2024 (3) TMI 825 - AT - Income Tax

Eligibility for deduction u/s 80IAB - assessee earned interest on the advances received from the developers and contractors to facilitate the execution of work entrusted to them - AO considered the interest received on advances to the developer/contractors under the head income from other sources and proceeded to hold that the said income does not have nexus with the business of the assessee, hence not eligible for deduction under section 80IAB - CIT(A) allowed the deduction - HELD THAT - As relying on assessee s own case for A.Y. 2008-09 2014 (8) TMI 959 - ITAT MUMBAI CIT(A) has rightly considered interest earned by the assessee company from developers and contractors, being eligible for deduction under section 80IAB. Decided against revenue. Lease rent claimed for deduction u/s 80IAB - AO disallowed claim on the ground that the said income does not have any nexus with the business of the assessee - CIT(A) overturned the findings returned by the AO holding that lease rent income received by the assessee is an income from business and eligible for deduction under section 80IAB - HELD THAT - Bare perusal of the findings returned by the Ld. CIT(A) goes to prove that this issue is no longer res-integra having already been decided by the Tribunal in assessee s own case in A.Y. 2010-11 2011-12 2019 (6) TMI 1370 - ITAT MUMBAI whereby income derived by the assessee from the lease rental has been held to be eligible as business income for the purpose of deduction under section 80IAB of the Act. So finding no illegality or perversity in the impugned findings ground No.3 raised by the Revenue is hereby dismissed. Nature of receipt - Grant received from Government of Maharashtra towards the repair and maintenance of airports - revenue or capital receipt - A.Y. 2012-13 - HELD THAT - This issue is no longer res-integra having already been decided by the Tribunal in favour of the assessee in its own case for A.Y. 2010-11 2019 (6) TMI 1370 - ITAT MUMBAI as held Maharashtra Government release the grant in favour of assessee for the repairs and maintenance of airports . It is if any capital in nature and is not liable to be considered as revenue in nature. Thus we are of the view that the grant released by Government of Maharashtra on account of repairs and maintenance of airports is not liable to be treated as income of the assessee being in the nature of capital receipt. Decided in favour of assessee. Receipts on behalf of Government of Maharashtra for the purpose of Grant-in-aid for the rehabilitation of Project Affected Persons (PAP) and for infrastructure development of airports in notified area - AO treated the grant-in-aid as income of the assessee and made addition thereof to the total income of the assessee company - A.Y. 2013-14 and 2014-15 - HELD THAT - Undisputedly the assessee company was incorporated as a company under the Companies Act, 1956 by the Government of Maharashtra as a special purpose company to develop multi model international hub airport at Nagpur and aviation infrastructure in the State of Maharashtra in order to provide regional air connectivity and operationalising certain government schemes. Also not in dispute that the assessee company is appointed by the State Government as a special planning authority under section 40(IB) of the Maharashtra Regional Town Planning (MRTP) Act, 1966; that it is also not in dispute that the assessee company being a special planning authority is required to carry out the work of development and disposing of land in the notified area as an agent of the state. CIT(A) has erred in treating the grant-in- aid received by the assessee company from State of Maharashtra as capital receipt rather utilization of the grant-in-aid by the assessee company for acquisition of land, development of airports, repair and maintenance of airports is the statutory functions of the assessee company as an agent of the State of Maharashtra, hence, not assessable to tax under Income Tax Act. Receipts of an amount on account of development charges levied by the assessee company u/s 124J of Maharashtra Regional Town Planning (MRTP) Act, 1966 - CIT(A) held the receipt on account of development charges as business receipt and liable to be taxed - HELD THAT - As the assessee company is held to be a state only for the purpose of receiving grant-in-aid from the state government as a special planning authority and collecting the development charges from various lessees/unit holders in Multi- Model International Passenger and Cargo Hub Airport at Nagpur' (MIHAN) area are to be used for development of the land acquired by the assessee company with the grants-in-aid provided by the state government and as such is also a statutory function. Because without developing the land purchases with grant-in-aid received from the state government, which ultimately vests in the state government the purpose of providing public amenities as prescribed under the scheme of the Act cannot be fulfilled. CIT(A) has erred in treating these development charges which are inextricably linked to the development of the project under the scheme, akin to the lease rental/usage charges. So the findings returned by the Ld. CIT(A) are hereby set aside and the AO is directed to delete the addition made by the AO and confirmed by the Ld. CIT(A). Disallowance u/s 14A r.w.r. 8D - as argued there is no exempt income and own funds of the assessee are far more than the investment made by the assessee during the years under consideration - CIT(A) deleted the addition - HELD THAT - No illegality or perversity in the impugned findings returned by the Ld. CIT(A) deleting the addition made by