TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1443
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....st under Section 80IA of the Income Tax Act, 1961 (herein after referred to as " the IT Act"). 3. The Appellant filed a Miscellaneous Application against the said Order dated 28th May, 2020, submitting that the Order contained grave errors of both facts and law. By an Order dated 27th April, 2021, the ITAT dismissed the said Miscellaneous Application. The Appellant has filed the present Writ Petition challenging the said Orders dated 28th May, 2020 and 27th April, 2021. 4. We will first consider the Appeal filed by the Appellant. INCOME TAX APPEAL NO. 1139 OF 2021 5. The Appellant, during the previous year relevant to A.Y. 2012-13, was engaged in its only business of operating and maintaining a container terminal at Jawaharlal Nehru Port Trust (JNPT), which was eligible for deduction under the provisions of Section 80IA of the IT Act. 6. During the previous year relevant to A.Y. 2012-13, interest income arose out of the said eligible business of the Appellant. It is the case of the Appellant that interest was earned out of money accrued from the eligible business of the Appellant and the same was also utilized for the purpose of its eligible business. The interest was earned f....
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....he IT Act for various amounts inter alia including interest earned on fixed deposits, which was accepted as being part of business income and accordingly allowed as deduction by the AO. The Appellant responded to the said Enhancement Notice vide its various submissions. The CIT(A), by an Order dated 31st October, 2017, rejected the Appellant's submissions qua eligibility of interest earned on fixed deposits under Section 80IA of the IT Act as not being derived from an industrial undertaking. The CIT (A) was of the view that the interest income derived from the bank against parking of surplus funds cannot be considered to be derived from the activity of the industrial undertaking merely by reason of the fact that the activity may be resulting in earning the said income in an indirect, incidental or remote manner. 12. Aggrieved by the CIT(A) Order dated 31st October, 2017, the Appellant preferred an Appeal before the ITAT. 13. By an Order dated 28th May, 2020, the ITAT rejected the contentions of the Appellant. 14. The Appellant thereafter filed a Miscellaneous Application against the Order dated 28th May, 2020 passed by the ITAT. In the Miscellaneous Application, the Appellant su....
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....riff by TAMP. However, the Appellant was directed to keep an account of every such transaction. Further, collection of any tariff amount over and above the new tariff prescribed was made subject to further orders of this Court. 21. Mr. Kaka submitted that the financials of the Appellant for A.Y 2012-13 clearly reflect the above position. Mr. Kaka submitted that the Appellant had an obligation to replace cranes costing approximately Rs. 531 crores and had also received differential tariff, under the order of this Court, aggregating to approximately Rs. 29 crores. The Appellant, in order to comply with its obligation for maintaining and operating the port and accounting for differential tariff, kept money in fixed deposits aggregating to approximately Rs. 169 Crores. Upon this interest was earned amounting to Rs. 8,67,66,538/-, upon which deduction under Section 80IA was claimed. 22. In addition, Mr. Kaka also referred to the financials of the Appellant for the years ending 31st March, 2023 and 31st March, 2024 to show the redemption of fixed deposits by the Appellant for actual purchase of cranes under its obligation under the said License Agreement. The said financials showed tha....
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....(SC); (c) CIT v/s. Shree Rama Multi Tech Ltd. (2018) 403 ITR 426 (SC); (d) Arul Mariammal Textiles Ltd. v/s. Assistant CIT (2018) 97 Taxmann.com 298 (Madhya Pradesh); (e) CIT v/s. Lok Holdings (2009) 308 ITR 356 (Bom) (f) CIT v/s. Indo Swiss Jewels Ltd. (2006) 284 ITR 389 (Bom); (g) ITO v/s. Hiranandani Builders (2017) 83 Taxmann.com 65 (ITAT-Mum); (h) PCIT v/s. Hiranandani Builders (Income Tax Appeal No.1413 of 2016); (i) CIT v/s. Jagdish Prasad M. Joshi (2009) 318 ITR 420 (Bom) (j) TEMA Exchangers Manufactures Pvt. Ltd., v/s. ACIT (Income Tax Appeal No. 415 of 2004-Bom) 28. Further, Mr. Kaka submitted that, in the following judgements, the Courts have allowed interest and similar receipts to be included for working out the exemption under Sections 80IA, 80I, 88C etc. as long as there is nexus to the business;- (a) CIT v/s. Meghalaya Steels LTD. [2016] 383 ITR 217 (SC); (b) CIT v/s. Nagpur Engineering Co. Ltd., [2000] 245 ITR 806 ; (c) CIT v/s. Symantec Software India Pvt. Ltd., (ITXA No. 1534 of 2012); (d) PCIT v/s. Dishman Pharmaceuticals and Chemicals Ltd. [2019] 417 ITR 373; (e) ACG Associated Capsules Pvt. Ltd., v/s. CIT [2012] 343 ITR 89 (SC); (f....
