TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 388
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....f Article 12 of the Constitution and consequently exempt from Union tax as per Article 289 of the Constitution. 2.1 The ld. A.R. for the assessee made following submissions in respect of the issue that is common among all the above appeals viz., whether the assessee is a State within the meaning of Article 12 of the constitution and consequently exempt from union taxation as per Article 289 of the constitution. 2.2 The assessee in these appeals is Bangalore Metro Rail Corporation Limited. The assessee is a joint venture of Government of India and Government of Karnataka is a Special Purpose Vehicle entrusted with the responsibility of implementation of Bangalore Metro Rail Project. 2.3 The ld. A.R. submitted that the creation of Metro Rail Corporations across the country is contemplated by The Metro Railways (Operation and Maintenance) Act, 2002 [for short, the 'Metro Railways Act']. The said Act was promulgated by the Parliament as an Act to provide for the operation and maintenance and to regulate the working of the metro railway in the National Capital Region, metropolitan city and metropolitan area and for matters connected therewith and incidental thereto. 2.4 Section 2(h)....
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....nsist of a Chairperson who would be a serving or retired judge of a High Court and two other members of the qualification specified in Section 34. It is also provided under section 37 that the recommendations of the Fare Fixation Committee shall be binding on the metro railways administration. 2.9 It is the contention of the assessee that it is an agent/instrumentality of the state and hence in view of the Article 289 of the Constitution of India, the Income Tax Act, 1961 is not applicable to the assessee. Article 12 and 289 of the constitution are reproduced below - Article 12. In this Part, unless the context otherwise requires, "the State" includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India. *** Article 289. (1) The property and income of a State shall be exempt from Union taxation. (2) Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by,....
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....the property and income is that of the State, a question may well arise whether it is still taxable in view of the provision of Clause (2) of Article 289 which dominantly is in the nature of a proviso. Clause (2) empowers the Union to impose any tax to such extent as Parliament may by law provide, in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operation connected therewith. Thus, even the income of the State within the meaning of Clause (1) of Article 289 may be taxed by law made by the Parliament, if such income is derived from a trade or business of any kind carried on by or on behalf of the Government of a State or any operations connected therewith. Clause (1) of Article 289, therefore, empowers Parliament to frame law imposing a tax on income of a State which is earned by means of trade or business of any kind carried by or on behalf of the State Government. That is to submit, that Clause (2) empowers the Parliament to make a law imposing a tax on income earned only from trade or business of any kind carried by or on behalf of the State. It does not authorize the Parliament to impose a tax on the income of a Stat....
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....d that it is pertinent to appreciate the organizational structure of the assessee, duties & responsibilities assigned to various managerial personnel and the relationship of the assessee vis-à-vis the State Government & the Central Government, and towards the public at large. The same is explained as follows: 2.20 The assessee Company was incorporated in the year 1994 and the Government of Karnataka held the entire 100% share capital of the company. Given the enormous financial requirement for the project and the Central Government's commitment to assist the State Government in this project for the sake of public welfare, in the year 2006 the Central Government decided to contribute capital to the Company and the sole venture of the Government of Karnataka was thus transformed into a Joint Venture of Government. The shareholding pattern of the assessee Company since then is - 50% held by the Government of India and 50% held by the Government of Karnataka. The assessee is thus a Government Company under section 617 of the Companies Act, 1956. 2.21 The Main object of the Company as provided in its Memorandum of Association is to establish, operate and maintain a Rapid Rail T....
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....ernment of Karnataka in the effective implementation of the Metro project through the assessee company. 2.25 The MOU describes the assessee as a Joint Venture Company of Government of India and Government of Karnataka within the meaning of section 617 of the Companies Act, 1956. 2.26 Clause 6.1 of the MOU provides for Institutional Arrangement as follows: The Project will be implemented by joint venture Company with Government of India and Government of Karnataka as partners. The Executing Agency i.e., the BMRCL, which is a company, established under the Companies Act, will work as a Special Purpose Vehicle for the implementation of the Project. 2.27 Clause 10.1 provides that the financing for the project will be done by way of Equity (equally by both GOI and GOK), Sub-ordinate debt (by both GOI and GOK) and Senior-term debt (from domestic/international financial institutions). Clause 10.3 provides that Government of Karnataka will exempt the assessee from its State/Local taxes and duties/levies or reimburse the same. 2.28 Clause 12 provides the obligation of the Government of Karnataka as follows: * Government of Karnataka shall bear the entire cost of land and R&R through....
