1987 (8) TMI 61 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of receipts from property let out to contractors' employees.
2. Taxability of hire charges received from contractors.
3. Taxability of royalty received from contractors.
4. Taxability of miscellaneous receipts.
5. Taxability of interest received from contractors.
6. Taxability of interest received from Hindustan Steel Ltd.

Summary:

1. Receipts from Property Let Out to Contractors' Employees:
The primary issue was whether the receipts from letting out quarters to contractors' employees should be treated as income and, if so, under which head. The Tribunal held that the receipts from letting out property to outsiders were chargeable u/s 22 of the Income-tax Act, 1961, as "income from property." The High Court, however, concluded that these receipts should be adjusted against the cost of construction and not treated as taxable income, as they were incidental to the overall construction work.

2. Hire Charges Received from Contractors:
The Tribunal confirmed the Appellate Assistant Commissioner's decision that hire charges received from contractors for letting out plant and machinery were not taxable. The Tribunal held that the letting out of plant and machinery was part of the construction contract and the receipts were to cover maintenance and wear and tear, thus reducing the cost of construction.

3. Royalty Received from Contractors:
The Tribunal held that the royalty received from contractors for raising stone chips from the company's land was not taxable as it was a capital receipt. This was affirmed by the High Court, which agreed that the payment was for the use of stones, a capital asset, and thus should be adjusted against the cost of construction.

4. Miscellaneous Receipts:
The Tribunal deleted the additions made by the Income-tax Officer regarding miscellaneous receipts, such as recovery from employees for fans and dust-bins, considering them as capital in nature. The High Court upheld this view, agreeing that these receipts should be adjusted against the expenditure incurred for their maintenance.

5. Interest Received from Contractors:
The Tribunal held that the interest received from contractors was incidental to the construction work and should be adjusted against the capital expenditure. The High Court agreed, noting that the advances were made not to earn interest but to ensure timely execution of construction work.

6. Interest Received from Hindustan Steel Ltd.:
For the assessment year 1971-72, the Tribunal deleted the addition of interest received from Hindustan Steel Ltd., as the engines were returned the next year, meaning there was no real income. The High Court upheld this decision, agreeing that it should not be treated as taxable income.

Conclusion:
The High Court concluded that the various receipts in question were incidental to the construction activities and should be adjusted against the cost of construction, thus not taxable as income. All questions referred were answered in favor of the assessee and against the Revenue.