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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI B. R. BASKARAN
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI B. R. BASKARAN, ACCOUNTANT MEMBER ITA No.1263/Bang/2015 Assessment Year : 2009-10 Bangalore Metro Rail Corporation Ltd., DCIT, Vs. 3rd Floor, BMTC Complex, Circle – 11(2), K H Road, Shanti Nagar, Bengaluru. Bengaluru-560 027. PAN : AAACB 4881 D APPELLANT RESPONDENT Assessee by : Shri. A. Shankar, Advocate Revenue by : Shri. Sumer Singh Meena, CIT(DR)(ITAT), Bengaluru. Date of hearing : 01.04.2022 Date of Pronouncement : 19.04.2022 O R D E R Per N V Vasudevan, Vice President
This is an appeal by the assessee against the order dated 15.03.2012 of CIT(A)-1, Bengaluru, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’), relating to Assessment Year 2009-10.
The impugned order of CIT(A) was received on 22/03/2013 and the appeal ought to have been preferred within 60 days of receipt of the order of the CIT(A) i.e., on or before 21.05.2013. The appeal was filed only on 06.10.2015. There is therefore a delay in filing appeal. The actual number of days of delay would be 1240 days which has been affirmed in the revised
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application for condonation of delay in filing appeal. Before we deal with the application for condonation of delay in filing the appeal, we shall set out the facts and circumstances. 3. The assessee is a wholly owned company of Government of Karnataka. It was established with the approval of the Government of India, for the implementation of rail based mass rapid transit system which was called as "Bangalore Metro Rail Project" in five years in five stages. The Government of India contributed in the form of equity and sub-ordinate debt to the extent of 25% of the project cost. The design and technology for the project was as per the assessee's project report which was also approved by the Government of Karnataka. It was the Government of India that assigned the working of the assessee to work as a 'special purpose vehicle' for the implementation of the project. Further, as per the directions of the Government of India, the Board of the assessee was to be reconstituted with ten Directors with each promoter nominating five Directors. The Chairman was to be The Secretary, Ministry of Urban Development, Government of India. Appointment of the Managing Director was at the option of the Govt. of Karnataka, with the prior consent of the Govt. of India. The entire operation of the assessee in implementation of the project was subject to the conditions as laid down by the Govt. of India, Ministry of Urban Development, Metro Rail Cell, vide communication dt 11th May, 2006.
Accordingly, the Govt. of Karnataka, among other things, was to : 1. bear the entire cost of the land, 2. ensure electric power supply to the project on NO PROFIT NO LOSS basis,
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provide for equity contribution and subordinate debt before utilizing senior debt, 4. to facilitate metro ridership as part of integrated traffic rationalization plan to ensure projected ridership, etc. 5. Further, the cost of the project was to be financed by both the Union and the State Governments in the following manner : Current cost .. Rs.5453 crore Completion cost .. Rs.6395 crore Contribution by Govt. of India Govt. of Karnataka Equity 15% 15% Subordinate debt 10% 15% Senior term debt 45%
The assessee is thus a conduit established in order to implement the project for the general public utility. 6. During the previous year relevant to AY 2009-10, the funds received by the assessee which were not immediately required for execution of the project were invested in Fixed Deposit and Mutual Funds. As a result, it had earned interest and dividends as follows: Sl.No. Source of income Amount (In Rs.) 1. Interest earned on Term 26,84,84,585 Deposit 2. Interest – others 44,53,456 3. Dividend – Mutual Fund 36,80,124 – SBI 4. Dividend – UTI 56,08,307 5. Dividend – UTI 9,22,766
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Apart from the above, the assessee also received miscellaneous income of Rs.2,55,96,584/- in the form of tender fees of Rs.2,18,24,568/- and other receipts of Rs.37,72,016/-. In the return of income filed on 29.09.2009 for Assessment Year 2009-10, the assessee claimed the aforesaid income as exempt.
The assessee explained that : (a) The corporation is a special purpose vehicle to implement the metro Rail project. (b) The assessee had taken requisite permission and approval to invest the surplus funds. (c) The funds were invested in Fixed Deposits of Banks which earned interest until they are required for implementation of the project. (d) The assessee relied upon the case of Karnataka Urban Infrastructure Development & Finance Corporation (herein after referred to as KUIDFC) 155 Taxman 228 (Kar).
