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TMI Blog2012 (12) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and the same ought to have been treated by the Ld. A.O as business income of the assessed enterprise, after reducing the cost of expenditure thereof and hence the deduction U/s. 801A of the income ought to have been determined accordingly and the taxable income under normal provision of the Act ought to have been followed accordingly. 3. That without prejudice to above, and assuming but not admitting that the aforesaid receipts/ income are to be excluded in computing the "Power Profits" u/s. 801A, the Ld. AO as well as the CIT (A) ought to have taken into account the expenditure incurred against the aforesaid receipts booked as expenses in appropriate recorded heads of accounts & shown in the debit side of the Profit & Loss Account so as to determine the exact income / receipt which could have been subject to tax or to be excluded in computing the deduction of 'power profit' U/s. 801A of the Act. 4. For that the profit on sale of fixed item being not an item for computing normal income under the head business & profession ought to have been excluded from the other receipts. 5. For that the disallowance of Rs.5,20,000 on account of periphery development expenses is based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently the tax payable under normal computation was "Nil". Accordingly OPGC was liable for MAT u/s. 115JB of the Act and MAT u/s. 115JB of the Act was also paid. Finding some mistake in the calculation of depreciation consequent to I.T. Act in past years, the revised return was filed on 10.05.2005. The return filed was selected for scrutiny & accordingly notices u/s. 143(2) & 142(4) of the Act was issued. In response to notice U/s. 142(1)/143(2) of the I.T. Act, the assessee appeared before the Ld. Assessing Officer from time to time. In course of appearance, the assessee was noticed by the Ld. A.O. proposing to treat the other income as disclosed in schedule-10 of the Audited Accounts, as not eligible for deduction U/s. 80 IA of the I.T. Act, 1961 & hence taxable. Referring to the other income as disclosed in the schedule-10 of the financial statement such as: (i) interest from investment/deposits amounting to Rs. 10,37,36,363 (ii) interest income from employees & others amounting to Rs.37,07,457 (iii) receipt of rent & electricity charges amounting to Rs. 32,31,054 (iv) sundry receipt amounting to Rs. 63,82,041 (v) sale of scraps amounting to Rs. 23,87,971 (vi) Profit on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal expenditure in the books of account are also in consonance with the provision of the Income Tax Act as has been pronounced by the Hon'ble Supreme Court in Madras Industrial Investment Corporation Ltd V. CIT(1997)2251TR 802. The order U/s. 143(3) of the IT. Act, was passed by the Ld, A.O. on dated 21.12.2006. In the said order, the Ld. A.O. while computing the income under normal provisions of the Act has ignored, misconstrued/ not appreciated the facts as placed before him and on the contrary to the provisions of the statute as well as law not only denied the claim U/s. 801A of the IT. Act, 1961, as claimed by the assessee (restricting the same to the tune of Rs. 1,71,69,11,069) but also disallowed the Bond expenses amounting to Rs. 60,48,223, donation to the Chief Ministers Relief fund of Rs. 20,20,000, periphery development expenses to the tune of Rs. 5,20,000. The alternative submission of the assessee company that the income excluded from the 'Power Profits' under different heads having some direct expenses against such income / receipts are to be determined after reducing the cost expended and the receipts are nothing recovery / reimbursement of cost which were also ignor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly engaged in power generation and accordingly, all the receipts and expenditure relates to power generation. As OPGC is wholly engaged in the business of generation of power, it is an industrial undertaking and accordingly the Net Profit is entitled to deduction u/s. 80IA of the Act. The Income Tax return for the financial year 2003-04 relevant to the Asst. Year 2004-05, was filed voluntarily on 31.10.2004 i.e., within the due date U/s. 139(1) of the I.T. Act, 1961. OPGC's Net Profit as per P/L account is Rs. 1,47,57,27,710. Taking into account the eligible deduction U/s. 80IA of the Act in respect of Profits/ gains derived by the assessee enterprise from business of generation of power i.e., "Power Profits" [for the said year for Rs. 1,50,22,16,908], the taxable income under the normal provisions of the Act was "Nil" and consequently the tax payable under normal computation was "Nil". Accordingly OPGC was liable for MAT U/s. 115JB of the Act and MAT U/s. 115JB of the Act was duly paid. Revised return was filed on 