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Issues Involved:
1. Deduction u/s 80-IA of the Act for advertisement income related to infrastructure projects. 2. Addition u/s 41(1) of the Act regarding the waiver of loan principal and interest. Issue 1: Deduction u/s 80-IA of the Act for Advertisement Income The first issue for consideration relates to deduction under s. 80-IA of the Act in respect of advertising receipts relating to infrastructure project on the ground that the same was not income derived from business of infrastructure project. The facts of the case relating to this issue are that the assessee company was carrying on business of manufacturing of FRP pans and doors, trading of MTV traps and other items and also maintenance of public toilets system. The assessee had made a claim of Rs. 20,64,430 as deduction under s. 80-IA of the Act in respect of infrastructure facilities of maintaining public toilets system. The assessee had constructed public toilets on built, operate and transfer basis for MCD. The assessee admitted income from toilet users at Rs. 14,59,358 and advertisement income at Rs. 48,93,530 on which deduction under s. 80-IA of the Act was claimed. The AO examined the contention of the assessee and held that the advertisement income was income from other sources. He placed reliance on the decision of Hon'ble Calcutta High Court in the case of Mukherjee Estate (P) Ltd. He further observed that assignment of rights of advertisement to the assessee by municipal authorities so as to make toilet business more attractive would not mean that the income received from advertisement was income received from toilet operations. He accordingly held that amount of advertisement receipts was to be excluded from the income while calculating deduction under s. 80-IA of the Act. Since the income from toilet business was negative after exclusion of advertisement income of Rs. 48,93,534 he disallowed the claim of the assessee. On appeal, the learned CIT(A) observed that income which can be said to be derived from business of developing, operating and maintaining public toilets was the income which is derived from the use of toilets by the public. The income from advertisement could not be said to be the business income directly derived from operation of public toilets. He referred to cl. (v) to the terms and conditions of the agreement with the NDMC, which prescribes the fees/charges from the use of the infrastructure facility. He also referred to cl. (xi) according to which the bidder shall be at liberty to utilise the walls of the structure for the purpose of advertisement. The area on which advertisements are displayed shall not exceed 50 per cent of the plinth area. The remaining area shall carry social massages as approved by the NDMC. He, therefore, concluded that the liberty given to the assessee to utilize the walls of the structure of the toilets for the purpose of advertisements was in form of incentives given to the assessee for developing an infrastructure facility and the same could be incidental, but not income derived from industrial undertaking. He placed reliance on the decision of Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC) and in the case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC). He accordingly came to the conclusion that the advertisement income could not be said to be income derived by the assessee from the business of development, operating and maintenance of infrastructure facility of the public toilets. We have heard both the parties and perused the material available on record. Under s. 80-IA of the Act where the gross total income of the assessee includes any profits and gains derived by an industrial undertaking or an enterprise from any business referred to in sub-s. (4) (such business being hereinafter referred to as eligible business) there shall in accordance with and subject to provisions of this section, be allowed in computing the total income of the assessee a deduction of an amount equal to hundred per cent of profit and gains derived from such business for ten consecutive years. Sub-s. (4) specifies the business of (i) developing or (ii) operating and maintaining, or (iii) developing, operating and maintaining any infrastructure facility. The assessee has to fulfil the conditions enumerated in s. 80-IA(3) of the Act. Further, the Explanation to cl. (c) of sub-s. (4) defines infrastructure facility and is reproduced as under: "Explanation.-For the purposes of this clause, 'infrastructure facility' means- (a) a road including
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