The submissions made by the assessee were however not accepted by the AO. The AO was of the view that the decision of the Hon’ble Karnataka High Court relied upon by the Assessee in the case of KUIDFC was distinguished by the AO by pointing out that KUIDFC after implementation of urban infrastructure would not commercially exploit the infrastructure developed whereas the Assessee would after creation of BMRCL would commercially exploit the facility by charging for travel from the commuters. The AO also observed that in the case of KUIDFC
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there was no profit motive. According to the AO though the ultimate goal of the Assessee is to develop infrastructure, the said infrastructure facility will be ultimately used for commercial purpose. According to the AO after completing the project passenger will necessarily have to purchase the ticket and commute. The revenue so earned will result in profit. So a comparison cannot be drawn between a company which would utilize the fund for welfare schemes and the company which would be using the fund for commercial purposes. The AO also observed that from the facilities like sewerage boards or water supply systems which M/s KUIDFC would develop, a nominal fee will be charged on the consumers. Whereas, M/s BMRCL would issue tickets and run the facility on commercial basis. Hence, the explanation given by the assessee company basing on the case Law of M/s KUIDFC was not accepted. The interest income and miscellaneous income was brought to tax by the AO. 9. On appeal by the assessee, the CIT (A) confirmed the order of the Assessing Officer by observing as follows: “3.3 I have carefully considered the appellant's submissions and the reasons given by the AO in the assessment order. I find that a similar claim was made by the appellant for the assessment year 2007-08. The claim was dismissed by my predecessor in his order ITA.No.51A/DC- 11(2)/A-I/09-10 dated 8/8/2011. The operative portion of the said order reads as follows: "6. completely agree with him that the facts of case cited by the A.R. i.e., 284 ITR 582 is completely different: The A.O. has rightly pointed out that m/s KUIDFC has been allotted fund which belongs to the State Exchequer to be spent for the purpose of welfare of the public and hence no profit motive can be ascribed to such nodal agency. However M/s BMRCL is a joint venture company and its intention was to earn profit from the trains operated on metro Rail after its installation by issuance of tickets to customers. This profit motive is germane to the project as against the welfare motive of KUIDFC. The A.O. has thereafter rightly applied the ratio of the decision of Tuticorin Alkali case
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227 ITR 172 to bring the interest earned of Rs.10,57,20,194/- to tax net. Besides the appellant in earlier A.Y. had shown these interest as income and paid tax thereon since 1995. Facts being same, it should not have opted to go out of tax net. In view of the above, I (see) no reason to interfere in the order of the AO. 7. However, the AR, at the appellate stage has cited 4 more cases vide para 4 page 7. I find these case laws are on charitable trusts whose income is not taxable at all. The status of the assessee is company whereas the status of the assessee in these cited cases are Trust. Therefore I hold the ratio of those cases is not applicable to the present case." 3.4 The facts involved in the appeal for the assessment year under consideration are similar to the facts involved in the assessment for the assessment year 2007-08. I am in agreement with the views expressed therein by my predecessor for dismissing the appeal— When the appellant had offered similar income for tax for the assessment years prior to the assessment year 2007-08, there was no reason for the appellant to take a different stand with respect to the assessability of the income to tax. For the same reasons, I confirm the assessment under appeal and confirm the AO's action in bringing to tax the sum of Rs.29,85,34,673/-.”
Aggrieved by the order of the CIT(A), the assessee has filed appeal before the Tribunal. 11. As far as the application for condoning delay in filing this appeal is concerned, it has been submitted in an affidavit in support of the application for condonation of delay that the assessee was subjected to wrong professional advice on the matter that no relief may be expected in the appellate forum and therefore no appeal may be preferred, and the disputed taxes may be remitted. The assessee followed the professional advice. The order of the CIT(A) for the preceding A.Ys.2007-08 & 2008-09 were
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challenged before this Hon’ble Tribunal. The Hon’ble ‘A’ Bench of this Tribunal vide its order in ITA No. 1070 & 1071/Bang/2011 dated 31/10/2014 held that income earned on investments made out of surplus funds are not taxable in the case of the assessee. When the then Counsel advised the assessee that in the light of the Tribunal’s order in the assessee’s favour, it must file the statutory appeals for the orders which were not challenged, the assessee immediately took every step to ensure that this appeal is filed at the earliest. It is also stated that no appeal was filed earlier on account of professional advise. Accordingly the assessee has preferred appeal against the order of the CIT(A) before this Tribunal. 12. It has also been submitted that it is only because of the wrong professional advice that there arose a delay in filing of this appeal. The assessee is a government company and as a matter of established practice, went by the advice of the professional. It was submitted that if the delay is not condoned, great injury would be inflicted, given that the subject matter of the appeal is covered in favour of the assessee and the amount involved in the appeal is very huge. This tribunal has already held that the amount in dispute is not exigible to Income Tax, and therefore if this appeal is dismissed on the technical ground of delay in filing, it would amount to taxes being collected on amounts that do not constitute income under section 4 of the Act, which is not the intention of the legislature. Dismissing this appeal on account of delay, would deprive the justice by not giving the assessee the refund that it deserves and therefore it was pleaded that the Tribunal may take a lenient view and condone the delay. It was further submitted that the assessee is a government company and the decision making body is the board consisting of the representatives of both the Government of India and the Government of Karnataka and due to frequent
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restructuring of the Board, delays take place in decision making as regards to tax and financial matters.
