2015 (11) TMI 1066 - AT - Income Tax

Eligibility to claim deduction u/s 80IA - whether the receipts i.e. Interest on IT refund,Interest from others, Interest on FDR, Sale of scrap and Tender fees can be considered to be profits or gains derived from the eligible business or not? - CIT(A) allowed the claim - Held that - In the instant case, TDS deduction is integral part connected with the receipt of lease income and the same cannot be separted from the activity carried on by the assessee. Since the lease income is the primary source of the assessee and since the TDS has been deducted from the said primary source and since the assessee was deprived of a portion of lease rent for a temporary period for the reasons beyond the control of the assessee, there is some merit in the contention of the assessee that the interest on TDS refund should be equated with the interest on delayed payment of business receipts. In our view, the assessee has got strong case in the alternative contentions that interest received by it on the TDS refund should be netted off against the interest expenditure for the purpose of computing the profits and gains derived from the undertaking, in which case, the interest income need not be assessed separately and it would automatically get deduction u/s 80IA of the Act due to netting off. In view of the above, we uphold the decision taken by the Ld CIT(A) on this issue.- Decided in favour of assessee. Receipt relates to the interest received from others, which is the interest received from the lessees for the delayed payment of lease rent. In view of the decision rendered by the Hon ble Supreme Court in the case of Govinda Choudhary & Sons (1992 (4) TMI 8 - SUPREME Court) and CIT Vs, Bhansali Engg. Polymers Ltd (2008 (4) TMI 236 - BOMBAY HIGH COURT), we do not find any infirmity in the decision of Ld CIT(A) in holding that interest so received partakes the character of lease rentals and hence eligible for deduction u/s 80IA of the Act.- Decided in favour of assessee. Receipt relates to the interest received on FDR - The assessee had received lease deposits from the lessees, which is required to be returned to them upon vacating the premises. Since the possibility of vacating the premises in the middle is always there, in which event the lease deposits are required to be refunded, the assessee was not in a position to use the entire lease deposits for business purposes including for repayment of loans taken by it. Hence, as a prudent business policy, the assessee was constrained to keep part of the lease deposits into the Fixed deposits maintained with banks. The said fixed deposits have earned interest income. Thus, we notice that the assessee was required to keep part of lease deposits amounts in fixed deposits out of business compulsion. Since the lease rental income is the primary source of the assessee, in our view, the keeping of fixed deposits shall form integral part of the business of operation of IT parks and SEZ. We also find merit in the alternative argument of the assessee that the interest income should be netted off against the interest expenditure, since the assessee was constrained to keep part of lease deposits into fixed deposits in view of the peculiar nature of activities of the assessee instead of using the same for business purposes including repayment of loan. In view of the above, we do not find any infirmity in the decision taken by the Ld CIT(A) on this issue allowing interest received on FDR eligible for deduction u/s 80IA.- Decided in favour of assessee. Receipts relates to the Tender fees received by the assessee on sale of tender forms. The Ld CIT(A) has noticed that the assessee has availed the services of various sub-contractors for the purpose of carrying our various works in the IT parks and SEZ. In order to select the vendors (sub-contractors), the assessee has followed tender system and in that process, it has collected money on sale of tender forms. Hence, the Ld CIT(A) has held that the activity of inviting tender is very much part of the development and operation of SEZ and accordingly held that the sale of tender forms shall be eligible for deduction u/s 80IA of the Act. Since the tenders have been invited in connection with the development and operation of IT parks and SEZ, we are of the view that the Ld CIT(A) was justified in holding that the tender fees are eligible for deduction u/s 80IA of the Act. - Decided in favour of assessee. Corresponding expenditure relating to the items of receipts, which were not considered to be deductible u/s 80IA should be deducted and the deduction should be denied only in respect of net receipts is acceptable since the deduction u/s 80IA is allowed in respect of Profits and gains , which means only net income, i.e., Gross receipt less corresponding expenditure incurred to earn the said income. Accordingly, we direct the AO to exclude only the net receipts in respect of ineligible item of income. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IA on various types of receipts.
2. Whether deduction under Section 80IA should be on net receipts or gross receipts.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IA:

Interest on IT Refund:
The revenue disputed the deduction eligibility for interest received on IT refunds. The assessee argued that the interest on IT refunds was directly related to the lease rental income, which was the primary business income eligible for deduction under Section 80IA. The assessee contended that the TDS portion of the lease rent, which was refunded with interest, was akin to delayed lease rent payment. The Tribunal upheld the CIT(A)'s decision, agreeing that the interest on IT refunds should be equated with interest on delayed business receipts and could be netted off against interest expenditure, making it eligible for deduction under Section 80IA.

Interest from Others:
The interest received from lessees for delayed lease payments was disputed. The Tribunal, referencing the Supreme Court's decision in Govinda Choudhary & Sons and Bombay High Court's decision in Bhansali Engg. Polymers Ltd, upheld that such interest partakes the character of lease rentals and is eligible for deduction under Section 80IA.

Interest on FDR:
The interest earned on fixed deposits, which were made from lease deposits received from lessees, was also disputed. The Tribunal noted that the assessee was compelled to keep part of the lease deposits in fixed deposits due to business necessities. The Tribunal found merit in the argument that the interest income should be netted off against interest expenditure and upheld the CIT(A)'s decision that such interest income is eligible for deduction under Section 80IA.

Tender Fees:
The fees received from the sale of tender forms were disputed. The Tribunal agreed with the CIT(A) that the activity of inviting tenders was part of the development and operation of IT parks and SEZ, thus making the tender fees eligible for deduction under Section 80IA.

2. Net Receipts vs. Gross Receipts:
In the cross objection, the assessee contended that the deduction under Section 80IA should be on net receipts, i.e., net of expenses, rather than gross receipts. The Tribunal found merit in this contention, noting that the deduction under Section 80IA is allowed on "Profits and gains," which implies net income. The Tribunal directed the AO to exclude only the net receipts for ineligible items of income.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's cross objection for statistical purposes, directing that only net receipts be considered for exclusion in respect of ineligible items of income. The judgment emphasized that the interest on IT refunds, interest from lessees for delayed payments, interest on FDR, and tender fees are eligible for deduction under Section 80IA, while ensuring that deductions are calculated on net receipts.