the AO under section 14A read with rule 8D as it is a settled principle of law that when there is no exempt income earned by the assessee during the year under consideration no disallowance can be made under section 14A read with rule 8D - See Era Infrastructure (India) Ltd 2022 (7) TMI 1093 - DELHI HIGH COURT Characterization of receipts - interest on fixed deposits - business income or income from other sources - HELD THAT - In view of the order passed by the co-ordinate Bench of the Tribunal 2014 (8) TMI 959 - ITAT MUMBAI we remit this issue back to the AO to decide as per the directions given by the co-ordinate Bench of the Tribunal wherein A.O. is directed to verify whether the FDs have been made out of surplus funds or out of loans and borrowing of the assessee and whether the FDs were for short period of time. The assessee is directed to file necessary details before the A.O. Nature of receipt - Receipt of fire service fee - AO as well as the Ld. CIT(A) by declining the contentions raised by the assessee company held that the assessee company is to manage a property by taking various measures as per section 114 of the MRTP Act and section 11 of MFPLSM Act, 2006 empower MADC to levy fire service fees on various unit holders within the area of its jurisdiction and the said amount is credited separately to the MIHAN development fund account, and treated the same as revenue in nature - HELD THAT - when the fire services fee is to be applied for the purpose of maintaining fire brigade which is also mandatory for the assessee company to maintain in compliance to section 25 of chapter VII of MFPLSM Act, 2006, section 11 of the MFPLSM Act, 2006 also empowers the assessee company to levy fire services fee on all owners of various buildings within the area of its jurisdiction, the same cannot be treated as receipt of revenue in nature. Since the entire project was being executed by the assessee as a stated owned company fire services fees which was not received in the ordinary course of business and was strictly applied for the purpose of maintaining fire brigade is like development charges collected by the assessee company and as such is inextricably linked with the success of airport project being executed by the assessee company on behalf of the state government and as such it cannot be treated as income. So the same is ordered to be treated as revenue in nature as claimed by the assessee. Disallowance of Loss in respect of power distribution and water supply activities - CIT(A) has considered the losses due to water evaporation - HELD THAT - As not in dispute that no company will deliberately decrease its profit. Main cause as brought on record by the assessee has been duly perused by the Ld. CIT(A) for loss on account of distribution of water is underutilization of water supply which led to low sale and it has increased the losses. It is also not in dispute that sometimes a purchaser has no option except to purchase the electricity at the higher cost and there has to be energy loss due to transmission distribution and scheduling losses. Similarly so far as water losses are concerned it is a proved fact on record that the assessee has not fully utilized the installation capacity of water supply which has become the main cause of losses for which cost has to be incurred to procure the same. Moreover, when the AO has not disputed the books of account disallowance merely on the basis of surmises is not sustainable. Decided against the Revenue. Admission of additional grounds - assessee company by moving an application sought to raise the additional grounds on the ground that the same are purely legal grounds and can be raised at any stage of the proceedings - As contended by the Ld. A.R. for the assessee that qua assessment year 2008-09 in the first round of litigation the Tribunal has passed an order whereby issue as to earning interest being interest on fixed deposits was ordered to be decided afresh and AO has passed an order giving effect to the order passed by the Tribunal i.e. after a period of about three years - HELD THAT - Bare perusal of the grounds goes to prove that these are purely legal grounds and as per the law laid down by the Hon ble Supreme Court in case of National Thermal Power Co. Ltd. 1996 (12) TMI 7 - SUPREME COURT and Jute Corporation of India Ltd. 1990 (9) TMI 6 - SUPREME COURT the legal grounds can be raised at any stage of the appellate proceedings and hence the same are allowed. In all eventualities the AO is required to pass the order within a period of nine months/three months as the case may be which the AO has failed to pass. Even it is not the case of the Revenue that their case falls under proviso 1 2 to section 153(5) of the Act nor any explanation has been brought on record. When the AO was required to pass the order giving effect to the order passed by the Tribunal within a period of three months from the end of the month in which order under section 250, 254, 260 or section 262 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner as the case may be the assessment order passed by the AO after a period of about three years is barred by limitation, void, ab-initio and bad in law. So the additional ground No.1 raised by the assessee is allowed. When the appeal filed by the assessee is allowed on technical ground the assessment order passed by the AO being barred by limitation, void, ab-initio and bad in law the cross appeal filed by the Revenue is also not maintainable in the eyes of law and as such is liable to be dismissed. When the additional ground No.1 raised by the assessee is allowed the Bench has decided not to go into the merits by deciding other grounds.