10.05.2005 disclosing total income at Rs.171,69,11,069 all of which was claimed as deduction u/s 80IA. The revised return filed was selected for scrutiny. Accordingly n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces Amount in Rs. 1. Expenses on issue of Bonds 60,48,223 2. Periphery development expenses 5,20,000 3. Donation 20,20,000 Considering Other Receipts disclosed at Schedule -10 of financial statement as profits not derived from the activities of generation of power as Income from Other Sources i.e., at Rs.13,13,63,554, the A.O. restricted the deduction U/s. 80IA of the I.T. Act at Rs. 159,41,35,738 & determined Net Taxable Income at Rs. 13,13,63,554. However, since the normal computation of tax under the provisions of income tax was less than the computation of tax U/s. 115JB (MAT), the learned A.O. assessed the tax payable U/s. 115JB which was more than the normal tax. But the learned CIT(A) in a routine manner confirmed the assessment except deleting the disallowance of Rs. 60,48,223 under the head expenses on issue of bond written off. 3.2. The learned AR of the assessee continued his submission that aggrieved with the orders of assessment as well as the orders of the Ld. CIT (A), the assessee is in appeal before the Tribunal on various grounds including the ground that the other receipts as disclosed in Schedule -10 of the profit and loss are to be considered as der ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of section 80-IA and the fact that an industrial undertaking has already been established and is running (i.e., investment done, machinery purchased, employment and revenue generated etc) a restricted interpretation be given to the expression 'derived from any business of an industrial undertaking". 3. Commissioner of Income Tax V. Seshasayee Paper & Board Ltd. [1994] 207 ITR, Page-80 (Madras) . It has been held that derive from business -includes income connected with business - it need not be directly derived from business. 4. ACIT v. Maxcare Laboratories Ltd [2005] 273 ITR (A.T) 1"- Held- even for determining the profits and gains' derived from any business of industrial undertaking", manufacturing or producing any article or thing include sale proceeds of such article or thing of scrap generated during the course of such manufacturing activity. It is not possible to close eyes to the event which amounts to increase in the sale consideration. After all what is to be determined is the profit and gains of business of industrial undertaking and there is no warrant to stop for the above purpose of sales of main products only. The controversy here is not when manufacturing act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance for Cyclone affected employees, Vehicle loan, at a concessional rate of interest. The Supported Rules / approvals for grant of above advances are annexed herewith at Annexure -II for perusal and proper appreciation. The arrangements as above which has been made between the assessee and its employees are pertaining to the business of generation of power and therefore interest received from the employees on such advance/loans are receipts in the normal course of carrying out its business and therefore have a direct nexus with the income of generation of power and are to be considered as derived income. (ii) Rent, water charges & electricity charges received from township Quarters/Market complex etc. of Rs. 3231054. The generation plant of the assessee as stated earlier is situated at a very remote village namely Banerpalli in the district of Jharsuguda. In and around the plant side, there is no accommodation available wherein the assessee can accommodate its employees and their families. As it has been stated earlier the business of generation of power is required to be carried out for twenty four hours 7* 365 days in a year. It is imperative for the assessee company to accom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ROPERTY OR PORTION OCCUPIED BY ASSESSEE FOR PURPOSE OF BUSINESS "OCCUPY" MEANING OF -PROPERTY ORIGINALLY OCCUPIED BY EMPLOYEES/DIRECTORS OF ASSESSEE COMPANY -CONTNUING TO BE OCCUPIED BY THEM AS NOMINEES OF MANAGIING AGENTS -FINDING THAT ASSESSEE FOUND IT EXPEDIENT TO ALLOW THEIR OCCUPATION TO BE COMPUTED AS INCOME FROM BUSINESS ACTUAL EXPENSES TOWARDS REPAIRS AND DEPRECIATION ALLOWABLE-INCOME -TAX ACT, 1961, ss.14,22. (iii) Sundry receipts like sale of tender paper, liquidated damage recovered, earnest money forfeited, Misc. storage charges recovery from contractor and insurance claim received amounting to Rs. 63,82,041. The learned AR of the assessee furnished the break of these receipts as under : Particulars Amount (Rs.) Sale of Tender Papers 5,04,630 Reimbursement of Water Pumping Charges 26,82,737 Liquidated damage Recovered 4,67,206 Vehicle Higher Charges 10,400 Earnest Money Forfeited 20,637 Other Misc. Receipts like