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TMI Blog2023 (5) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... provide Bank Guarantee to NHAI for the performance of its obligations under the concession agreement and for the purpose of opening such bank guarantee, assessee had to open an Fixed Deposit with Canara Bank as margin money and on such margin money assessee had received impugned interest. Contention of assessee that interest earned was inextricably linked to the construction of the project accepted. As in the case of Indian Oil Panipat Power Consortium Limited [ 2009 (2) TMI 32 - DELHI HIGH COURT] had decided the issue in favour of the assessee. Decided against revenue. - ITA No.9200/Del/2019 - - - Dated:- 25-5-2023 - Sh. Anil Chaturvedi, Accountant Member And Sh. Anubhav Sharma, Judicial Member For the Assessee : Shri K. V. S. R. Krishna, C.A. For the Revenue : Shri Javed Akhter, CIT-D.R. ORDER PER ANIL CHATURVEDI, AM : This appeal filed by the Revenue is directed against the order dated 11.09.2019 passed by the Commissioner of Income Tax (Appeals)-3, New Delhi for Assessment Year 2015-16. 2. Brief facts of the case as culled out from the material on record are as under :- 3. Assessee is a company which is stated to be engaged in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such toll charges. The submissions of the assessee that the toll charges were in the nature of Assistance/Grant/subsidy towards the construction expenses was not found acceptable to AO for the reason that the toll charges received from the existing 4 lane highway was recurring income on day to day basis and inherent nature of the receipt was revenue in nature and not capital receipts. AO for the reasons noted in the order concluded that toll charges receipt of the assessee were revenue receipts and chargeable to tax. He, thereafter, considered the net amount of Rs.108,74,52,438/- (Rs.210,05,39,694/- received by the assessee from Toll charges premium amount of Rs.101,30,87,256/- paid by the assessee to NHAI) as income of the assessee and accordingly made the addition of Rs. 108,74,52,438/-. 7. Aggrieved by the order of AO, assessee carried the matter before CIT(A). CIT(A) after considering the submissions of the assessee, the concession agreement furnished by the assessee and various decisions cited in the order by noting the following had deleted the addition made by AO : 6.4 I have considered the facts of the case and the submission made by the AR. As already observed ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Income tax is a tax on real income which in the case of business has to be seen on commercial principles. No hypothetical income can be taxed. ii) Amount/Grant/Capital Subsidy received for capital asset is a capital receipt not liable for tax. iii) If there is diversion of receipt to other party by overriding obligation on the assessee, the same cannot be taxed in assessee's hands. iv) If purpose of subsidy or grant given by Government is capital in nature, it is a capital receipt - this is to be determined by the purpose test. v) Receipts during Project Construction and inextricably linked to the project under construction are capital receipts not liable to tax and need to be reduced from the project cost. vi) As per correct accounting principles, as there was no revenue during construction/development period, no P L Account was made and only balance sheet was made. Note 26 to Audited Balance Sheet reads as under:- The company has started its construction activity toll collection from FY 2012-13 the construction of the road is likely to be completed by September 2015. All the construction expenses expenses incurred for the toll collecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s CIT 2005 144 TAXMAN 94 All, in which the Hon'ble court has discussed the various decisions of Supreme Court in the cases of State Bank of Travancore v. CIT (1986) 158 ITR 102, State of Maharashtra v. Ramdas Shrinivas Nayak AIR 1982 SC 1249, Shiv Prakash Janak Raj Co. (P) Ltd., etc. and has held as under. 20. In the case ..... 6.4.3 In the present case, as per the terms of CA, the appellant was under an obligation to construct the project and to utilize the toll receipts deposited in the Escrow account during construction period in construction of the project only. It has been contended that the right to collect toll fee in the construction stage granted by NHAI is nothing but in the nature of grant or a subsidy given to the appellant to meet part of the construction cost of the project. The aforesaid mechanism is a mode of contribution by NHAI of the part of the cost of the project, which has to be borne by NHAI considering that the NHAI is the owner of the project and the appellant is only a contractor/developer for the project. In view of these facts, I am of the view that the appellant has rightly reduced the toll fee collected during the construction period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause the same are mandatorily required to be used for the construction of the project and the appellant does not have any right to use the receipts in any manner it may like but all the receipts are first required to be deposited in the Escrow account and can only be utilized for the purposes of the project only. Accordingly, these receipts are nothing but capital receipts and the appellant has rightly reduced the same from the cost of project. Therefore, the addition made by the AO is deleted and the grounds of appeal are allowed. 8. Aggrieved by the order of CIT(A), Revenue is now in appeal before Tribunal. 9. Before us, Learned DR took us through the findings of AO and strongly supported the order of AO. 10. Learned AR on the other hand reiterated the submissions made before AO and CIT(A) and further submitted that CIT(A) after considering the detailed submissions made by the assessee, the agreement entered by assessee with NHAI and after relying on the various decisions cited in the order has decided the issue in favour of the assessee. He thus supported the order of CIT(A). 11. We have heard the rival submissions and perused the material available on record. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by observing as under: 7.3 I have considered the facts of the case and the submission made by the AR. It has been contended that the appellant was required to provide bank guarantee of Rs 191.07 Crores to NHAI for the performance of its obligations under the concession agreement and for the purpose of opening such bank guarantee, the appellant had to open an FDR worth Rs 9.55 Crores with Canara Bank as margin money being 5% of Rs.191.07 Crore. During the relevant assessment year, the appellant earned interest of Rs 7,88,480/- from such FDRs kept as margin money under business compulsions. It is further contended that as per the terms of the Article 31 of the concession agreement (CA), such interest income was to be transferred to the Escrow account to be mandatorily used for the construction of the project. Accordingly, such interest being inextricably linked to the construction of the project to be mandatorily used for the construction of the project. is a capital receipt that go on to reduce the cost of the project and accordingly, the appellant has reduced the same from the cost of construction of the project. On perusal of Article 31.2 of the CA, it is observed that all fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts and has reduced the same from the project cost. Accordingly, the addition made by the AO is deleted and the grounds of appeal are allowed. 15. Aggrieved by the order of CIT(A), Revenue is now before Tribunal. 16. Before us, Learned DR supported the order of AO. Learned AR on the other hand reiterated the submissions made before lower authorities and supported the order of CIT(A). 17. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the deletion of interest income on fixed deposit. CIT(A) has noted that assessee was required to provide Bank Guarantee of Rs. 191.07 crores to NHAI for the performance of its obligations under the concession agreement and for the purpose of opening such bank guarantee, assessee had to open an Fixed Deposit worth Rs.9.55 crores with Canara Bank as margin money and on such margin money assessee had received impugned interest. He therefore agreed with the contention of assessee that interest earned was inextricably linked to the construction of the project. He thereafter placing reliance on the decisions of Hon ble Delhi High Court in the case of Indian O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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