COMMISSIONER OF INCOME TAX vs. JAI PRAKASH HYDRO POWER VENTURES LTD.,
What did the High Court hold?
The High Court held that the interest received by the assessee from the Electricity Board on late payments for electricity supplied, in terms of the agreement, partakes the character of receipts for the payment to which the assessee was otherwise entitled under the contract. This principle was directly applied from the Supreme Court's decision in Commissioner of Income-Tax versus Govinda Choudhury and Sons. The Court found it difficult to comprehend how such interest receipts could be treated as flowing de hors the business carried on by the assessee. Therefore, the interest is not to be treated as 'Income from other sources' and is entitled for statutory deduction. The substantial question of law was answered in favour of the assessee. Consequently, all appeals filed by the Revenue were dismissed.
What were the facts?
These appeals by the Commissioner of Income Tax (Revenue) are against the order of the Income Tax Appellate Tribunal (Tribunal). The assessee is Jai Prakash Hydro Power Ventures Ltd. The appeals concern assessment years not explicitly stated in the judgment. The dispute revolves around the taxability of interest received by the assessee from the Electricity Board on late payments for electricity supplied under an agreement. The Revenue challenged the Tribunal's decision to treat this interest as income taxable under a specific head, allowing for statutory deductions, rather than as 'Income from other sources'. The High Court admitted the appeals on substantial questions of law.
What were the issues?
1. Whether the interest received by the assessee on delayed payments for electricity supplied to the Electricity Board, in terms of an agreement, is taxable as 'Income from other sources' or partakes the character of receipts from the business, thereby eligible for statutory deductions? (Question of law) Assessee's Contention: The interest received is incidental to the business of supplying electricity and should be treated as income from business, not from other sources. Therefore, statutory deductions should be allowed. Revenue's Contention: The interest received is not directly from the business of supplying electricity but is a consequence of delayed payment, and thus should be taxed under 'Income from other sources', which does not allow for such deductions. The Revenue likely relied on the principle that interest not arising from business activities falls under 'Income from other sources'.
AI-generated summary — verify with the full judgment below
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA
ITA Nos.1 of 2014, 4015 of 2013 & 3 of 2014.
Date of decision: 15.05.2017.
ITA No.1 of 2014.
Commissioner of Income Tax
.…Appellant.
Versus Jai Prakash Hydro Power Ventures Ltd. …..Respondent.
ITA No.4015 of 2013.
Commissioner of Income Tax
.…Appellant.
Versus Jai Prakash Hydro Power Ventures Ltd. …..Respondent.
ITA No.3 of 2014.
Commissioner of Income Tax
.…Appellant.
Versus Jai Prakash Hydro Power Venture Ltd. …..Respondent.
Coram The Hon’ble Mr. Justice Sanjay Karol, Acting Chief Justice. The Hon’ble Mr. Justice Tarlok Singh Chauhan, Judge.
Whether approved for reporting?1No
For the Appellant(s) : Mr.Vinay Kuthiala, Sr. Advocate with Ms.Vandana Kuthiala, Advocate.
For the Respondent(s): Mr.Vishal Mohan & Mr.Sushant Keprate, Advocates.
Whether the reporters of the local papers may be allowed to see the Judgment?
Sanjay Karol, Acting Chief Justice, (Oral)
Having heard learned counsel for the parties and also perused the records made available, we find the substantial question of law on which the appeal(s) came to be admitted to have been directly answered by the Hon’ble Apex Court in Commissioner of Income-Tax versus Govinda Choudhury and Sons, ITR 1993(Volume 203)881 in the following terms:- “This brings us to a consideration of the second question. The sum of Rs. 2,77,692 was received by the assessee as interest on the amounts which were determined to be payable by the assessee in respect of certain contracts executed by the assessee and in regard to the payments under which there was a dispute between the two parties. The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well-settled that interest can be assessed under the head "Income from other sources" only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In our view, the interest payable to him certainly partakes of the same character as the receipts for
3 the payment of which he was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts granted to the assessee under the awards and treated as "income from other sources". The second question is, therefore, answered in favour of the assessee and against the Revenue.” 2.
In the instant case, unlike that of the case before the Hon’ble Apex Court in Pandian Chemicals Ltd. versus Commissioner of Income-Tax, ITR 2003 (Volume 262) 278, the interest on the late payments was received by the assessee, from the Electricity Board, in relation to the supply of electricity to the Board and in terms of the agreement. As such, in view of the law laid down by the Hon’ble Apex Court in Govinda Choudhury’s case (supra), such interest so received partakes the character as receipt for the payment for which the assessee was otherwise entitled to under the contract and thus entitled for statutory deduction. 3.
The substantial question of law stands answered accordingly. 4.
As such, all the appeals stand dismissed. All pending applications also stand disposed of.
(Sanjay Karol),
Acting Chief Justice.
( Tarlok Singh Chauhan), 15th May, 2017.
Judge. (krt)
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