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....ts funds in any manner it decides, but the same is immaterial for the purpose of deduction under Section 80IA. The profit so deployed may generate further profit, i.e., the fruits of profit. However, the entire profit made by the assessee in a year is not allowed for deduction but only that part of the profit which is generated in the process of creation of eligible infrastructure assets is deductible. 34. Mr. Sharma further submitted that, in Section 80IA of the IT Act, the expression "derived by" an undertaking or an enterprise is limited/ qualified by the expression "from any eligible business". He submitted that this limitation on profit for deduction under Section 80IA of the I.T. Act from an eligible business applied to all assessees whether they were an undertaking or an enterprise. 35. Mr. Sharma further submitted that whether interest income is income from other sources or is business income derived from an eligible business is primarily a question of fact for which the ITAT is the final authority and therefore no question of law arises in the present case. 36. In support of his submissions Mr. Sharma relied upon the following judgements : a) Liberty India Vs. CIT [20....
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....al authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995:" ... ... ... ... ... "[Explanation.-For the purposes of this clause, infrastructure facility" means- (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway, inland port or navigational channel in the sea];]" 40. In our view, the issues that arise for our consideration are as follows :- a) Whether the Appellant is entitled to deduction under Section 80IA of the IT Act on interest from fixed deposits which were placed by the Appellant : i) for planning for replacement of equipment as per the provisions of the said License Agreement. ii) due to the tariff dispute in respect of which this....
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.... the basis that the placement of funds was imperative for the purpose of carrying on the banking business. Hence, we are not able to accept the distinction sought to be made by Mr. Sharma. 43.1 In CIT Vs. Shree Rama Multi Tech Ltd. (supra) the point for consideration before the Hon'ble Supreme Court was whether interest accrued on account of deposit of share application money is taxable income. 43.2 The Hon'ble Supreme Court held as under : ".....The common rationale that is followed in all these judgments is that if there is any surplus money which is lying idle and it has been deposited in the bank for the purpose of earning interest then it is liable to be taxed as income from other sources but if the income accrued is merely incidental and not the prime purpose of doing the act in question which resulted into accrual of some additional income then the income is not liable to be assessed and is eligible to be claimed as deduction. Putting the above rationale in terms of the present case, if the share application money that is received is deposited in the bank in the light of the statutory mandatory requirement then the accrued interest is not liable to be taxed and is eligib....
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.... the contrary, it was a pre-condition for the purchaser/Assessee to enable him to import the critical component for the purpose of manufacturing, Furthermore, it is not the case of the Revenue that the amount was deposited in fixed deposit solely for the purpose of earning interest nor it is the case of the Revenue that the amount, which was deposited in fixed deposit was a surplus money, which was lying idle in the hands of the Assessee. Therefore, whatever income accrued is merely incidental and not the prime purpose of doing the act in question, which resulted into accural of some additional income and therefore, the said income is not liable to be assessed and is eligible to be claimed as deduction " 44.3 Mr. Sharma sought to distinguish the said judgement on the ground that paragraph 25 thereof makes it clear that the facts of the said case were different from the facts of the present case. The said case was in respect of interest earned on margin money kept with the bank for taking a Letter of Credit. Mr. Sharma submitted that the Court in paragraph 25 noted that the furnishing of the fixed deposit was a pre-condition to enable the assesee to open a foreign Letter of Credit.....
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....orted machinery for which funds were kept apart. Mr. Sharma also submitted that the said judgement was also distinguishable as it contained no discussion on the expression "derived from". 45.5 We are not able to accept the distinction sought to be made by Mr. Sharma. The facts in the said case and in the present case are not different as, in both cases, money was kept apart for the purposes of business, and actually utilised for the purpose of business. Although the said judgement contains no discussion on the words "derived from", the facts of the said judgement are very similar to the facts of the present case and hence the ratio of the said judgement applies to the present case. 46.1 In ITO Vs. Hiranandani Builders (supra) the ITAT, after considering the decision of the Hon'ble Supreme Court in Liberty India (supra) (which we have considered later in this judgement), held (i) that interest on TDS refund received by the assessee would be entitled to deduction under Section 80IA (ii) that interest received on fixed deposits kept with banks out of the lease deposit amounts received from its lessees by the assessee would be entitled to deduction under Section 80IA. 46.2 Paragraph....
