2013 (10) TMI 542 - AT - Income Tax

Deduction u/s 80IB - Income of assessee or Government - AP Housing Board formed under APHB Act, 1956 - Held that - Assessee Board has an independent identity distinct from State Government. Board is also constituted for purpose of carrying out work as envisaged under preamble of Act. Board certainly cannot be equated with Government or a department of Government as it does not perform any of duties of Government or a Government department. It is quite obvious that Board is a statutory body performing statutory functions distinct from state Government. It may be a fact that state Government exercises some amount of control over functioning of Board similar to control exercised over all other government corporation and public sector undertakings but that does not take away independent identity or character of Board. Therefore, it cannot be said that income of assessee Board is income of state Government - Following decision of Andhra Pradesh State Road Transport Corporation Versus Income-Tax Officer, B-I Ward, Hyderabad, And Another 1964 (3) TMI 15 - SUPREME Court , assessee s contention that income of Board cannot be subjected to tax under income-tax Act, in view of provisions contained under Article 289(1) of Constitution of India is not acceptable. Chargeability of income to tax is as per charging section contained u/s 4 of IT Act, 1961. Retrospective amendment made to APHB Act by Act 12 of 2010 cannot dilute effect of provisions contained under income-tax Act, which is an Act of Parliament hence has overriding effect over an Act of State Legislature. It is a fact on record that plea taken by assessee that Board s income is income of state Government was not there until introduction of subsection (7) to section 58 of APHB Act in 2010. That is reason assessee had never taken this stand all these years. In fact assessee had all along filed returns declaring income and claiming deduction u/s 80-IB of Act. Deduction u/s 80-IB can only be claimed by an assessee who is an industrial undertaking having income from profits and gains from business specified therein. Therefore, assessee s own conduct goes to show that income from housing projects were treated as business by assessee. assessee has not revised this stand by filing any revised return. Only after amendment was made to APHB Act in year 2010, assessee came forward with a claim that its income is income of state Government therefore immune from income-tax Act in view of Article 289(1) of Constitution of India - Decided against assessee. Diversion of Income by Overriding Title - Held that - There is a difference between an amount which a person is obliged to apply out of his income and an amount which by nature of obligation cannot be said to be a part of income of assessee. Where by obligation income is diverted before it reaches assessee, it is deductible; but where income is required to be applied to discharge an obligation after such income reaches assessee, same consequence, in law, does not follow. It is first kind of payment which can truly be excused and not second. second payment is merely an obligation to pay another a portion of one s own income, which has been received and is since applied. first is a case in which income never reaches assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of person to whom it is payable - assessee having diverted a part of income after it has accrued to it diversion of such income can only be considered to be an application of income and not diversion of income by overriding title - Following decision of Commissioner Of Income-Tax, Bombay City II Versus Sitaldas Tirathdas 1960 (11) TMI 17 - SUPREME Court - Decided against assessee. Disallowance of infrastructure expenditure - Held that - it is not an allowable expenditure but only an application of income. It is not in dispute that amount of Rs. 1180 crores is stated to have been given to AP State Housing Corporation on directive of Government. However, that would not amount to an expenditure incurred for purpose of business. An expenditure which is exclusively laid out for purpose of business is a revenue expenditure and, therefore, allowable. On appreciation of facts on record, it is quite evident that amount of Rs. 1180 crores was not spent by assessee board for purpose of its business. said amount was transferred to AP State Housing Corporation at directive of Government for implementing certain housing projects. assessee is no way connected with implementing project. This cannot be said to be an expenditure laid out wholly and exclusively for purpose of business. decisions relied upon by learned AR are factually distinguishable as in those cases there was nexus between expenditure incurred and business of assessee - decided against assessee. Disallowance of payment of pension - Held that - CIT(A) has not gone into depth of issue and has confirmed disallowance in a mechanical manner. It is not forthcoming what are details asked for by AO and on failure on part of assessee to furnish such details, disallowance was made. lower authorities have not disputed fact that pension amount has been paid. It is also a fact that Pension is payable as per service conditions. That being case it is an allowable deduction - Decided in favour of assessee. Disallowance u/s 44AD - Estimation of income from Singapore project - Held that - It is a fact on record that assessee is a government undertaking created under a statute. It maintains regular books of account. Its books of account are not only subject to statutory audit under provisions of income-tax Act but also subject to inspection by other government agencies. Therefore, without pointing out defect or discrepancy in books of account maintained by assessee estimation of income cannot be resorted to. That besides section 44AD of Act is applicable only in a case of contractors where turnover is less than Rs. 40 lakhs. In present case, neither assessee is a contractor nor its receipts are less than Rs. 40 lakhs. Therefore, estimation of income by applying rate of 8% that too on expenditure by invoking provisions of section 44AD is not justified. If department is of view that there is a profit element which has not been disclosed by assessee, it has to be determined after properly verifying books of account and other evidences and not merely on presumption and guess work. We, therefore, remit this issue to file of Assessing Officer who shall decide same in accordance with law after affording reasonable opportunity of being heard to assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Taxability of the income of Andhra Pradesh Housing Board (APHB) under Article 289 of the Constitution of India.
2. Allowability of infrastructure expenditure of Rs. 1180 crores.
3. Allowability of pension payments as expenditure.
4. Estimation of income from the Singapore project.
5. Reconciliation of differences in letters of credit.