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....ssessee before taking recourse to the Senior-term debt in order to minimize the cost of borrowing to the assessee; * To make available Senior-term debt from Japanese International Co-operation Agency (JICA) directly to the assessee through gross budgetary resources in the form of Pass Through Assistance (PTA) on back-to-back basis; * Not to give any assignment to the assessee unilaterally; * To place the annual report of the assessee before the Parliament; * To reply to the CAG's audit observations; * To place the Government of India officers, if required, on deputation to the assessee under the administrative control of the assessee's board of directors. 2.30 The clause 14 of the MOU provides for the obligations of the assessee as follows: * The assessee having been set up as a joint venture of the Government of India and the Government of Karnataka is meant exclusively for the implementation of the project and shall not undertake any new assignment unless mutually agreed by the Promoters; * The assessee shall not without the prior approval of the promoters/Empowered Group of Ministers change the funding pattern; * To open an escrow account with a scheduled bank a....
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.... its earnings. Therefore, as a contingency to this eventuality of the assessee not being able to repay the debts, the MOU provides, under clause 12(15) that the Government of Karnataka shall support the assessee Company, for cash losses in the event of default in repayments of its debts on due dates. This itself proves that the assessee is not created with a profit motive, inasmuch as its object is purely for public purpose and essentially a government prerogative.. 2.35 The ld. A.R. submitted that the project essentially belongs to the Government of Karnataka as apart from the Equity contribution, along with Government of India, Government of Karnataka has the responsibility to fund additional amounts towards land and reimbursement of State taxes as sub-ordinate debt out of the budget of the State Government, inter alia. 2.36 The same is further proved by the manner in which the Government of Karnataka has participated in the project as detailed in Clause 12 (see point 3.11 (f)(iv) supra). The cost of the land is being borne by the Government of Karnataka and it is provided that the same shall rank as a sub-ordinate debt i.e., a debt subordinate to all the other debts. Therefore....
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....ector Undertaking, but a Board governed Company. Since the Board consists of the nominees of the State Government and the Central Government, with the general management vested with the nominee of the state government, this in itself creates a distinct identity for itself and hence cannot be compared with any government undertaking that are subject to the provisions of the Income Tax Act, 1961. 2.42 The ld. A.R. submitted that the functions and powers of the assessee indicate that it is acting as an extended arm of the State Government in establishing rail based rapid transport system and it being an instrumentality and agency of the state Government is a 'State' and its income cannot be brought to tax in view of Article 289 of the Constitution of India. 2.43 He further submitted that even if the assessee is to be viewed in the form of a company and not as a state, even then the income derived by the corporation from its activities of providing rail-based rapid transit system would be the income of the State. The doctrine of the separate entity or personality of the Company is always subject to the exceptions and thus if veil is lifted, it will be clear that despite the c....
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.... submitted that in Biharilalllobray v. Roshan Lal Dohray reported in (1984) 1 SCC 551 (SC), the Supreme Court held that, even though the incorporation of a body corporate may suggest that the statute intended it to be a statutory corporation independent of the Government it is not conclusive on the question whether it is really so independent. Sometimes the form may be that of a body corporate independent of the Government but in substance it may be just the alter ego of the Government itself. The true test of determination of the said question depends upon the degree of control the Government has over it, the extent of control exercised by the several other bodies or committees over it and their composition, the degree of its dependence on Government for its financial needs and the functional aspect, namely, whether the body is discharging any important Governmental function or just some function which is merely optional from the point of view of Government. He submitted that the assessee passes all the tests necessary in the opinion of the Supreme Court in this case and qualifies itself as a State. 2.48 The nine judge bench of the Supreme Court in New Delhi Municipal Council v. ....
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.... a body which has public or statutory duties to perform and which performs those duties and carries out its transactions for the benefit of the public and not for private profit. Such an authority is not precluded from making a profit for the public benefit. 82. Part IV of the Constitution gives a picture of the services which the state is expected to undertake and render for the welfare of the people. Article 298 provides that the executive power of the Union and State extends to the carrying on of any business or trade. As I said, the question for consideration is whether a public corporation set up under a special statute to carry on a business or service which Parliament thinks necessary to be carried on in the interest of the nation is an agency or instrumentality of the State and would be subject to the limitations expressed in Article 13(2) of the Constitution. A state is an abstract entity. It can only act through the instrumentality or agency of natural or juridical persons. Therefore, there is nothing strange in the notion of the state acting through a corporation and making it an agency or instrumentality of the State. 98. The state may aid a private operation in var....
