TaxTMI 
TaxTMI 
2025 (8) TMI 1443
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.... alia rejected the claim of the Appellant for deduction of interest 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 u....
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....otice", under Section 251(2) of the IT Act, proposing to disallow deduction under Section 80IA of the 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 agai....
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....rim relief to the Appellant allowing it to charge and collect tariff at the rates prevailing prior to reduction of tariff 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 Appe....
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....tate Co-operative Apex Bank. (2001) 251 ITR 194 (SC); (b) CIT v/s. Bangalore District Co-operative Central Bank Ltd. (1998) 233 ITR 282 (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) CI....
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....a further submitted that the mandate of the IT Act is to promote creation of infrastructure assets. The legislature has decided to forgo the tax on profit generated in the process of creation of infrastructure assets. Mr. Sharma submitted that the assessee is free to deploy its 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 deri....
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....frastructure facility which fulfils all the following conditions, namely:- (a) it is owned by a company registered in India or by a consortium of such companies [or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;] [(b) it has entered into an agreement with the Central Government or a State Government or a local 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 por....
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....in this case, the assessee was a bank engaged in carrying on the business in banking. The issue was with reference to Section 80P (2) (a) (i) of the IT Act where the deduction was allowed from the whole of the amount profits and gains of business attributable to any one or more of such activities. 42.5 In our view, the distinction sought to be made by Mr. Sharma is not relevant. The Hon'ble Supreme Court has not arrived at its conclusion on the basis of the word "attributable" found in Section 80P of the IT Act but on 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 liab....
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....ulti Tech (supra), the Madras High Court held as under "....25. In the instant case, the requirement of the Assessee to furnish the fixed deposit was a pre-condition to enable the Assessee to open a foreign Letter of Credit for the purpose of import of critical components for the manufacture of wind mill. This incidentally had earned some interest. As pointed out by the Hon'ble Supreme Court in Shree Rama Multi Tech Ltd., it is not the Assessee's surplus money, which was deposited by way of fixed deposit, which had earned interest, on 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 ....
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.... We, accordingly, answer the question in favour of the assessee and against the Revenue" 45.3 Hence, in this case, this Court held that interest earned on short term deposits of money kept apart for the purpose of business has to be treated as income earned from the eligible business and could not be treated as income from other sources. 45.4 Mr. Sharma sought to distinguish the said judgement on the ground that the facts in that case were different. Mr Sharma submitted that the order for import was already placed by the assessee and the assessee was waiting for delivery of imported 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 ....
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....uld be netted off against the interest payment, in which case also, the interest on TDS would get deduction u/s 80IA automatically. 12. Thus, we notice that the TDS deduction from lease rental income was beyond the control of the assessee and also due to the delay in getting no-deduction certificate from the AO. In view of the same, the assessee was deprived of funds to the extent of TDS amount, which would have otherwise used for the purpose of business purposes including repayment of loan taken for construction of IT parks and SEZ The Income tax department was required to pay interest only due 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 ....
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.... lease income (which is the primary source of income of the assessee) and the same cannot be separated from the activity carried on by the assessee. The ITAT also held that assessee was required to keep a part of the lease deposits amounts in fixed deposits out of compulsion and therefore was entitled to deduction under Section 80IA of the IT Act in respect of said interest. 47.1 In PCIT Vs. Hiranandani Builders (supra) this Court agreed with the view of the ITAT and dismissed the Appeal filed by the revenue. 47.2 Mr. Sharma sought to distinguish the said judgement in Hiranandani Builders by submitting that the 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 incom....
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....ing from the business of the assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of sections 80-IB and 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products" 48.3 Hence, the Hon'ble Supreme Court 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 und....
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....sought to be drawn by Mr. Sharma. The fact that the interest was awarded by an arbitration award due to delayed payment by the State Government, does not in any way detract from the ratio of the said judgement that interest paid due to delayed payment is only an accretion of income from business and is therefore attributable and incidental to that business. 50. The principles derived from the aforesaid judgements relied upon by Mr. Kaka can be summarized as follows: a) If placement of funds is imperative for the purpose of carrying on business, the interest income derived therefrom would be income from the assessee's business and is entitled to the deduction. 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 ....
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....ent of equipment well ahead of such due date for replacement. "8.34 The Licensee shall, at all times during the Licence Period, at its own risks, costs, charges and expenses, perform and pay for maintenance repairs, renewals and replacements in the Licensed Premises and/or the Project or any parts thereof, whether due to use and operations or due to deterioration of materials, so that on the expiry or Termination of this Licence, the same shall, except, normal wear and tear, be in as good condition as at the commencement of the Licence. 8.35 The Licensee agrees and undertakes to replace the major container handling equipments by new container handling equipments having specifications not inferior to those of the equipments 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 purp....