penalty, ground 5,97,664 Penalty Recovery from Contractor 20,63,982 Misc Storage Charges Recovery from Contractor 2448 Hire charges of machinery 5792 Insurance claim received 26,545 Total: 63,82,041 (i) In course of its regular busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneration of power. (v) Sale of scraps: In this respect the learned AR of the assessee submitted that the assessee company in course of operation & maintaining its plant effects purchase of different raw materials, spares, stores and consumables for its power plant. The costs of such containers, packing materials, are part of the cost of the manufactured product. After use of these stores, spares, consumable, packing materials, containers etc are disposed off and being directly relatable to the generation activity of the industrial undertaking. The income from sale of scraps is derived income from the industrial undertaking. For denying the claim of the assessee that the sale of scrap and insurance claims are not derived income and as such are not allowable as eligible profits for the purpose of Section 80-IA, the Ld. CIT has placed reliance on the decisions in the case of Pandian Chemicals Ltd V. Commissioner of Income Tax [262 ITR, Page-278 (S.C)] and Commissioner of Income Tax V. Hazarimal Milapchand Surana [ (2004), 270 ITR, Page-450 (Rajastan High Court)]. The learned AR of the assessee submitted that Pandian Chemicals Ltd, is entirely based on different fact, wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TS FOR PURPOSES OF DEDUCTION -INCOME-TAX ACT, 1961,S.80-IA." 2. Dy .Commissioner of Income Tax V. Core Health Care Ltd (2009), 308 ITR ,Page-263 (Gujurat) The Assessing Officer was of the view that while computing the relief under sections 80HH and 80-I of the Act, the amount of Rs.26, 64, 113,being miscellaneous income on sale of containers ,had to be excluded as being ineligible for deduction under the provisions, as it was not derived from the industrial undertaking .The Commissioner (Appeals ) did not agree with the Assessing Officer and the Tribunal confirmed the order passed by the Commissioner (Appeals).On appeal to the High Court. (iii) That it was an accepted position that the empty containers, which were sold ,were containers in which raw material in bulk had been purchased by the assessee. The cost of the containers was part of the manufactured product and was thus directly relatable to the manufacturing activity of the industrial undertaking .The income from sale of empty containers was entitled to special deduction under sections 80HH and 80-I. 3. Commissioner of Income Tax V. Biotech Medical (P)Ltd (2009), 310 ITR (AT) ,Page-47 (Hyderabad) for the propositi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act and therefore are to be excluded. On a plain reading of the explanations offered herein above, it is apparent that the income as disclosed in the schedule-10 in respect of (1) interest income from employees & others (2) receipt of rent & electricity charges (3) sundry receipt (4) sale of scraps & (5) Profit on sale of surplus stock being derived from the only source of business i.e., generation of power & and hence are to be considered as allowable deduction U/s. 80IA of the I.T. Act while computing the income under the normal provisions of the I.T. Act, 1961. 3.4. Alternatively, the learned AR of the assessee submitted that without prejudice to the above, it is alternatively submitted that all the receipts from different heads such as: interest income from employees and others, receipt of rent and electricity charges, sundry receipts etc, having a definite expenditure, which has been allowed by the learned A.O. in the assessment, the other receipts as above ought to have been reduced from such expenses. Instead of netting off, the assessee company following the principle of accountancy and the provision of the Companies Act, 1956 has disclosed the other receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommunity as also with regulatory agencies & society at large, thereby creating an atmosphere in which business can succeed in a greater measure with the aid of such goodwill ....." While deciding a similar matter the Hon'ble I.T.A.T, Cuttack Bench, Cuttack in the case of Orissa Forest Development Corporation Ltd V. Joint C.I.T, reported in (2002) 80 ITD, Page-300, Cuttack, explained the concepts in a very lucid manner. It has observed that the overall needs of the business running over a long span of time were envisaged in business expediency. Furthermore, under the modern-day concepts, even social and similar other obligations were also required to be considered as part of the business obligations of a businessman. A person is a social animal, who lives in a society and as many facts of life such as: religious, social and political etc. He affects the society and is also affected