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....and its constitutional accountability under Part III vis-a-vis the individual if it were in fact acting as an instrumentality or agency of Government. 2.53 The ld. A.R. relied on the decision in the case of Som Prakash v. Union of India AIR [1981] SC 212 wherein the Hon'ble Supreme court has laid down four tests to check if an organization is instrument or agent of the Government. Justice Krishna Iyer speaking for the majority summarized the tests that may be applied to determine whether a particular authority is an instrumentality of the State or not. They are : "1. One thing is clear that if the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of Government. 2. Existence of deep and pervasive State control may afford an indication that the corporation is a State agency or instrumentality. 3. It may also be a relevant factor. . .whether the corporation enjoys monopoly status which is State conferred or State protected. 4. If the functions of the corporation are of public importance and closely related to Governmental functions, it would be a relevant factor in clas....
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....based transportation system for the public use, hence there is hence monopoly created. There is the authority vested in the Government to create such a monopoly consistent with the provisions of Article 19 of the Constitution and the State Government, which owns the company, may discharge these functions through the instrumentality of this corporation for which sufficient provision is made in the Memorandum and Articles of Association. This also gives an indication that it is an instrumentality of the State. (d) The fourth test that the functions of the corporation are of such public importance and so closely related to Governmental functions, as already discussed in detail in the foregoing submissions, must also be said to have been satisfied. (e) The fifth test is not applicable to the assessee's case in as much as the project is novice and thus embarked directly under the flagship of the assessee Company and thus the question of transferring an already existing department does not arise. 2.55 Thus, all the tests laid down by the Hon'ble Supreme Court in Som Prakash v. Union of India (supra) are fulfilled by the assessee Company. 2.56 The ld. A.R. submitted that the Hon'ble....
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....nto existence for the purpose of framing housing schemes to solve the problem of acute shortage of accommodation in Bombay and in effect, it is a Government sponsored body not having any profit making motive. The same principle applies to the assessee. The assessee has been created for the sole purpose of addressing the transportation and pollution problem of the Bangalore City as provided in the preamble of the MOU. 2.60 He submitted that it is clear from the above that the assessee is an instrumentality or agency of the State and accordingly a State within the meaning of Article 12 of the Constitution and hence it is submitted that the income of the assessee constitutes income of the state and consequently the same is not exigible to income tax. 2.61 The ld. A.R. in the end placed reliance on the decision of the Mumbai Tribunal in the matter of City and Industrial Development Corporation of Maharashtra Limited v. ACIT reported in 160 TTJ 477 (Mumbai) where the Hon'ble Tribunal after detailed examination of the facts held that since the assessee was engaged in construction and development of residential and commercial structures totally on behalf of State, revenue authorities we....
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....22. 5. We have heard the rival submissions and perused the materials available on record. The argument of the Ld. A.R. is totally misconceived. We have also gone through the Article 289 of the Constitution, which provides for exemption of property of income of a state from Union taxation. For clarity, we will mention the Article 289 of the Constitution, which reads as under:- (1) "The property and income of a State shall be exempt from Union taxation. (2) Nothing in clause (1) shall prevent the Union from imposing, or- authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. (3) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of government." 5.1 The main contention of the ld. A.R. is that assessee is a wing of the Karnataka State Gove....
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....can be said to be income of the State of Andhra Pradesh. 5.2 In this connection, we may refer to the observations made by Lord Denning in Tamlin Vs. Hannaford (1950) 1 KB 18: 18. "In the eye of the law" said Lord Denning, "the corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants, and its property is not Crown property. It is as much bound by Acts of Parliament as any other subject of the King. It is, of course, a public authority and its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within the province of government." 5.3 These observations tend to show that a business activity carried on by the corporation is not a business activity carried on by the State departmentally, or is it a business activity carried on by a State through its agents appointed in that behalf. 5.4 The observations made by Lord Denning, viz., "It is, of course, a public authority and its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within th....
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....under Companies Act for the purpose of operation and maintenance and to regulate the working of Metro Railway in and around Bangalore so as to meet the Urban Transport requirement in Bangalore, thereby assessee carrying on the activity of railway transport of passengers and this is an independent corporation managed by a Board of Directors. The assessee corporation was enjoying monopoly i.e it was the only organisation involved in transport of passengers through rail in and around Bangalore. The assessee has been carrying on the transport of the passengers through rail in and around Bangalore by charging for tickets. The ticket price has been fixed by the corporation not at cost to cost price and it has been fixed with an element of profit. The assessee is not functioning under the policy of no profit and no loss. On the other, it is a profit oriented organisation and no profit no loss has not been the policy of the corporation and the assessee also a monopoly corporation in this field. In our opinion, the activity of transporting the passengers through rail in and around Bangalore to be considered as a business activity and the activity carried on by the assessee is nowhere differ....
