not a case where the assessee has got the transfer of a right to enjoy the Airport premises. The assessee only got a license or right to do something at the Airport premises. The Hon'ble Apex Court has held in the case of B. M. Lal (supra) that the transaction is a lease, if it grants the interest in the land and whereas it is a license if it gives a personal privilege with no interest in the land. We are of the considered view that the asses....
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....T(A) has rightly held that the payment of upfront fee of Rs.150 crores paid by assessee to 'AAI" has created capital assets in the form of license to develop and modernize the Airport and collect charges as per terms and conditions as prescribed under the agreement entered into which is an "intangible assets" to the assessee. Thus assessee is entitled for depreciation. 10.3 Hence, the disallowance of Rs.22.50 crores made by AO has rightly been deleted by Ld. CIT(A) by directing the AO to allow depreciation at the rate of 25% on the said payment of upfront fee of Rs.150 crores. Thus, Ground No.1 taken by department is rejected." 7.5. Thus, it is noted from the above that the Tribunal has held that the amount paid on account of upfront fee is in the nature of an "intangible asset" eligible for depreciation and accordingly allowed the claim of depreciation upon the same. The assessee has claimed depreciation in the impugned year on the WDV of the same asset. Therefore, we find that no different decision can be taken in the year under consideration, more so, when no distinction has been made on facts or law, therefore, respectfully following the order of the Tribunal, the ....
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.... assessee for A.Ys. 2009-10, 2010-11 and 2011-12 and whatever view is taken therein shall be applicable to this year also. We find that the Tribunal vide its order dated 13.11.2017, in the A.Ys 2009-10, 2010-11 and 2011-12 has decided the issue in favour of the assessee, by observing as under: 22. We have heard the rival submissions and carefully considered the same along with the orders of the authorities below. We have also gone through various judgments as has been to before us as well as the CIT(A). It is a settled law, in view of the decision of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT (82 ITR 363), that assessee's entitlement 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 existence or absence of entries in the books of accounts be decisive or conclusive in the matter. We have also gone through the decision of Hon'ble Supreme court in the case of Empire Jute Co. Ltd. vs CIT (124 ITR 1) wherein the deductibility or otherwise of an expenditure incurred during the course of business activities was decided by observing as under: There may be cases ....
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....e said expenditure in the books of account as capital expenditure. The allowability of expenses for the purpose of Income tax, as has been held by us in the previous paragraphs, following the decision of Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT (supra), will depend on the provision of income tax Act and not on the view which the assessee might take of his rights nor can existence or absence of entries in the books of accounts be decisive or conclusive in the matter. Since the ownership of the road vest with MMRDA, the assessee in our opinion does not get any direct benefit of enduring nature. No doubt the passengers travelling to the international airport were benefited by way of smooth access to the airport. The assessee made one time contribution for the construction of the said road. By this contribution no asset is created by the assessee but in commercial sense, in our opinion, the incurrence of such expenditure certainly facilitates the business of the assessee. This expenditure cannot be held to be capital expenditure merely because the business of the assessee is getting enduring benefit. In our view, the business exigencies demand ....
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.... Mills Ltd. [2005] 272 ITR 487 (Raj), following the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. [1980] 124 ITR 1 (SC) held as under: "In determining whether a particular expenditure is capital expenditure or revenue expenditure the test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. The mere fact that the amount spent has been used for construction of a building or structure of permanent nature is not the decisive test for holding the expenses to be capital outlay or revenue outlay. Where such construction does not result in acquisition of any capital assets to the trade of the assessee or the property does not become the property of the assessee, it does not result in acquisition of an asset enduring nature by the assessee. Secondly, it is also clearly discernible that if such expenses are incurred for the purpose of the business for deriving any benefit whether to preserve the business or to facilitate the running of the business more smoothly or to make the business more profitable or to secure any other advantage....