by the society to be in the society. One has to do certain social duties and responsibilities just not to harm the society, but to do some positive work for social upliftment like people; business or profession is also done in the society. It has also some social duties. That's why expenditures are incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company was participating in the development/welfare of the state with the assurance of the people in and around the sites, the safety of its men and machinery including the project works. The question whether the expenditure incurred by the Assessee Company to be allowed as business expenditure by way of donation to such type of funds came up for consideration before the Honourable Madras High Court, in the case of CIT V. Cheran Transport Corporation Ltd., 1996, 219 ITR, Page-203, Madras and the court has held that the said payment should be regarded as payments made for business purpose and deductable as business expenditure. Your honour may appreciate that these donations has directly helped the Assessee Company in carrying its business, which resulted benefit to the Assessee business. Thus the payments of the aforesaid amount are in the nature of expenditure incurred by the assessee Company are in revenue nature and laid out & expended wholly and exclusively for the purpose of the business. Hence is allowable as business expenditure. The learned AR of the assessee submitted that without prejudice to above, in any case, the donations to the Chief Ministers Relief Fund, Women Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections it is evident that the deduction is with respect to the profits and gains derived from any business or undertaking or an enterprise. Thus both the sections are pari materia. 4.1. The learned DR stated that it has been held by various courts including the Apex Court that in order to claim deduction u/s 801A or 801B of the IT Act 1961 the income should be derived from the business or undertaking or an enterprise. In case the nexus of the income with the business or undertaking or an enterprise is not established by the assessee the claim of deduction u/s 801A or 801B of the IT Act 1961 will not be allowed. In support of this, he placed reliance on the following decisions. (a) Apex Court in the case of Pandian Chemicals Ltd 262 ITR 278 wherein the court held. The word "derived" has been construed as far back in 1948 by the Privy Council in CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325 when it said: "The word 'derived' is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heavy reliance on the judgment of this Court in Sterling Food's case (supra). Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to manufacture. (see CIT v. Kirloskar Oil Engines Ltd. [1968] 157 ITR 762 (Bom.). 15. Continuing our analysis of sections 80-IA /80-lB it may be mentioned that sub-section 913) of section 80-lB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA, so far as may be, applicable to the eligible business under section 80-I, 801A and 80-lB as having a common Scheme. On perusal of sub-section (5) of section 80- IA, it is noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source or inflate the profits of eligible business has got to be rejected in view of the overriding provisions of sub section (5) of section 80-IA, which are also required to be read into section 80-lB [see section 80-lB (13)]. We ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits and gains derived from an industrial undertaking, there is distinction between the expressions "derived from" and attributable to ". Hon'ble Apex Court held that only such business profits that have a direct nexus to the essential business activity of the assessee can qualify for deduction under section 8OHH of the Act. Inasmuch as both sections 8OHH and 80-I use the expression "profits and gains derived from an industrial undertaking", the burden is on the àssessee to show that the income earned from an activity, the profits from which are claimed to qualify for deduction, has an immediate and direct nexus to the essential activity of the industrial undertaking. Hence, our answer to first question referred is that the assessee is entitled for deduction u/s. 80- lB on income earned from job work charges but excluding repairs and maintenance charges. Our answer to second question referred is that the income from repair and maintenance cannot be treated at par with the income from manufacturing for the purposes of deduction u/s. 80-lB of the Act. The learned DR submitted that in view of the above judicial pronouncements it is evident and the law in this regard has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gree source of income. Hence the income from sale of scrap and insurance claim was not eligible for deduction u/s 801A of the IT Act 1961. 