Summary

Issues Involved:
1. Assessment of Income and Deduction under Section 80IAB
2. Classification of Grant-in-Aid
3. Interest on Advances to Developers and Contractors
4. Lease Rent Income
5. Development Charges
6. Disallowance under Section 14A
7. Interest on Fixed Deposits
8. Fire Service Fee
9. Loss on Power Distribution and Water Supply
10. Time Limit for Passing Order Giving Effect

Summary:

1. Assessment of Income and Deduction under Section 80IAB:
The Tribunal upheld the CIT(A)'s decision that interest received on advances given to developers and contractors should be considered as "income from business" and eligible for deduction under section 80IAB. The Tribunal followed its earlier decision in the assessee's case for A.Y. 2008-09.

2. Classification of Grant-in-Aid:
The Tribunal held that the grant-in-aid received by the assessee from the Government of Maharashtra for land acquisition and infrastructure development is not taxable as it is a capital receipt. The assessee acts as an agent of the state, performing statutory functions.

3. Interest on Advances to Developers and Contractors:
The Tribunal confirmed that interest on advances to developers and contractors is business income eligible for deduction under section 80IAB, following its previous decision in the assessee's case.

4. Lease Rent Income:
The Tribunal upheld the CIT(A)'s decision that lease rent income received by the assessee is business income and eligible for deduction under section 80IAB, aligning with its earlier rulings.

5. Development Charges:
The Tribunal overruled the CIT(A)'s decision and held that development charges collected by the assessee are not business receipts but statutory functions linked to the development of the project, hence not taxable.

6. Disallowance under Section 14A:
The Tribunal dismissed the Revenue's appeals, confirming that no disallowance under section 14A read with rule 8D is warranted when there is no exempt income earned by the assessee during the years under consideration.

7. Interest on Fixed Deposits:
The Tribunal remitted the issue back to the AO to verify whether the fixed deposits were made out of surplus funds or loans/borrowings, following its earlier decision in the assessee's case for A.Y. 2008-09.

8. Fire Service Fee:
The Tribunal held that the fire service fee collected by the assessee is not revenue in nature but linked to statutory obligations for maintaining fire services, hence not taxable.

9. Loss on Power Distribution and Water Supply:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of losses on power distribution and water supply activities, recognizing them as part of the revenue model of the MIHAN project.

10. Time Limit for Passing Order Giving Effect:
The Tribunal allowed the assessee's additional ground that the order giving effect to the Tribunal's earlier order was barred by limitation, void ab initio, and bad in law as it was passed after the prescribed time limit.

Conclusion:
The appeals filed by the assessee were allowed, and the appeals filed by the Revenue were dismissed. The Tribunal emphasized the importance of adherence to statutory time limits and proper classification of income and grants in line with the statutory functions and business activities of the assessee.