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....n of ITAT, Mumbai 'B' bench for AY 2012-13, where under identical set of facts, the Tribunal held that amount paid to AAI towards retrenchment compensation is allowable as deduction u/s 37(1) of the I.T.Act, 1961. 52. The Ld. DR, on the other hand, fairly accepted that this issue is covered in favour of the assessee 53. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that co-ordinate bench of ITAT, Mumbai, considered an identical issue in assessee's own case for AY 2012-13 and by following its earlier order for AY 2011-12 decided the issue in favour of the assessee. The relevant findings of the Tribunal are as under:- 6. Ground no.4 relates to deletion of the disallowance of Rs. 17,22,24,000/- paid as retrenchment compensation to AAI. Both the parties agreed that identical issue had arisen in the case of the assessee for A.Ys. 2010-11 and 2011-12 and whatever view is taken therein shall be applicable to this year also. We find that the Tribunal vide its order dated 13.11.2017, in the A.Ys 2009-10, 2010-11 and 2011-12 has decided the issue in favour of the assessee, by observing a....
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....ver the period of four immediately succeeding assessment years. 34. We have gone through the provisions of section 35DDA. We noted that the said provision is applicable only if the assessee has incurred any expenditure in any previous year by way of payment of any sum to a employee in connection with voluntary retirement. In this case, we noted that the assessee has not incurred any expenditure by way of payment made to employees but the payment has been made by the assessee to Airports Authority of India in accordance with clause 6.14 of the OMDA on account of retrenchment compensation to be paid by Airports Authority of India to its employees. It is not an amount which the assessee is paying to its employees on their retrenchment. Therefore, the provisions of section 35DDA will not apply. It is not denied that the expenditure incurred by the assessee is revenue expenditure. We noted that the CIT(A) while dealing with the issue, following the order of his predecessor in the assessee's own case for A.Ys. 2010-11 and 2011-12 deleted the said disallowance. 54. In this view of the matter and consistent with view taken by the co-ordinate bench, we are inclined to uphold the....
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....ned DR relied on the order of the Assessing Officer while the learned AR vehemently contended that the said development fees has been collected with the permission of the Ministry of Civil Aviation pursuant to the provisions of Rule 22A of the Airports Authority of India Act, 1994 and are in the nature of cess or tax to met the shortfall that arise in the development of aeronautical assets. The development fees so collected are utilized only for purpose of development of capital assets and the same is certified by the chartered accountant. Therefore, the said income is a capital receipt. We noted that the CIT(A) has elaborately discussed the provisions of the agreement entered between both the parties and has held as under: "9.5 I have considered the submissions of the appellant and the order of the AO. The appellant is engaged in operating, managing, developing, designing, constructing, upgrading, modernizing and financing the Chhatrapati Shivaji International ("CSI") Airport of Mumbai under an agreement known as "OMDA"' with Airport Authority of India ("AAI"). The estimated cost for modernizing and development of CSI Airport of Mumbai was Rs.9,802/- crores. Against t....
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....ay determine, the excess amount so collected shall not be utilized, for any purpose whatsoever, without the prior approval of the Regulator/Central Government. (i)An independent Auditor appointed by AAI would audit the receipts/accruals of MIAL on periodic basis. Periodicity of the audit would be decided by AAI in consultation with MIAL. AAI would report the results of audit to Government/ Regulator for necessary directions. (j)MIAL would undertake real estate development programme on a time bound basis through competitive bidding at the earliest. In case, the amount actually received/receivables as a result of competitive bidding is more than the presently estimated amount of Rs.1,000/- crores, the funding gap of Rs. 1543 crores would be revised downwards at the time of review." The above clearly indicates that the government had worked out the collection of Rs. 1543 crores in the total gap of Rs.2,350 crores by factoring that MIAL can earn around Rs.1,000 crores through the real estate development program. 9.7 As per clause (b) (ii) of the said letter, the AAI and Central Government would have supervision powers in respect of escrow account to ensure th....
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....'ble Supreme Court bus categorically made the distinction between Section 22 and Section 22A of AAI Act. In the said judgment, Hon'ble Supreme Court has also held that Development Fee is in the nature of Cess or Tax for generating revenue for the specific purposes mentioned in Clause (a), (b) and (c) of Section 22A of AAI Act. The Hon'ble Supreme Court in the said decision held that the nature of levy u/s.22A of 2004 Act is not charges or any other consideration for services for the facilities provided by the Airports Authority. The Supreme Court in this judgment also quoted from the decision in the case of Vijayalashmi Rice Mills & Ors. v. Commercial Tux Officers, Palakot & Ors. (Supra) that a cess is a tax which generates revenue which is utilized for a specific purpose. The levy under Section 22A of AAI Act though described as fees is really in the nature of a cess or a tax for generating revenue for the specific purposes mentioned in clauses (a), (b) and (c) of Section 22A of AAI Act. Further, the appellant also contended once the SC has held that the Development fee is in the nature of tax or cess, no further tax can be levied on the same treating the same as incom....
