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TMI Blog2014 (1) TMI 1327X X X X Extracts X X X X X X X X Extracts X X X X ..... us contractors as per the terms of the contract. The interest on these mobilization advances is passed on as credit to the expenditure incurred on the project. Consequently, this interest is reduced from project cost. This practice is being followed since the commencement of the business. During the year under consideration, the assessee has also treated this interest income accordingly. However, the Assessing Officer reduced the claim of assessee u/s 80IA by Rs.6,37,45,667/- by holding as under:- "The submission of the assessee has been considered. It is clear that interest income has not been derived from the industrial activities of the assessee. It is a well settled law of the land as decided by the Hon'ble Apex Court in the case of Liberty India Ltd. vs. CIT and Pandian Chemicals Ltd. v/s CIT, so the same cannot be said to be derived from industrial undertaking and therefore not eligible u/s 801A. Accordingly, interest income of Rs.6,37,45,667/- is being assessed to tax under the head 'income from other sources'. Since the assessee had furnished inaccurate particulars of income and has concealed true particulars of income, penalty proceedings u/s 271(1)(c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource of income is of capital nature while the amount that substitutes income itself shall be the income chargeable to tax. For example, compensation for loss of an agency is a capital receipt (though taxable) whereas the amount received for breach of business contract shall be a revenue receipt. 3. In the case of an isolated transaction of purchase and sale of property the motive of the seller is a deciding factor in determining the nature of a receipt. Sale proceeds, of securities (where they are held as investments) will be capital receipt, but on the other hand, where these securities are held as stock-in-trade, the receipts will be of revenue nature. 4. When a sum is received for the surrender of certain rights under an agreement, it is a capital receipt because a capital asset (namely, the rights) is given up. But where the sum received is in the nature of compensation for loss of future profits, it is a revenue receipt. For example, a pension received by an employee from his former employer is a revenue receipt being compensation for past services, but a lump-sum received in commutation of a pension ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the same as income and has further erred in not allowing the deduction u/s 80IA of the Act on this amount and the same amount has been wrongly treated as income from other sources. 5. That in any case and any view of the matter, action of Ld. CIT(A) in not reversing the action of Ld. AO in making the impugned addition and framing the impugned assessment order which is contrary to law and facts, void ab initio, beyond jurisdiction, and without giving adequate opportunity of hearing, by recording incorrect facts and findings and the same is not sustainable on various legal and factual grounds. 6. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other." 3. While pleading on behalf of the assessee the ld. AR submitted that the Assessing Officer has mis-understood the treatment given by the assessee to this interest earned to the mobilization advances. He drew our attention to the computation of income and pleaded that the assessee has never included this amount in the profit worke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff employed by the contractor for the construction work of the assessee including certain amenities granted to the staff by the assessee; secondly, hire charges for plant and machinery which was given to the contractors by the assessee for use in the construction work of the assessee and thirdly, interest from advances made to the contractors by the assessee for the purpose of facilitating the work of construction are directly connected with or are incidental to the work of construction of its plant undertaken by the assessee. Broadly speaking, these pertain to the arrangements made by the assessee with its contractors pertaining to the work of construction. To facilitate the work of the contractor, the assessee permitted the contractor to use the premises of the assessee for housing its staff and workers engaged in the construction activity of the assessee's plant. This was clearly to facilitate the work of construction. Had this facility not been provided by the assessee, the contractors would have had to make their own arrangements and this would have been reflected in the charges of the contractors for the construction work. Instead, the assessee has provided these facilities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned of Rs.6,37,45,667/- is not forming part of the income on which the deduction u/s 80IA has been claimed. Therefore, we do not find any merit in the order of authorities below with regard to reduction in 80IA claim. It was also made clear during the hearing that this amount is reduced from the cost of the project and as per the contract, this amount to be given credit as misc. receipts in the project account. There is diversion of this interest by overriding title with the contract conditions. The relevant para of the letter from the Ministry of Railways, Government of India to the Managing Director of Rail Vikas Nigam Limited regarding treatment of interest charged on the mobilization advances is as under :- " As per rule and practice followed on Indian Railways, interest charged on mobilization advance given to contractors is credited to the cost of the project. Rail Vikas Nigam Ltd. (RVNL) was set up as a Public Sector Undertaking in the year 2004 under Ministry of Railways for execution of railway projects specifically transferred to it. Projects undertaken by RVNL would be transferred to Ministry of Railways on their completion. As such, assets created by RVNL ..... X X X X Extracts X X X X X X X X Extracts X X X X
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