Detailed Analysis:

1. Taxability of the Income of APHB:
The primary issue is whether the income of APHB is taxable under the Income Tax Act or exempt under Article 289 of the Constitution of India. The assessee argued that APHB, being an instrumentality of the State, should be exempt from taxation as its income is essentially the income of the State. The Tribunal, relying on the Supreme Court's decision in APSRTC v. ITO, 52 ITR 524, held that APHB is a distinct legal entity separate from the State Government. The income derived by APHB from its activities is not the income of the State, and therefore, it is not exempt under Article 289. The Tribunal also noted that APHB's own conduct of filing returns and claiming deductions under the Income Tax Act indicates its recognition as a taxable entity.

2. Allowability of Infrastructure Expenditure of Rs. 1180 Crores:
The assessee claimed an expenditure of Rs. 1180 crores paid to AP State Housing Corporation for infrastructure development under the Rajiv Gruhakalpa scheme. The Tribunal upheld the disallowance made by the Assessing Officer and CIT(A), stating that the expenditure was not incurred wholly and exclusively for the purpose of APHB's business. The Tribunal noted that the payment was made as per government directives and did not have a direct nexus with the business activities of APHB. The expenditure was considered an application of income rather than a business expenditure.

3. Allowability of Pension Payments as Expenditure:
The assessee claimed expenditure on pension payments to its employees. The CIT(A) disallowed the claim on the ground that the pension payments were not routed through a pension fund. The Tribunal, however, allowed the claim, stating that pension payments are allowable as business expenditure if they are part of the service conditions. The Tribunal directed the Assessing Officer to delete the addition made on this account.

4. Estimation of Income from the Singapore Project:
The CIT(A) estimated the profit from the Singapore project at 8% of the total expenditure incurred by APHB. The Tribunal found this estimation to be unjustified as APHB is a government undertaking maintaining regular books of account subject to statutory audit. The Tribunal remitted the issue back to the Assessing Officer to determine the income based on proper verification of books of account and other relevant documents, rather than on mere estimation.

5. Reconciliation of Differences in Letters of Credit:
The Assessing Officer added Rs. 1,31,01,333/- due to discrepancies between amounts authorized to branches and actual expenditure. The CIT(A) deleted the addition, noting that the Assessing Officer did not identify specific disallowable expenditures and that the LOCs are internal accounting instruments. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the Assessing Officer failed to substantiate the basis for the disallowance.

Conclusion:
The Tribunal held that APHB's income is taxable under the Income Tax Act and not exempt under Article 289 of the Constitution. The infrastructure expenditure of Rs. 1180 crores was disallowed as it was not incurred for business purposes. Pension payments were allowed as business expenditure. The issue of income estimation from the Singapore project was remitted back to the Assessing Officer for proper verification. The addition due to discrepancies in letters of credit was deleted.