Reliance was placed on the decision of the Hon’ble jurisdictional High Court in the matter of Karnataka Forest Development Corporation Limited v. ACIT in ITA No. 83/2009 where the Hon’ble Court held : No doubt, it is the law that every days delay has to be explained, but, at the same time, where, Government is the appellant, having regard to the way that the Government and its officers function, the Courts have been taking lenient view in condoning the delay in the appeals filed by them. In the instant case, it is not disputed after the order came to be passed, the Managing Director was changed and thereafter, the Chartered Accountant took a decision to prefer the appeal and though papers were sent for signature was not signed and appeal was not filed. What is to be seen in such matters is that, the appellant was negligent and by not filing the appeal within time, whether there is any valuable right of the appellant, which would be taken away by not condoning the delay in the matters arising under the Income-tax Act, ultimately the question is, what is the tax payable under law. It is not an adversary litigation. An assessee cannot be charged without statutory authority. [emphasis supplied] 14. Reliance was also placed on the following decisions wherein it has been held that for the purpose of condoning the delay in filing of appeal, the appellate authority/court have to take a lenient view and dispose-off the matter based on the merits of the matter and not on the basis of technicalities. (i) Collector, Land Acquisition vs. MST. Katiji and Others (1987) 167 ITR 471 (SC); (ii) Concord of India Insurance Co. Ltd., vs. Smt. Nirmala Devi and Others 118 ITR 507 (SC);
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(iii) Radha Krishna Rai vs. Allahabad Bank & Others [2009] 9 SCC 733; (iv) CIT vs. West Bengal Infrastructure Development Finance Corporation Limited [2011] 334 ITR 269 (SC); (v) Improvement Trust, Ludhiana v. Ujagar Singh & Ors.in Civil Appeal No. 2395 of 2008 (SC); (vi) Ram Nath Sao v. Gobardhan Sao reported in AIR 2002 SC 1201; The assesseefurther relied on the decision of this Tribunal in the case of M/s. Raghavendra Constructions v. ITO in ITA No. 425/Bang/2012 wherein this Tribunal has, having regard to the facts of the matter, condoned the delay of 678 days. The Tribunal relied on the decision of the this Tribunal in the case of Shakuntala Hegde, L/R of R. K. Hegde v. ACIT in ITA No. 2785/Bang/2004 wherein the reason that appeal was filed after a delay of 1331 days in filing of appeal pursuant to advice given by new counsel was accepted as sufficient cause and the delay condoned. Similarly for identical reason, the Hon’ble jurisdictional High Court condoned a delay of five years in filing of appeal in the case of CIT v. ISRO Satellite Centre in ITA No. 532/2008, and this Tribunal in the case of M/s Raghavendra Constructions supra relied on this decision also, while condoning the delay.
The learned DR opposed the prayer of the assessee for condoning the delay in filing the appeal. He pointed out that the order of the Tribunal for Assessment Year 2007-08 and 2008-09 was passed on 31.10.2014 but the appeal was filed only on 06.10.2015. Even going by the reason that the
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reason for not filing the appeal within time was advise by professional not to file appeal against the order of the CIT(A) for Assessment Year 2009-10, that advise would not hold good after 31.10.2014.