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....e to the delay in granting refund of TDS. In the case of Liberty India (supra), relied upon by the AO, the assessee therein received DEPB credits as per the scheme framed by the Government of India. Hence the Hon'ble Supreme Court held that the primary source of the DEPB receipt is the scheme framed by the Government. However, in the instant case, TDS deduction is integral part connected with the receipt of lease income and the same cannot be separated from the activity carried on by the assessee. Since the lease income is the primary source of the assessee and since the TDS has been deducted from the said primary source and since the assessee was deprived of a portion of lease rent for a temporary period for the reasons beyond the control of the assessee, there is some merit in the contention of the assessee that the interest on TDS refund should be equated with the interest on delayed payment of business receipts. In our view, the assessee has got strong case in the alternative contentions that interest received by it on the TDS refund should be netted off against the interest expenditure for the purpose of computing the profits and gains derived from the undertaking, in whic....
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....e findings of the ITAT are essentially factual and based upon the appreciation of the business activities of the assesee and that the same was rendered in view of the peculiar nature of the activities of the assessee. Mr. Sharma further submitted that in the Appeal, this Court did not lay down any law but merely confirmed the findings of fact of the ITAT. 47.3 We are unable to accept the said distinction sought to be drawn by Mr. Sharma. As stated hereinabove, in the said case, the ITAT clearly held that TDS deduction is an integral part connected with the lease income of the assessee and the same cannot be separated from the activity carried on by the assessee. The ITAT also held that the assessee was required to keep a part of the lease deposit amount in fixed deposits out of business compulsion and therefore was entitled to deduction under Section 80IA in respect of the said interest. 47.4 Whilst dismissing the Appeal of the Revenue, this Court held that it was broadly in agreement with the view of the ITAT and therefore put its imprimatur on the said decision of the ITAT. Hence, the distinction sought to be drawn by Mr. Sharma is not of any substance. 48.1 In CIT Vs. Meghala....
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....urt held that there should be a direct nexus between the profit and gains and the industrial undertaking or business and that such nexus cannot be only incidental. 49.1 In CIT Vs. Govind Choudhury & Sons (supra), the Hon'ble Supreme Court held as follows : "6. This brings us to a consideration of the second question. The sum of Rs. 2,77,692 was received by the assessee as interest on the amounts which were determined to be payable by the assessee in respect of certain contracts executed by the assessee and in regard to the payments under which there was a dispute between the two parties. The assessee is a contractor. Its business is to enter into contracts. In the course of the execution of these contracts, it has also to face disputes with the State Government and it has also to reckon with delay in payment of amounts that are due to it, if the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by it. It would not be correct to say, as the Tribunal has held, that this interest is totally....
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....duction. b) If the placement of deposits in the bank is not for parking surplus funds which are lying idle but for some other purpose connected with the business, then the interest therefrom is eligible for the deduction. c) Interest earned on short term deposits of money kept apart for the purposes of the business is to be treated as income earned from the business and cannot be treated as income from other sources. d) If the assessee is required to keep amounts in fixed deposits due to business compulsions, it would be entitled to the deductions under Section 80IA of the IT Act in respect of the said interest. e) There should be a direct nexus between the profits and gains and the business in order to be entitled to the deduction. f) Interest on TDS refund received by the assessee would be entitled to the deduction as TDS deduction is an integral part connected with the receipt of business income by the assessee and the same cannot be separated from the business of the assessee. g) If amounts are not paid to the contractor at the proper time, and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contract....
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....nts being replaced and as per the following provisions: (i) Replacement of Rail Mounted Quay Crane latest by the 17th Year from the date of existence of this asset; (ii) Replacement of Rail Mounted Yard Gantry Crane latest by the 17th Year from the date of existence of this asset; (iii) Replacement of Rubber Tyred Yard Gantry Crane latest by the 12th Year from the date of existence of this asset; 8.36 For the purpose of replacement of equipments under this Agreement, the date of existence of the replacement assets shall be as per Appendix 15. The Licensee agrees to plan for replacement of the equipments well ahead of the due date of replacement of the equipments as per the provisions of this Article 8.35 & 8.34. Equipments so replaced as indicated at Article 8.35 above shall be certified by Independent Engineer to ensure that they are in conformity with the provisions of Appendix 7. For this purpose, a new Independent Engineer shall be appointed by the Licensee duly approved by the Licensor in accordance with provisions of ARTICLE 6-Any remuneration to such Independent Engineer shall be borne by the Licensor." (emphasis supplied) 54. Prior to signing the said License Agr....
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....In our view, the aforesaid facts clearly show that: a) the placement of fixed deposits was imperative for the purpose of carrying on the eligible business of the Appellant b) the placement of fixed deposits is not for parking surplus funds which are lying idle. This is also demonstrated by the fact that the Appellant had used these fixed deposits for purchasing cranes for the eligible business. c) there is a direct nexus between the fixed deposits and the eligible business of the Appellant. 60. In these circumstances, in our view, the Appellant is entitled to the deduction [under Section 80IA of the Act] on the interest earned from fixed deposits which were placed by the Appellant for planning of replacement of equipments as per the provisions of the said License Agreement and due to the tariff dispute. 61. The second issue that arises for our consideration is whether the Appellant is entitled to the deduction under Section 80IA of the IT Act on the interest received by it on TDS refunded to it. 62. With respect to interest on TDS refund, the TDS was wrongly deducted by the vendors/customers of the Appellant from the payment made to the Appellant for using the port facilit....