4.4. With respect to the sale of misc receipts, sale of tender papers, other recoveries, rent and electricity charges from employees, interest from employees, the learned DR submitted that these incomes are not relating to power generation, the said income does not have first degree source of income. Further as recorded by the CIT Appeal in paragraph 6.3 of his order this issue is also covered against the assessee by the order of the ITAT Cuttack for AY 2003-2004. Hence the income from misc receipts, sale of tender papers, other recoveries, rent and electricity charges from employees, interest from employees was not eligible for deduction u/s 801A of the IT Act 1961. 4.5. The learned DR submitted in respect of Disallowance of deduction u/s 801A: [Ground No.5] - Disallowance of Periphery Development Expenses, that the A.O. disallowed Rs. 5,20,000 under the head periphery development expenses. The Ld CIT(A) has stated - There is no dispute that expenditure incurred on the development of the periphery of the industry is wholly and exclusively for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for it to adduce necessary evidence to show that the payment made by it was with a view to secure benefit to its business. There is nothing on referred to establish that the donation of the amount to the Chief Minister's Relief Fund was directly connected with and related to carrying on its business. No such finding has also been recorded by the Tribunal, As the opposite party has failed to lay necessary factual matrix for its entitlement to deduction, the question has to be answered in favour of the Revenue which we do as follows ". "On the facts and in the circumstances of the case, donation of rupees one lakh made by the opposite party to the Chief Minister's Relief Fund is not allowable as a business expenditure under section 3 7(1) of the Act." - The reference is, accordingly, disposed of" Respectfully following the decision of the Jurisdictional High Court, the disallowance of Rs. 20,00,000 paid to the Chief Minister 's Relief Fund was upheld. In the alternative, the appellant has claimed deduction towards the same u/s. 80G of the Act. A copy of the receipt issued by the General Administration Department of the Government of Orissa bearing No.22634 on 07.07.2003 was produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving a direct nexus with the income of generation of power, the only business of the assessee, are to be considered as "derived income" from the business of generation of power and accordingly eligible for deduction U/s. 801A of the I.T. Act and on the facts as well as settled position of law, the order of the Ld. Assessing Officer as well as CIT (A) may be set aside. 6. We have heard the rival contentions and perused the material available on record. We have also perused the Paper Book furnished by the assessee and also perused the case laws cited at the Bar. 7. Considering the facts and circumstances of the case in the light of the submissions made by both the parties and on going through the material made available to the Tribunal, we find force in the contention of the learned DR that the issue regarding disallowance of other income including interest income [Grounds No.1 to 4] has been dealt with by the Tribunal in assessee's own case for the earlier year wherein the contention of the Assessing Officer and the learned CIT(A) has been upheld. The learned AR of the assessee for the assessee has put forth his contentions regarding misinterpretation of the facts that the incomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as there is no loss of revenue for the impugned Assessment Year when the assessee was required to pay only the minimum alternate tax. This credit has to be carry forward requires consideration by adjudication of the issue by the Hon'ble High Court. Grounds No.1 to 4 are, therefore, dismissed as covered against the assessee by the decision of the Tribunal in assessee's own case for the earlier years. 8. On the next issue with respect to the disallowance of Rs.5,20,000 [Ground No.5] on account of periphery development expenses , we are inclined to hold that the assessee was called for to pay this amount by the Collector of Bolangir. The learned DR's contention that this amount does not pertain to the area to which periphery development expenses was to be borne by the assessee was of no avail insofar as the Collector of Bolangir would not have called the assessee to pay the same when on the specific demand was made by the Collector so as to complete the work such as lighting arrangement, plantation and other decoration equipments which required for the improvement of the Rajendra Park in Bolangir was acknowledged by the Collector of Bolangir having been borne by the assessee. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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