The learned Counsel for assessee pointed out that all Metro Rail Corporations which come under the Ministry of Urban Development made representation to the Ministry of Urban Development to seek exemption of interest income and miscellaneous income generated during project implementation. The Secretary to Govt. of India, Ministry of Urban Development wrote a letter dated 23.01.2013 to the Secretary (Revenue), Ministry of Finance. Based on that the assessee also informed to AO by letter dated 15.04.2013, 13.05.2013 and 04.06.2013 regarding the pendency of request for exemption. He further pointed out that as against the order dated 31.10.2014 of the Tribunal for Assessment Year 2007-08 and 2008- 09, the Revenue preferred appeal before Hon’ble Karnataka High Court in ITA Nos.117 and 118 of 2015 and the Hon’ble Karnataka High Court by its judgment dated 23.11.2021 affirmed the order of the Tribunal. It was submitted that the pendency of appeals by the Revenue against Tribunal order dated 31.10.2014 was another reason why the assessee was in a dilemma whether to file appeal before Tribunal for Assessment Year 2009- 10 and it was only on subsequent concrete advise of the Counsel that a firm decision was taken to file appeal for Assessment Year 2009-10 before the Tribunal. 17. We have carefully considered the rival submission. At the outset, we observe that the Hon’ble Supreme Court, in the case of Mst. Katiji (supra), has explained the principles that need to be kept in mind while considering an application for condonation of delay. The Hon’ble Apex Court has
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emphasized that substantial justice should prevail over technical considerations. The Court has also explained that a litigant does not stand to benefit by lodging the appeal late. The Court has also explained that every day’s delay must be explained does not mean that a pedantic approach should be taken. The doctrine must be applied in a rational common sense and pragmatic manner. In the case of Shakuntala Hegde, L/R of R.K. Hegde v. ACIT, ITA No.2785/Bang/2004 for the A.Y. 1993-94, the Hon’ble Tribunal condoned the delay of about 1331 days in filing the appeal wherein the plea of delay in filing appeal due to advice given by a new counsel was accepted as sufficient. The Hon’ble Karnataka High Court in the case of CIT v. ISRO Satellite Centre, ITA No. 532/2008 dated 28.10.2011 has condoned the delay of five years in filing appeal before them which was explained due to delay in getting legal advice from its legal advisors and getting approval from Department of Science and PMO. In the aforesaid decision, the Hon’ble Court found that the very liability of the assessee was non-existent and therefore condoned the delay in filing appeal.
Keeping in mind the aforesaid principles, we shall consider the claim of the assessee in the present case. Admittedly the advice was given by the counsel who appeared on behalf of the assessee before the Tribunal for Assessment Years 2007-08 and 2008-09. The decision of the Tribunal was rendered on 31.10.2014. The appeal was filed by the Revenue before Hon’ble High Court in the year 2015 against the order of Tribunal dated 31.10.2014. A final call could be taken only later based on the professional advise of the later Counsel. Moreover, the assessee has also been pursuing claim for exemption of income during construction period from the Government. Hence, we find that there has been no willful neglect on the
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part of the assessee. In such matters the advice of the professional would be the point of time at which the assessee would begin to explore the option of exhausting all legal remedies. We are also of the view that by condonation of delay there is no loss to the revenue as legitimate taxes payable in accordance with law alone would be collected. We therefore accept the reason given for condonation of delay in filing the appeal. The delay in filing the appeal is accordingly condoned. 19. As far as the merits of the appeal of the assessee is concerned, we find that in respect of interest income, the Hon’ble Karnataka High Court in its order dated 23.11.2021 in ITA Nos.117 and 118/2015 in assessee’s own case for Assessment Years 2007-08 and 2008-09 held that identical interest income is not taxable for the following reasons: “We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record. In Tuticorin Alkali Chemicals and Fertilizers Ltd., supra, the facts were that M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd., which was incorporated on 03.12.1971 for the purpose of, inter alia, manufacturing heavy chemicals such as ammonium chloride and soda ash, begun its production during June. 1982. The term loans taken from various banks and financial institutions for the purpose of setting up the factories, which was not immediately required by the company, were kept invested in short-term deposits with banks, which was specifically permitted by the Memorandum and Articles of Association of the Company. Interest earned by the company from the various loans given by the company and also from the bank deposit:; which were considered by the departmental authorities as income and brought to tax was the subject matter of the tax reference case before the Hon'ble Apex Court. The following question of law was referred to the Court for the decision:- "Whether, on the .facts and in the circumstances of the case, interest derived by the assessee from the borrowed funds which were invested in. short-terrn deposits with banks would be