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....om" intended to cover sources of first degree i.e. profit and gains derived directly from the business. On this basis, the Hon'ble Supreme Court held that, analyzing the concept of remission of duty drawback and DEPB (Duty Entitlement Passbook Scheme), it was satisfied that the remission of duty was on account of Statutory/Policy provisions of the Customs Act/ Scheme (s) framed by the Government of India, and therefore, held that the profits derived by way of such incentives did not fall within the expression "profits derived from industrial undertaking" in Section 80IB. 65.3 In the present case, the interest sought as the deduction is derived directly from the eligible business of the Appellant as held by us hereinabove. As held by the Hon'ble Supreme Court in Meghalaya Steels (supra), there is a direct nexus between the interest and the business of the Appellant. Therefore, the facts of the present case are clearly distinguishable from the facts in the case of Liberty India. 65.4 Further, in Hiranandani Builders (supra), the ITAT, after considering the decision of the Hon'ble Supreme Court in Liberty India (supra), held that interest on TDS refund received by the assessee would....
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....d from" has a deciding position with the other expression viz "from the export of such goods or merchandise". While appreciating the deduction claimed as profits of a business, the test is whether the income/profit is derived from the export of such good/ merchandise. 12.1 Let us read the very relevant words in Section 80 HHC of the Act, namely, "derived by the assessee from the export of such goods or merchandise", in the background of interpretation given to the said expression by this Court. The Section enables deduction to the extent of profits derived by the assessee from the export of such goods and merchandise and none else. 12.2 The policy behind the deductions of profits from the business of exports is to encourage and incentivise export trade. Through Section 80HHC, the Parliament restricted the deduction of profit from the assessee's export of goods/merchandise. The interpretation now suggested by the assessee would add one more source to the sources stated in Section 80 HHC of the Act. Such a course is impermissible. The strict interpretation is in line with a few relative words, namely, manufacturer, exporter, purchaser of goods, etc. adverted to in Section 80 ....
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....-76 and 1976-77. It also earned some import entitlements granted by the Central Government under an Export Promotion Scheme. The assessee was entitled to use the import entitlement itself or sell the same to others. The assessee sold the import entitlements that it had earned to others. Its total income for the aforementioned assessment years included the sale proceeds for such import entitlements and it claimed relief under Section 80HH of the IT Act in respect of sale proceeds of the import entitlements. 67.2 Section 80HH provides that if the gross total income of an assessee includes any profit and gains derived from an industrial undertaking, the assessee is entitled to be allowed, in the computation of his total income, a deduction from the profit and gains derived from the industrial undertaking of an amount equal to 20% thereof. 67.3 On these facts, the Hon'ble Supreme Court held as follows : "12. We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government where under the exp....
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....rplus to the business. These surplus funds of the assessee are utilized for discounting bills on which the assessee received discounting charges. The same would hold true insofar as intercorporate deposits are concerned. Income received by way of discounting charges and interest on intercorporate deposits would not fall under the head of profits and gains of business or profession but would fall under the head of income from other sources. Having no direct and proximate nexus with the export activity such income has to be wholly kept out of the reckoning for computing the deduction under section 80HHC." 68.3 This case is also distinguishable on facts. In this case, this Court held that the assessee had used its surplus funds for discounting bills and for placing intercorporate deposits. Therefore, the income received by way of discounting charges and interest on corporate deposits would not fall under the head of profit and gains of business or profession, but would fall under the head of income from other sources. This court further held that such income had no direct and approximate nexus with the export activity of the assessee and had to be wholly kept out of the reckoning to ....
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.... by the Appellant is directly related to the business of the Appellant and therefore is deductible under Section 80IA. 70. The next decision relied upon by Mr. Sharma was the decision of this Court in Common Effluent Treatment Plant (supra). This decision is not applicable to the facts of the present case as, in this case, the assessee was an Association incorporated under Section 25 of the Companies Act, 1956 and the issue before this Court was whether the Tribunal was justified in holding that interest on bank deposits, other deposits and income tax refunds is not chargeable to tax on the principal of mutuality. 71. For the aforesaid reasons, in our view, the judgements relied upon by Mr. Sharma for the Revenue do not take the case of the Revenue any further. 72. In the impugned order dated 28th May, 2020, in respect of issues arising for consideration before us, the ITAT held as under "8. We are of the considered opinion that interest on Income Tax arises to The assessee as per the statutory provisions of Income Tax. The law mandate provision of interest to the assessee for deprivation of use of money due to excess payment of tax. This interest accrues to the assessee as pe....