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....fit and loss arising therefrom are the profit and loss of the Corporation. The income derived by the Corporation from its trading activities cannot be said to be the income of the Andhra Pradesh State under article 289. There is no repugnancy whatever between the provisions of the Indian Income-tax Act, 1922, and the Road Transport Corporations Act, 1950, so as to make the provisions of the Income-tax Act inapplicable to the Road Transport Corporation. A corporation constituted under the Road Transport Corporation Act, 1950, though statutory, has a personality of its own distinct from that of the State or other shareholders. It cannot be said that a shareholder owns the property of the corporation or carries on the business with which the corporation is concerned. The income derived by such a corporation from its trading activity cannot be claimed by the State which is one of the shareholders of the corporation." 5.10 Further, we place reliance on the judgement of Hon'ble Supreme Court in the case of Adityapur Industrial Development Authority (283 ITR 97), wherein held as under: "4. It would thus be seen that the income of a local authority chargeable under the head "Income ....
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....ze the Parliament to impose a tax on the income of a State if such income is not earned in the manner contemplated by Clause (2) of Article 289. This, to our mind, does not answer the question which arises for our consideration in this appeal. Clause (2) of Article 289 pre- supposes that the income sought to be taxed by the Union is the income of the State, but the question to be answered at the threshold is whether in terms of Clause (1) of Article 289, the income of the appellant/ Authority is the income of the State. Having regard to the provisions of the Bihar Industrial Areas Development Authority Act, 1974, particularly Section 17 thereof, we have no manner of doubt that the income of the appellant/ Authority constituted under the said Act is its own income and that the appellant/ Authority manages its own funds. It has its own assets and liabilities. It can sue or be sued in its own name. Even though, it does not carry on any trade or business within the contemplation of Clause (2) of Article 289, it still is an Authority constituted under an Act of the Legislature of the State having a distinct legal personality, being a body corporate, as distinct from the State. Section 1....
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....alf of the assessee. ................................................. 20. Having considered all aspects of the matter we hold that the High Court is right in concluding that the appellant/ Authority could not claim exemption from Union taxation under Article 289 (1) of the Constitution of India. The impugned notice issued by the Income Tax Authorities was, therefore, valid and legal and could not be successfully challenged in the writ petition. Accordingly, this appeal is dismissed but without any order as to costs." 5.11 Being so, we do not find any merit in this ground of appeal and same is dismissed in all assessee's appeals. 6. Next common ground in all the years from 2011-12 to 2015-16 is with regard to taxation of reimbursement of state tax revenue receipt instead of treating it as capital receipt. We consider the facts as narrated in AY 2011-12. 6.1 Facts as narrated in assessment year 2011-12 are considered for brevity. The AO made an addition in respect of receipt of such sum from the Government of Karnataka. In assessment year 2011- 12, the said amount was Rs.50 lakhs. The said sum relates to subordinate loan released by Government of Karnataka, under the Major He....
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.... utility-based business activities. Accordingly, for the above reasons and also considering the detailed reasoning given by the AO in the assessment order, this ground of appeal was not allowed by the ld. CIT(A). 6.6 The assessee has also separately argued before the ld. CIT(A) that its income is not taxable on the basis of taxation principle 'diversion of income by overriding title' on the ground that income it receives is only on behalf-of the state and therefore the same does not constitute income for the purpose of taxation, however, the ld. CIT(A) observed that since the earlier ground has not been allowed, question of adjudication of this ground does not arise. Accordingly, this ground was dismissed by the ld. CIT(A). Against this assessee is in appeal before us. 7. The ld. A.R. submitted that the learned AO has made an addition of Rs.50 crores in respect of the receipt from the Government of Karnataka towards reimbursement of state taxes. The addition has been made by the AO by invoking the section 41(1) of the Act. In the appeal before CIT(A), the assessee submitted the copies of Government Order and case laws in support of the submission that the reimbursement is....