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chargeable to tax under the head "Income from other sources" cr would go to reduce the interest payable by the assessee on the term loans secured by the assessee from financial institutions, which would be capitalised after the commencement of commercial production." In that context, it was held thus: "4. The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income tax. Profits and gains of business or profession is only one of the heads under which the company's income is liable to be assessed to tax. If a company has not commenced businesf_ there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. if the company, even before it commences business, invests the surplus fund in its hand for purchase of land or house property and later soils it at profit, the gain made by the company will be assessable under the head `Capital gains'. Similarly, lf a company purchases a rented house and gets rent, such rent will be assessable to tax, under s. 22 as income from house property. Likewise, a company may have income from other sources. It may buy shares and get dividends. Such dividends will be taxable under s. 56 of the Act. The company may also, as in this case, keep the surplus fund in short-term deposits in order to earn interest. Such interests will be chargeable under s. 56 of the Act." 14. The co-ordinate bench of this Court in the case of KUIDFC [(2009) 315 ITR 301], supra, has held thus:- "An identical question had come up for consideration before a Division Bench of this Court in (CIT v. Karnataka Urban Infrastructure Development and Finance Corporation 12006] 284 ITR 582), I.T.A. No. 2418 of 2005 between the same parties, decided on February 21. 2006. The said judgment has been placed for consideration before us and we have gone through it.
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Essentially, the Tribunal has also placed reliance on the said judgment and accordingly held in favour of the assessee. We have no doubt in our mind that the said judgment squarely covers the issue involved in this appeal it has been held by the Division Bench of this Court in the aforesaid judgment in the relevant paragraph as under (page 584): "The material on record shows that the very purpose of constitution of the assessee was to act as a nodal agency for implementation of the mega city scheme worked out by the Planning Commission. Both the Central and the State Governments are expected to provide requisite finances for implementation of the said project. The funds from the Central and State Governments will flow directly to the specialised institutions/nodal agencies as grant and the nodal agency will constitute a revolving fund with the help of Central and State shares out of which finance could be provided to various agencies such as water, sewerage boards, municipal corporations, etc. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and, therefore, the assessee is a nodal agency formed/ created by the Government of Karnataka as per the guidelines; there is no profit moive as the entire fund entrusted and the interest accrued therefrom on deposits in bank though in the name of the assessee has to be applied only for the purpose of welfare of the nation/ States as provided in the guidelines ; the whole of the fund belongs to the State Exchequer and the assessee has to channelise them to the objects of the Centrally sponsored scheme of infra-structural development for the mega city of Bangalore. Funds of one wing of the Government are distributed to the other wing of the Government for public purpose as per the guidelines issued. The monies so received, till they are utilised, are parked in a bank. The finding recorded by the Tribunal clearly shows that the entire money in question is received for implementation of the scheme which is for a public purpose and the said scheme is implemented as per the guidelines of the Central Government and, therefore, the assessee is only acting as a nodal agency of the Central Government for implementation of these projects. It is not the
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case of the Revenue that the assessee ',vac carrying on any business or activities of its own while implementing the scheme in question. The unutilised money, during which the project could not be fully implemented, is deposited in a bank to earn interest. That interest earned is aso again utilised for the implementation of the mega city scheme which is also permitted under the scheme. Therefore, in computing the total income of the assessee for any previous year the interest accrued on the bank deposits cannot be treated as an income of the assessee as the interest is earned out of the money given by the Government of India for the purpose of implementation of the mega city scheme. Therefore, we do not find any error in the conclusion reached by the Tribunal that there was no income earned by way of interest by the assessee and setting aside the order of the Assessing Officer which is affirmed by the first appellate authority. The finding given by the Tribunal is purely a question of fact. We do not find any substantial question of law involved in this appeal and, therefore, this appeal is liable to be dismissed at the stage of admission itself" In the light of the aforesaid findings recorded by the Division Bench of this Court, we are of the considered opinion that there is no merit or substance in this appeal. No substantial question of law arises to be answered by this Court. Thus, the appeal is hereby dismissed." 15. In the case of Karnataka State Agricultural Produce Processing and Export Corporation Ltd., supra, the co-ordinate bench of this Court (where one of us the Hon'ble SSJ was a member) following the judgments in the case of KUIDFC [(2006) 284 ITR 582], Tuticorin Alkali Chemicals and Fertilizers Ltd., supra, as well as Bongaigaor Refinery and Petrochemicals Ltd., vs. Commissioner of Income-tax reported in (2001) 251 ITR 329 (SC) and Commissioner of Inconte-tax vs. Jokaro Steel Ltd., reported in (1999) 236, ITR 315 (SC), has held thus:- "in the light of the judgments referred to above, we have examined the case on hand. It is clear that the assessee has
