GUJARAT POWER CORPORATION LTD. vs. I.T. OFFICER

O/TAXAP/306/2004 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 306 of 2004

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI Sd/-

and HONOURABLE MR.JUSTICE K.J.THAKER Sd/-

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ================================================================ GUJARAT POWER CORPORATION LTD.....Appellant(s) Versus I.T. OFFICER....Opponent(s) ================================================================ Appearance: MR SAURABH N. SOPARKAR, Ld. SENIOR COUNSEL with MRS SWATI SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MR MR BHATT, Ld. SENIOR COUNSEL with MRS MAUNA M BHATT, ADVOCATE for the Opponent(s) No. 1 ================================================================ Page 1 of 5

O/TAXAP/306/2004 JUDGMENT CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER

Date : 17/10/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of this Appeal, the appellant has challenged the judgment and order of the Income Tax Appellate Tribunal, 'C' Bench dated 29.01.2004 whereby the appeal of the Revenue was allowed and the Tribunal reversed the order of the C.I.T (A) and restored that of the Assessment Order in the year under consideration as well. 2.While admitting the matter on 07.02.2005, the following substantial question of law was framed :- “Whether, the interest of Rs.53.08 lakhs is the income of the Appellant and can be taxed in its hands ?” 3.The case in brief giving rise to this Appeal are as under :- The assessee herein was a company promoted by Gujarat Electricity Board and Government of Gujarat with an objective to augment power generating capacity in the State of Gujarat. The assessee in the year under consideration Page 2 of 5

O/TAXAP/306/2004 JUDGMENT entered into a Memorandum of Understanding with

Torrent

Exports

Limited

for implementation of 615 MW Gandhar Gas Project. As per the MOU, a new company was to be incorporated for execution of this project in which the assessee had agreed to participate to the extent of 26+% of the equity and all expenses in respect of this project were to be borne by the new joint venture company. As per the balance sheet as on 31.03.1993, the company had received an amount of Rs.61.17 Crores from Government of Gujarat and Gujarat Electricity Board to be adjusted towards share capital, out of which, the assessee

company

had

invested Rs.1,14,83,273/= towards fixed assets. An amount of Rs.55.60 Crores has been kept with Ahmedabad

Treasury

and

sum

of Rs.3,73,60,083/- has been deposited with Scheduled Banks, Current accounts and deposit accounts. On the deposits so given with the banks, the assessee had earned interest of Rs.53.08 Lakhs. As the company could not commence the work for which it was incorporated, the amount received as contribution towards share capital was kept and deposited in Scheduled Banks in the form of short term deposits. According to the Assessing officer, the Page 3 of 5

O/TAXAP/306/2004 JUDGMENT interest income earned on the short term deposits is required to be taxed as income of the assessee from other sources. The assessee's contention was that the said interest income belonged to the Government of Gujarat and did not form part of the assessee's own income. The A.O. rejected the assessee's contention and brought in tax the interest income of Rs.53.08 Lakhs as income from other sources. The CIT(A) followed his predecessor's order for assessment year 1992 – 1993 held that interest income received in the funds advanced by the Government of Gujarat legitimately belonged to the Government of Gujarat as per government directive issued. The CIT(A) therefore, deleted the addition of Rs.53,08,000/=. 4.Learned Senior Counsel for the appellant Mr. S.N. Soparkar submitted that this Tax Appeal is squarely covered by the decision of this Court in the case of Gujarat Power Corporation Ltd. v. Income-tax Officer reported in 354 Income Tax Reports 201. The relevant paragraph of the above decision reads as under :- “Mere fact that in the earlier year, the assessee had treated such income differently, or that in the year Page 4 of 5

O/TAXAP/306/2004 JUDGMENT under consideration, initially had paid advance tax on such basis, to our mind, would not be conclusive of the nature. What needed to be ascertained was whether the assessee is legally correct in asserting that the income did not belong to the assessee, but that was of the Government of Gujarat and that therefore, it cannot be taxed in the hands of assessee. In our opinion, the assessee is perfectly justified in raising such a contention what was, to our mind, erroneously turned down by the Tribunal.” 5.Having heard the learned Advocates for the parties, the factual matrix will permit this Court to hold that the interest of Rs.53.08 Lakhs cannot be taxed in the hands of the assessee and in view of the findings and the law enunciated in the decision of Gujarat Power Corporation Ltd. (supra), and hence, we are of the view that the question is answered in favour of the assessee and the Appeal is partly allowed. Sd/- (K.S. JHAVERI, J.) Sd/- (K.J. THAKER, J) CAROLINE Page 5 of 5