2017 (6) TMI 446 - AT - Income Tax

Taxability of Interest earned on funds - belong to the assessee or not - amount / funds contributed by subsidiaries towards the shifting and rehabilitation fund - Held that - The addition has been framed without understanding the purpose of creation of fund/legal ownership of money lying with the fund etc. It was specifically stated that in respect of shifting and rehabilitation funds , contribution by subsidiaries along with interest earned on such funds does not belong to the assessee. The assessee company is merely the custodian of such fund. It was also stated that in the earlier years, the Ld. AO had treated the contribution received from subsidiary as income from the assessee and the same was deleted by the Ld. CIT(A) for A.Y. 2007-08. It was also argued that it is well settled law that to treat any amount as an income, one should have the legal right to receive the same and also one will have all the authority to expend the money as per her/his wishes. In the instant case, the money (contribution and interest thereon) received by the company will be used as per the directions of the concerned Ministries and the Company had no control to use the money. The Company is merely acting as a custodian of such money and is required to release the same as per the directions of the concerned Ministries. However, the assets generated from such money cannot be treated as assets of the assessee company. Pending utilisation of the funds, the money was kept in the bank account which has resulted into interest income. - Decided in favour of the assessee

Summary

Issues Involved:
1. Taxability of interest earned on the amount contributed by subsidiaries towards the shifting and rehabilitation fund.

Detailed Analysis:

Issue 1: Taxability of Interest Earned on Shifting and Rehabilitation Fund

The core issue in this case was whether the interest of ?6305.24 Lakhs earned on the amount contributed by subsidiaries towards the shifting and rehabilitation fund should be treated as taxable income in the hands of the assessee.

Historical Background:
The coal mining areas in Jharia and Raniganj have long faced issues of fire and subsidence. Various committees and reports over the years have highlighted the need for comprehensive measures to address these problems. The Ministry of Coal, Government of India, directed the formation of a rehabilitation fund to address these issues, with contributions from subsidiaries of the assessee company.

Assessee's Argument:
The assessee argued that the funds, including the interest earned, did not belong to it. The company acted merely as a custodian of the fund, which was to be used strictly as per the directions of the concerned Ministries. The funds were kept in a bank account, resulting in interest income, but the assessee had no control over the utilization of these funds.

Assessing Officer's (AO) Position:
The AO treated the interest earned on such funds as taxable income. The AO argued that the funds were created not under any specific law but as per the decision of the Board of Directors. Since the funds were in the custody of the assessee and shown in its balance sheet, the interest income should be taxed under the Income Tax Act, 1961.

CIT(A)'s Decision:
The CIT(A) upheld the AO's decision, stating that the Ministry of Coal acted as a guiding authority and not in a sovereign capacity. The funds were collected as per the Board's decision, and the income generated had to be taxed since there was no specific exemption under the Income Tax Law.

Tribunal's Analysis:
The tribunal noted that the issue was covered in favor of the assessee by its own previous orders (ITA No. 358/Kol/2013 for AY 2009-10; ITA No. 252/Kol/2014 for AY 2010-11). It was observed that the assessee acted merely as a custodian of the funds and had no control over their utilization. The funds, including the interest, were to be used as directed by the Ministries.

The tribunal also referenced a similar case (DCIT, Circle-2, Kolkata vs. M/s West Bengal State Electricity Transmission Co. Ltd. in ITA No. 1822/Kol/2012 for A.Y. 2009-10), where it was held that interest income belonging to a government body should not be taxed in the hands of the custodian.

Conclusion:
The tribunal concluded that the interest income could not be construed as the assessee's income and directed the AO to delete the addition of ?9723.28 Lakhs. The grounds raised by the assessee were allowed, and the appeal was decided in favor of the assessee.

Final Order:
The appeal of the assessee was allowed, and the tribunal did not address the technical objections on the validity of reassessment proceedings, as the issues were decided in favor of the assessee on merits.

Order Pronounced:
The order was pronounced in the court on 07.06.2017.