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....ve submission may be taken on record and the said addition of Rs.50 crores may be deleted for the advancement of substantial cause of justice. 8. The ld. D.R. relied on the order of the lower authorities. 9. We have heard the rival submissions and perused the materials available on record. The assessee is said to be received refund of sale tax from the State Government. The said amount has not been offered for taxation. The AO treated it as a revenue receipt. According to the assessee, it is a subordinate loan released from the Government in pursuance to its commitment for funding the Metro Rail project and to be considered as a capital receipt only being State Government as a shareholder of the assessee corporation. On the other hand, the contention of the ld. D.R. is that it is a refund of sale tax to be treated as a revenue receipt. In our opinion, if the amount has been granted to the assessee towards the capital cost incurred by the assessee, the same to be considered as capital receipt. On the other if it is granted to the assessee towards refund of the sale tax as incentives, the same to be brought to tax as a revenue receipt. In our opinion, the character of the receipt h....
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....constitute business promotion expenses and therefore cannot be disallowed on the facts of the case. The assessee also contended that donation was made to one M/s A K Gopalan Trust, an education trust of Rs.50,000/- and therefore it is eligible for deduction u/s 80G of the Act. 11. The ld. CIT(A) had gone through the submissions of the assessee and observed that the donation of Rs. 1,00,00,000/- to Red Cross Society, Japan Relief Fund cannot be claimed as business promotion expenses and therefore requires to be disallowed. As regards the other expenses Rs. 3, 83,156/-, the ld. CIT(A) observed that the gifts and donations are required to be supported by bills and vouchers and in the absence of the same the addition is required to be sustained. Accordingly, the addition was upheld to the extent of Rs. 3, 83,156/-. The assessee raised a claim before the AO during the course of assessment proceedings that the interest amount received during the year is not taxable and was erroneously offered to tax. The AO has rejected the claim of the assessee. The assessee contended during the course of appeal proceedings that the claim may be allowed as the interest is not taxable in view of the dec....
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....diture on Gifts of Rs.3,33,156/- is business promotion expenses, viz., the expenditure on gifts given to foreign dignitaries, high ranking government officials, etc., which is in line with corporate practice and since the amount is relatively small, it is requested that it may please be allowed in the interest of justice. 12.7 The ld. A.R. submitted that the donation to M/s A K Gopalan Memorial and Charitable Trust is allowable u/s 80G to the extent of 50% and therefore the learned AO may be directed to grant the deduction under section 80G of the Act. 12.8 The CIT(A) however failed to appreciate the submissions of the assessee and upheld the disallowance. 12.9 The ld. A.R. prayed before this Tribunal to appreciate the submissions of the assessee and delete the additions made. In view of the above submissions on merits of the matter and the submissions on legal issues submitted in the common synopsis filed before this tribunal, the ld. A.R. prayed to allow this appeal in the interest of justice. 13. The ld. D.R. relied on the order of the CIT(A). 14. We have heard the rival submissions and perused the materials available on record. In our opinion, any expenditure incurred from....
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....ng of the AO that the forward contract premium relate to contracts in relation to capital goods and therefore need to be capitalized and the case laws relied upon by the assessee are on different facts and not applicable to the assessee's case. Accordingly, the ground was dismissed and the addition was upheld by the ld. CIT(A). 16. The ld. A.R. submitted that the learned AO has disallowed a sum of Rs.1,77,09,543/- in respect of the forward contract premium debited to the Profit and Loss Account. The same was challenged before ld. CIT(A) who upheld the addition. The said amount basically reflected the difference in exchange rate between the forward rate and the rate prevailing on the date of entering into forward contract. 16.1 The ld. A.R. submitted that the difference between the forward contract rate and the prevailing exchange rate represented the cost of entering into forward contracts which crystallized in its entirety during the impugned year. Once crystallized, the entire difference i.e., liability is allowable as deduction. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Woodward Governor India (P) Ltd., reported in 312 ITR 254 (S....
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....ed to be utilised in the course of business or for a trading purpose or for effecting a transaction on revenue account, loss arising from depreciation in its value on account of alteration in the rate of exchange would be a trading loss, but if the amount is held as a capital asset, loss arising from depreciation would be a capital loss. 18.3 In case of CIT vs. V.S. Dempo & Co Pvt. Ltd (206 ITR 291) which has specifically laid down principles in order to decide whether loss/gain arising out of foreign exchange fluctuations is in nature of revenue or capital, of which at para 5 of said principles which says as follow: "Loss resulting from depreciation of the foreign currency which is utilised or intended to be utilised in business and is part of the circulating capital, would be a trading loss, but depreciation of fixed capital on account of alteration in exchange rate would be capital loss. 18.4 In view of this, we remit this issue to the file of AO to decide afresh in the ratio laid down by Hon'ble Supreme Court in the case of Sutlez Cottton Mills Ltd. cited (supra). The issue is remitted back to the file of AO for fresh consideration in assessment year 2013-14 & 2014-15. 19.....
