1987 (10) TMI 92 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of interest income of Rs. 1,07,29,848.
2. Constitution of a larger Bench.
3. Depreciation claim on machinery and construction equipment.
4. Disallowance of training and recruitment expenses.
5. Charging of interest u/s 139 and 217.

Summary:

1. Taxability of Interest Income:
The primary issue was whether the interest income of Rs. 1,07,29,848 earned on short-term deposits made with banks by NTPC, which was still in the process of setting up its power plants, should be assessed as income from other sources. The Revenue argued that this interest income was taxable under the head 'Other sources,' while NTPC contended that the amount should be capitalized to reduce the cost of construction. The Tribunal upheld the Revenue's view, citing various High Court decisions, including the Karnataka High Court in Cap Steel Ltd. and the Delhi High Court in Indian Drugs & Pharmaceuticals Ltd., which supported the taxability of such interest income under 'Other sources.' However, the Tribunal allowed NTPC's alternative plea, excluding Rs. 26.03 lakhs received from contractors and employees, which was linked to the construction activity, from being taxed.

2. Constitution of a Larger Bench:
The Tribunal overruled the preliminary objections raised by the Revenue regarding the constitution of a larger Bench. It clarified that a Special Bench is constituted to consider issues of substantial importance and cannot reverse or overrule the decision of any Bench, although it may come to a different conclusion based on facts and circumstances.

3. Depreciation Claim on Machinery and Construction Equipment:
NTPC claimed depreciation of Rs. 1,45,38,849 against income from hire charges of machinery and construction equipment. The Tribunal upheld the lower authorities' decision to restrict the claim to Rs. 1,11,96,268, allowing depreciation only for machinery actually put to use. The Tribunal reiterated that depreciation could only be allowed for machinery hired out and not for machinery not used, rejecting the theory of passive user applicable in the case of NTPC.

4. Disallowance of Training and Recruitment Expenses:
NTPC claimed Rs. 69,60,452 as training and recruitment expenses against income from management fees. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and remanded the issue for re-examination, considering the commercial reality and the partial allowance of such expenses in the subsequent assessment year.

5. Charging of Interest u/s 139 and 217:
NTPC did not press grounds of appeal regarding the charging of interest under sections 139 and 217, as it was not a case of denying liability to the charging of interest. The Tribunal noted that consequential relief would be available to NTPC when the income computed is recalculated.

Conclusion:
The appeal of NTPC was partly allowed, with the Tribunal upholding the taxability of interest income from short-term deposits under 'Other sources' while excluding interest received from contractors and employees. The Tribunal also upheld the restriction on the depreciation claim and remanded the issue of training and recruitment expenses for re-examination.