2020 (1) TMI 84 - AT - Income Tax

Addition of interest on Fixed Deposits made by the assessee out of capital subsidy received from the Government of India under Rajiv Gandhi Gramin Vidyutikaran Yojana (in short RGGVY) - HELD THAT - The interest so earned thus was received by REC as well as all the Implementing Agencies including the assessee-company for and on behalf of the Government of India Ministry of Power and since the same was to be used for cost of the project by way of adjustment in the last instalment of capital subsidy the REC as well as all the Implementing Agencies including the assessee-company never had any title or right in the interest so earned as they were under an obligation to use the amount of interest for cost of the Project by way of adjustment in the last instalment of capital subsidy receivable from the Government of India Ministry of Power. It is thus not a case where the interest income was earned by the assessee-company and the same was applied to discharge any obligation after such income reached the assessee. The amount of interest in question going by the nature of obligation as stipulated by the Government of India Ministry of Power in the letter dated 25.09.2008 did not form part of the income of the assessee as the same was liable to be used for the cost of Project by way of adjustment in the last instalment of capital subsidy and the same thus was in the nature of capital receipt being capital subsidy received from the Government of India Ministry of Power. The interest so earned thus was received by REC as well as all the Implementing Agencies including the assessee-company for and on behalf of the Government of India Ministry of Power and since the same was to be used for cost of the project by way of adjustment in the last instalment of capital subsidy the REC as well as all the Implementing Agencies including the assessee-company never had any title or right in the interest so earned as they were under an obligation to use the amount of interest for cost of the Project by way of adjustment in the last instalment of capital subsidy receivable from the Government of India Ministry of Power. It is thus not a case where the interest income was earned by the assessee-company and the same was applied to discharge any obligation after such income reached the assessee. On the other hand the amount of interest in question going by the nature of obligation as stipulated by the Government of India Ministry of Power in the letter dated 25.09.2008 did not form part of the income of the assessee as the same was liable to be used for the cost of Project by way of adjustment in the last instalment of capital subsidy and the same thus was in the nature of capital receipt being capital subsidy received from the Government of India Ministry of Power. Keeping in view all the facts of the case in the light of judicial pronouncement as discussed above we are of the view that the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of interest in question by treating the same as income of the assessee is not sustainable. We accordingly delete the said addition and allow this appeal of the assessee.

Summary

Issues Involved:

1. Deletion of additions on account of additional depreciation.
2. Deletion of additions on account of ERPC charges.
3. Deletion of disallowance under section 14A.
4. Addition on account of interest on Fixed Deposits from capital subsidy received under Rajiv Gandhi Gramin Vidyutikaran Yojana (RGGVY).

Issue-wise Detailed Analysis:

1. Additional Depreciation:

The Revenue challenged the deletion of ?77,78,79,369/- on account of additional depreciation. The Tribunal upheld the deletion, referencing its prior decisions in the assessee’s own case for A.Y. 2010-11 and 2011-12. The Tribunal reiterated that the generation of electricity is akin to manufacturing a new product and thus qualifies for additional depreciation under section 32(1)(iia). This conclusion was supported by various judicial pronouncements, including the Hon’ble Supreme Court and several High Courts, affirming that electricity generation is a manufacturing activity eligible for additional depreciation.

2. ERPC Charges:

The Revenue contested the deletion of ?15,00,000/- on account of ERPC charges. The Tribunal maintained the deletion, citing its previous rulings in the assessee’s cases for A.Y. 2010-11 and 2011-12. It was noted that the Assessing Officer’s disallowance under section 40(a)(ia) for non-deduction of tax at source was previously overturned by the Tribunal, which found that the payments were not subject to TDS provisions.

3. Disallowance under Section 14A:

The Tribunal upheld the deletion of ?97,37,654/- disallowed under section 14A. It reiterated its stance from the assessee’s cases for A.Y. 2010-11 and 2011-12, emphasizing that the Assessing Officer failed to record dissatisfaction with the assessee's claim of no expenditure incurred to earn the exempt income before invoking Rule 8D. Consequently, the disallowance under section 14A was deemed unsustainable.

4. Interest on Fixed Deposits from Capital Subsidy (RGGVY):

The assessee’s appeal involved the addition of ?21,48,33,731/- as interest on Fixed Deposits from capital subsidy under RGGVY. The Tribunal ruled in favor of the assessee, determining that the interest earned on deposits was not the assessee’s income but was meant for project costs under the scheme. The Tribunal noted that the funds were to be used exclusively for the project, and any unutilized funds were to be kept in bank deposits with the interest being accounted for and adjusted against the last installment of capital subsidy. The Tribunal concluded that the interest was diverted at inception by an overriding title in favor of the Government of India and thus did not constitute taxable income for the assessee.

Conclusion:

The Tribunal dismissed the Revenue’s appeal and allowed the assessee’s appeal, concluding that the deletions and disallowances made by the CIT(A) were justified and supported by prior judicial decisions and the specific terms of the RGGVY scheme. The interest on Fixed Deposits was deemed not to be the assessee’s income due to the overriding title of the Government of India.