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.... port and accounting for differential tariffs, kept money in fixed deposits aggregating to approximately Rs. 169 Crores. Upon this, interest was earned amounting to Rs. 8,67,66,538/-, and on which deduction under Section 80IA of the IT Act was claimed. 58. In addition, the Appellant also referred to financials 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 by the Appellant under the said License Agreement. The financials for the aforesaid years show that fixed deposits amounting to Rs. 280 Crores and 51 Lakhs (approximately) and Rs. 16 Crores and 70 lakhs (approximately) were redeemed during these financial years and cranes worth Rs. 562 Crores were simultaneously purchased. 59. 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 ....
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....of the IT Act have a common scheme, and if so read, it is clear that the said sections provide for incentives in the form of deductions which are linked to profits and not to investment. c) Analyzing the concept of remission of duty drawback and DEPB (Duty Entitlement Passbook Scheme), the Hon'ble Supreme Court was satisfied that remission of duty is on account of the statutory/ policy provisions of the Customs Act/ Scheme (s) framed by the Government of India. In these circumstances, the Hon'ble Supreme Court has that the profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking" in Section 80IB. 65.2 In our view, the judgement in Liberty India (supra), is distinguishable on facts. In Liberty India (supra), the Hon'ble Supreme Court held that the words "derived from" 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 ....
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....t cannot be said that such duty exemption scheme is derived from profits and gains made by the industrial undertaking or business itself. .." 65.6 The aforesaid also clearly shows that the facts in Liberty India (supra) are distinguishable from the facts in the present case 66.1 The next judgement relied upon by the Revenue is Shah Originals (supra). In that case the question that fell for consideration of the Hon'ble Supreme Court was whether the gain on foreign exchange fluctuation in the EEFC account of the assessee partakes the character of profits of the business of the assessee from exports and can the gain be included in the computation of deduction under profits of the business of the assessee under Section 80HHC of the IT Act. 66.2 The Hon'ble Supreme Court has held as follows : "12. In interpreting Section 80 HHC, the expression "derived 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 Se....
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....does not fall within the meaning of "derived from" the export of garments by the assessee. The profit from exchange fluctuation is independent of export earnings, and the impugned judgment correctly answers the point." 66.3 This judgement is also distinguishable on facts. In the said judgement, the Hon'ble Supreme Court held that the profits earned by the assessee due to foreign exchange price fluctuation cannot be said to be derived from the business of export of the assessee under Section 80HHC. 66.4 In the present case, as held by us above, the interest earned by the Appellant is directly related to the business of the Appellant and therefore is deductible. 67.1 Mr. Sharma then relied upon the judgement of the Hon'ble Supreme Court in Sterling Foods (supra). In the said case, the assessee-firm was engaged in processing prawns and other sea food, which it exported during AYs 1975-76 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....
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....nd on inter-corporate deposits constituted income which would fall under the head "profits and gains of business or profession" or whether it would constitute income from other sources. 68.2 This Court held that where an assessee invests its surplus funds in order to earn interest and to obviate its funds lying idle, such income would not fall for classification as business income. This Court further held as follows : "On the explanation of the assessee, which has been extracted in extenso in paragraph 6 of the order passed by the Assessing Officer, it is impossible for this court to come to the conclusion that the interest which has been received by the assessee bears a direct and proximate relationship with the export activity. Evidently, the explanation of the assessee is sufficient to indicate that the funds which are utilized for discounting local sale bills of private parties are those which are surplus 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 ....
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..... A holistic view of Section 80. IB would reveal that what is intended by the Haw Makers to qualify for deduction is 'profits and gains derived from the industrial undertaking'. "There is, therefore, no reason to bring within the fold of 'profits and gains derived from industrial undertakings' any income beyond the activities of the industrial undertakings on the ground that the words 'any business' finds expression in 80-IB(1)." 69.3 This judgement, apart from not being binding on us, proceeds on the basis that profits and gains should be derived from the industrial undertaking and not from the business of the industrial undertaking. 69.4 On the other hand, in the present case, we have considered whether the profits and gains are derived by an enterprise from any business referred to in sub section (4) of Section 80IA (eligible business). On considering the same, it is very clear that the interest earned 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 de....