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....0/- which constitutes capital receipt in the hands of the assessee may be reduced from the income offered for taxation and consequently the total income of the assessee may to be reworked. 21.3 Whereas in the assessment proceedings, the ld. A.R. submitted that the learned Assessing Officer considered the submissions and took them on record, but denied the claim on the ground that the interest income is chargeable to tax and not exempt from tax. The Ld. CIT(A) noted that the claim cannot be allowed as the assessee started the commercial operations during the period under consideration. The CIT(A) failed to appreciate that the Phase 2 of the Metro Project was under construction and the funds insofar they related to Phase 2 cannot be brought to tax. The CIT(A) further erred in holding that the assessee ought to have made a claim by way of return of income. 21.4 The ld. A.R. submitted that in view of the decision of the Tribunal in the assessee's own case the learned Assessing Officer is not justified in denying the claim of the assessee and accordingly the same is exempt from tax. 21.5 The ld. A.R. further submitted before the CIT(A) that the proceedings before Commissioner of Inco....
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.... In this case, the claim of the assessee is that interest amount received during the year is not taxable and was erroneously offered to tax and placed reliance on the earlier decision of the Tribunal wherein observed that the interest income earned pre-commencement period not taxable. However, in the present assessment year 2012-13, the business of the assessee has already commenced and it is in the expansion stage and the interest earned from surplus funds after commencement cannot be considered as not taxable though it was received for expansion of the project. Accordingly, this ground of assessee is rejected in AY 2012- 13. Revenue's appeal in ITA No.1048/Bang/2019: 24. Facts of the case are that the AO has made an addition of Rs.20,21,69,745/- representing the interest on term deposits which the assessee did not offer for taxation The assessee contended that since it was involved in the activity of construction of Metro rail projects, therefore the receipts earned during the construction period are capital in nature, as the deposits from which they arose were only made to reduce the cost of borrowing and there was no income generating activity. The assessee contended that the....
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....Articles of Association of the Company. Interest earned by the company from the various loans given by the company and also from the bank deposit,3 which were considered by the departmental authorities as income and brought to tax was the subject matter of the tax reference case before the Hon'ble Apex Court. The following question of law was referred to the Court for the decision:- "Whether, or. the .facts and in the circumstances of the case: interest derived by the assessee from the borrowed funds which were invested in short-term deposits with banks would be chargeable to tax under the head "Income from other sources" or would go to reduce the interest payable by the assessee on the term loans secured by the assessee from financial institutions, which would be capitalised after the commencement of commercial production." In that context, it was held thus: "4. The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income tax. Profits and gains of business or profession is only one of the heads under which the company's income is liable to b....
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....uch as water, sewerage boards, municipal corporations, etc. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and, therefore, the assessee is a nodal agency formed/ created by the Government of Karnataka as per the guidelines; there is no profit motive as the entire fund entrusted and the interest accrued therefrom on deposits in bank though in the name of the assessee has to be applied only for the purpose of welfare of the nation/ States as provided in the guidelines ; the whole of the fund belongs to the State Exchequer and the assessee has to channelise them to the objects of the Centrally sponsored scheme of infra-structural development for the mega city of Bangalore. Funds of one wing of the Government are distributed to the other wing of the Government for public purpose as per the guidelines issued. The monies so received, till they are utilised, are parked in a bank. The finding recorded by the Tribunal clearly shows that the entire money in question is received for implementation of the scheme which is for a public purpose and the said scheme is implemented as per the guidelines of the Central Government and....
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....export of horticultural produce. Before the said grant was utilized for the specific purpose it was parked in fixed deposits and the interest was earned and by the subsequent additional evidence produced by the assessee before the Tribunal, it is further made clear that the State Government has categorically specified that any interest earned on those grants originally granted has to be considered as an additional grant and not an income of the assessee- Company. As explained by the Apex Court, in Bongaigaon Refinary and Petrochemicals Ltd. case, (supra), in Tuticorin's case, the investment in deposits was made by the' Company during its formative period by investments and in 8°P:or° Steels Ltd., case (supra) the inextricable link between the interest earned and the set up of the plant was established. Thus, in. the present case we are of the view that this is not an investment made subsequent to the setting up of the project but this is the unutilized income parked in fixed deposits for a temporary period and inextricable link for the interest earned on the grants and the original grant made by the State Government to set up a project is established as in Bokaro ....