2015 (6) TMI 385 - AT - Income Tax

Deduction u/s 80IA - Excess provision written back - CIT(A) allowed the claim - Held that - This amount represented reversal of excess provision of salary made in the past in respect of pay revision which was implemented during the previous year under consideration. There is hardly any need to emphasize that salary paid by an undertaking is part of expenditure otherwise deductible in computing the income derived from the eligible undertaking. If in the preceding year, the deduction was claimed for a higher sum, which reduced the eligible profit with such higher amount of deduction and the actual expenditure turned out to be less with the result that the excess provision gets written back in the instant year, it cannot be characterized as anything other than part and parcel of profit derived from eligible enterprise. In reality, the excess provision written back is not an income in itself, but, a reduced amount of eligible deduction in the computation of profits derived from eligible enterprise. We, therefore, approve the view taken by the ld. CIT(A) on this issue. - Decided against revenue. Late payment charges - The character of this receipt has not been disputed by the ld. DR. In essence, the late payment charges are nothing, but, part of sale consideration which cannot be viewed differently. Once deduction is available on sale consideration, there can be no reason to deny deduction on such late payment charges, which are part and parcel of such sale consideration. We, therefore, uphold the impugned order allowing deduction u/s 80IA on this amount. -Decided against revenue. Interest on employees - disallowance of deduction u/s 80IA - Held that - There is no direct nexus of such interest income with the eligible undertaking inasmuch as the immediate source of such income is not the eligible undertaking. Such income may be attributable to the business of the eligible undertaking, but, cannot be held as derived from the eligible undertaking - Decided against assesse. Machines hire charges - Held that - The assessee received hire charges in respect of certain machines which were given on hire to its contractors who were engaged in the erection and construction of the power generation facility. We fail to appreciate as to how such machine hire charges can be considered as derived from eligible undertaking. These do not have any direct nexus with the eligible undertaking. The source of such income is hiring of machines, which is step away from the eligible undertaking - Decided against assesse. Rent Receipt - Held that - The assessee received rent from its employees quarters as well as temporary sheds given to contractors at project sites. Even though such income may be considered as attributable to the eligible undertaking, but, it can by no stretch of imagination, be described as derived from the eligible undertaking.- Decided against assesse. Sundry Receipts - Held that - These amounts are in the nature of electricity charges, guest house receipts, subsidized transport and miscellaneous receipts from the employees and contractors. The reasons given by us hereinabove for not allowing deduction in respect of the items mentioned above apply with full force in respect of such sundry receipts as well. These receipts cannot be considered as derived from the eligible undertaking - Decided against assesse

Summary

Issues:
- Dispute over deduction u/s 80IA on various income items
- Whether certain income items qualify as 'derived from' eligible business

Analysis:
Assessment Year 2008-09:
1. Excess provision written back:
- The excess provision written back was considered part of profit derived from the eligible enterprise, as it was a reversal of past salary provision. It was held to be eligible for deduction u/s 80IA as it directly impacted the computation of eligible profits.

2. Late payment charges:
- Late payment charges were deemed part of the sale consideration and thus qualified as income derived from the eligible business. The deduction u/s 80IA was allowed on this amount as it was integral to the sale transaction.

3. Cross Objections - Interest on employees, Machine hire charges, Rent Receipt, Sundry Receipts:
- Interest on employees, machine hire charges, rent receipts, and sundry receipts were not considered 'derived from' the eligible undertaking. These income items did not have a direct nexus with the eligible business and were therefore not eligible for deduction u/s 80IA.

Assessment Year 2009-10:
1. Excess provision written back and Late payment charges:
- Similar to AY 2008-09, the deduction u/s 80IA was upheld for excess provision written back and late payment charges as they were deemed income derived from the eligible business.

2. Cross Objections:
- The cross objections related to the same income items as in AY 2008-09 and were dismissed following the same reasoning as in the previous year.

In conclusion, the judgment clarified the scope of 'derived from' in the context of income items for claiming deduction u/s 80IA. Only income directly connected to the eligible business was considered eligible for the deduction, while other income items were excluded based on the lack of a direct nexus. The decision was based on the interpretation of relevant legal precedents and the specific nature of each income item in relation to the eligible business.