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....atment of Development Fee should be as per the guidelines given in AS-12 - Accounting for Government Grants issued by the Institute of "Chartered Accountants regarding grant against the assets. The another important and distinguishing factor is that the collection of Development Fee is required to be kept in a separate Escrow Account and subject to several restrictions whereas there is no such stipulation in the case of Toll Charges. The Toll Charges cover operating and maintenance cost of a particular facility and the quantum of the same is fixed as per the policy of the Government of India. 9.12 Looking to the distinguishing factors between the Development Fee and Toll Charges, I find that there is no similarity at all. The Toll Charges by itself is a revenue receipt embedded with the recovery of the cost of the assets, administrative expenses as well as the profits and the same is collected after the asset is created and put to use. The Development Fee is collected under the authority of a law meant for utilization of specific purposes and prior to creation of assets. The appellant's hands are completely tied in utilizing the Development Fee whereas the same is not ....
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....Act 1994, under which the assessee has collected the development fees and also the terms and conditions attached to the said collection as well as its utilization. Not only this, the CIT(A) has also referred to the decision of Hon'ble Supreme Court in the case of Consumer Online Foundation vs. Union Of India & Others [2011] 5 SCC 350 (SC), where the apex court has categorically made the distinction between section 22 and section 22A of Airports Authority of India Act. In the said judgment, the Hon'ble Supreme Court has also held that development fees is in the nature of cess or tax for generating revenue for specific purposes as mentioned in section 22A(a) to section 22A(c) of the Airports Authority of India Act. In the said judgment it was held that the nature of levy u/s. 22A of 2004 Act is not charges or any other consideration for services for the facilities provided by the Airports Authority. The learned DR, even though relied on the order of the Assessing Officer, he did not deny the interpretation given by the Hon'ble Supreme Court in respect of section 22A of the Airports Authority of India Act. It is not denied that the development fees so collected are utilized only for t....
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....ordinate bench had considered an identical issue for AY 2012-13 and by following the decision of Hon'ble Bombay High Court decision, in the case of Pr.CIT vs .Ballarpur Industries Limited in ITA No.51/2016, dated 13/10/2016 has deleted additions made by the Ld. AO towards disallowances made u/s 14A r.w.Rule 8D of I.T.Rules, 1962. The facts are being pari materia with facts, which have been already considered by the Tribunal for earlier years. Therefore, by respectfully following the decision of co-ordinate bench, which in turn referred the decision of Hon'ble Bombay High Court in the case of CIT vs Ballarpur Industries Ltd. (supra). We are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. 63. The next issue that came up for our consideration from ground No.6 of revenue appeal is disallowances of employees contribution of ESIC u/s 36(1)(va) r.w.s. 43B of the I.T.Act, 1961. The Ld. AO had disallowed belated remittances of employees contribution to ESIC, on the basis of inputs given in tax audit report by relying on the provision of section 2(24) (x) r.w.s. 36(1)(va) fo the Act. The Ld.CIT(A), by following the decision of Jurisdictional Hig....
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....bai 'B 'bench in assessee's own case for AY 2012-13, where under identical set of facts, the Tribunal has directed the Ld. AO to allow depreciation @15% on taxiways, aprons, bridges and parking bays as plant and machinery as claimed by the assesse. 69. The Ld. DR, on the other hand, fairly accepted that the issue is covered in favour of the assesse by the decision of ITAT, for earlier years. 70. We have head both the parties, perused the material available on record and gone through orders of the authorities below. We find that an identical issue had been considered by the co-ordinate bench of ITAT, Mumbai, in assessee's own case for AY 2012-13, where the Tribunal by following its earlier order for AY 2007-08 held that the assessee is entitled for depreciation @15% on taxi ways, aprons, bridges and parking boys as plant and machinery. The relevant findings of the Tribunal are as under:- 9. Ground no.7 in revenue's appeal relates to the rate of depreciation allowed on taxiways, aprons, parking bays and bridges @15% instead of 10%. We find that the CIT(A), while allowing depreciation @15% on taxiways, aprons, parking bays and bridges, has followed the decision of the T....