TaxTMI 
TaxTMI 
2026 (6) TMI 200
X X X X Extracts X X X X
X X X X Extracts X X X X
....ission Act, 1998, subsequently governed by the Electricity Act, 2003, and is entrusted with regulatory functions in the power sector, including tariff determination and protection of consumer interests. The assessee had been notified by the Central Government vide notification dated 01.12.2016 for exemption under section 10(46) in respect of specified income. 3. The assessee filed its return of income on 19.10.2018 declaring total income at Rs. 7,58,87,698/- and, after claiming exemption under section 10(46) of the Act to the same extent, returned nil income. The case was selected for scrutiny under CASS for examining the issue of "Business Income of Trust" and statutory notices under sections 143(2) and 142(1) were issued during the course of assessment proceedings. 4. During the course of assessment proceedings, the Assessing Officer noticed that apart from the specified income covered under notification under section 10(46), the assessee had earned other income aggregating to Rs. 16,70,763/- comprising "Personal use of office vehicle Rs. 3,204/-, Misc. income Rs. 7,206/-, Interest on HBA Rs. 16,55,645/- and Interest on loans to others Rs. 4,708/-". The assessee submitted t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ring the submissions, recorded that the assessee had not furnished complete details regarding nature and allowability of prior period expenses and held that under mercantile system, such expenses are allowable in the year in which they are debited and not on the basis of crystallization. Accordingly, the disallowance of Rs. 1,10,26,018/- was confirmed. 10. In respect of disallowance under section 40(a)(ia), the CIT(A) noted the contention regarding lower deduction certificates and restored the issue to the file of the Assessing Officer for verification, observing that "the AO is directed to verify the appellant's claim and the same may be decided based on the lower TDS deduction certificate". 11. With regard to denial of exemption under section 10(46), the CIT(A) held that exemption is available only in respect of specified income notified by the Central Government and that "the other income of Rs. 16,70,763/- does not fall under the category of specified income", and therefore confirmed the addition. 12. On the issue of tax rate, the CIT(A) directed the Assessing Officer to apply tax rate as per AOP status and partly allowed the appeal. 13. Aggrieved by the order of CI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ellants further, contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned disallowance inasmuch as aforesaid incomes earned by the appellants are for its objects, and not for commercial, or for any purpose other than the objects, and hence, the action of the Assessing Officer is bad in law and needs to be reversed. The appellants crave leave to add to, alter and/ or amend the afore stated grounds of appeal. 14. During the course of hearing, the Ld. Authorised Representative (AR)submitted that the amount of Rs. 1,10,26,018/- represents prior period income which has been duly accounted for in the books and corresponds to earlier transactions, the details of which were tabulated as under: i. Advance from others - Rs. 5,00,000/- ii. Advance against expenses for public hearing case - Rs. 1,88,566/- iii. Advance licence fees (BEST) - Rs. 1,02,24,000/- iv. Fees for annual licence - Rs. 1,13,452/- 15. It was explained that each of the above items does not represent fresh income of the year but pertains to earlier periods and has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubmitted that these items are in the nature of licence fees, advances, or adjustments relating to regulatory receipts and expenditure, which are directly connected with the objects of the assessee. Accordingly, it was contended that the said amounts, being integral to the functioning of the Commission and not arising from any commercial or independent activity, qualify for exemption under section 10(46) of the Act. The Ld. AR therefore submitted that the denial of exemption and the addition made by the Assessing Officer, as confirmed by the CIT(A), is not justified both on facts and in law. 17. Regarding the addition on account of other income amounting to Rs. 16,70,763/-, the Ld. AR submitted that the impugned income comprises the following items: i. Personal use of office vehicle - Rs. 3,204/- ii. Miscellaneous income - Rs. 7,206/- iii. Interest on HBA - Rs. 16,55,645/- iv. Interest on loans to others - Rs. 4,708/- 18. It was submitted that a substantial portion of the impugned amount represents interest on House Building Advance (HBA) granted to employees, which arises out of staff welfare measures in accordance with Government regulatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the conditions contained in clauses (a), (b) and (c) of section 10(46) stand satisfied. The controversy is thus confined to the interpretation of the expression "specified income" as contained in the notification. Addition of Rs. 1,10,26,018/- on account of prior period income 22. On a careful consideration of the facts, we find that the impugned amount comprises items such as licence fees, advances and other regulatory receipts, which are intrinsically connected with the statutory functions of the assessee. The nature of these receipts has not been disputed by the Revenue. The only basis for addition is the timing difference in recognition. In our considered view, once the nature and source of income falls within the regulatory framework of the assessee and is otherwise eligible for exemption, mere accounting classification as "prior period income" cannot alter its character. Further, it is an undisputed fact that the assessee has already disallowed prior period expenses to a substantial extent in its computation (Rs. 7,09,16,312/-). Therefore, bringing the corresponding income to tax without granting the benefit of exemption would lead to distortion of real income. 23. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o deny exemption for earlier years, particularly when the assessee continues to satisfy all other statutory conditions and the income arises from non-commercial, incidental activities of the Commission. 28. Further, it is not the case of the Revenue that the interest on HBA is derived from any independent commercial activity. On the contrary, the same arises from loans extended to employees as part of staff welfare measures, which are incidental to the functioning of the statutory body. The remaining items are: * Personal use of office vehicle - Rs. 3,204/- * Miscellaneous income - Rs. 7,206/- * Interest on loans to others - Rs. 4,708/- 29. The Assessing Officer denied exemption on the ground that these items are not expressly mentioned in the notification. However, such an approach, in our considered view, is overly restrictive and not in consonance with the scheme of section 10(46). 30. Firstly, these items are not independent sources of income but are merely incidental, ancillary or consequential receipts arising in the course of carrying out the regulatory functions of the Commission. They do not have any commercial character nor do they repr....