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received the grant of Rs.10 crores from the Government of Karnataka for a particular project i.e., for improvement of infrastructure and to promote export of horticultural produce. Before the said grant was utilized for the specific purpose it was parked in fixed deposits and the interest was earned and by the subsequent additional evidence produced by the assessee before the Tribunal, it is further made clear that the State Government has categorically specified that any interest earned on those grants originally granted has to be considered as an additional grant and not an income of the assessee-Company. As explained by the Apex Court, in Bongaigaon Refinary and Petrochemicals Ltd. case, (supra), in Tuticorin's case, the investment in deposits was made by the Company during its formative period by investments and in Bokoro Steels Ltd., case (supra) the extricable link between the interest earned and the set up of the plant was established. Thus, in. the present case we are of the view that this is not an investment made subsequent to the setting up of the project but this is the unutilized income parked in fixed deposits for a temporary period and inextricable link for- the interest earned o: the grants and the original grant made by the State Government to set up a project is established as in Bokaro Steel case. Thus we are of the view that the facts and circumstances of the present case is squarely covered by Bokaro Steel Ltd., (supra) and it is not the case of the Revenue that the said interest earned on these fixed deposits was utilized by the Company for any other purpose other than the purpose for which the grants were made by the State Government. Even if we peruse the preamble to the Government Order dated January 23, 2007, by which the grant of Rs.10 crores is made by the Government of Karnataka it is clear that "in view of the National Horticultural Machine Programme implemented in Karnataka and major thrust given by the State Government for the development of horticultural sector, there is unlimited potentiality for export of horticultural produce, but the main constraint is lock of post harvest infrastructures viz., procurement centres, grading, washing, waxing, packing units, refrigerated transport, pre-cooling and cold storages, intermediate cold storages, processing units and
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export house. In order to harness the potentiality and to increase exports. Further KAPPEC has proposed to create these infrastructure facilities in various parts of State in a phased manner and efforts will also be made to rope in funds from Government of India under the relevant scheme from different agencies". The object of the scheme is to facilitate the farmers and to promote export of horticultural produce. Hence, the very purpose of granting Rs.10 crores to the assessee was to act as a nodal agency for implementation of the scheme. There is no profit motive as the entire fund entrusted and the interest accrued therefrom from deposits has to be utilised only for the purpose of the scheme originally granted. The whole of the fund belongs to the State exchequer and the assessee has to channelise them to achieve the objects of centrally sponsored scheme of infrastructural development as specified in the Government Order. Hence, interest on all these fixed deposits are considered to be capitalized and not revenue receipts to treat it as an income. The Tribunal considering these aspects and more particularly, following the judgment of this Court in KUIDC case has held that the interest earned on these grants is not an income, which we do not find fault with." 16. As could be seen from the Government Order dated 25.03.2008 now placed on record, it is ex-facie apparent that the unutilized funds of the project, before the commencement of the functional operation of the project, was invested by the assessee in fixed deposits and mutual funds as per the directions of the Government. It is apt to refer to the said Government Order, the relevant portion of which reads thus:- "The income generated out of earlier release of State Government to BMRC1., before the commencement of BMRCL, project would have to be converted into State's equity towards the project and therefore cannot be counted as income of BMRCL. Further release as equity would be made to BMRCL only after adjusting this income." 17. In the light of the judgments referred to above vis-à-vis the Government Order dated 25.03.2008, it is clear that the income generated out of earlier release of State Government for its project would have to be converted into State's equity towards the project and
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the same cannot be counted as income of BMRCL. Thus, there is no profit motive as the entire fund entrusted and the interest accrued therefrom has to be utilized only for the purpose of scheme. Thus, it has to be capitalized and cannot be considered as revenue receipts.
For the reasons aforesaid, we confirm the order impugned passed by the Tribunal answering the substantial questions of law in favour of the assessee and against the Revenue.” 20. The decision rendered as above in assessee’s own case is that interest income cannot be considered as income and has to be capitalized. Respectfully following the same, we hold that interest income in question brought to tax by the AO has to be held as not taxable and the addition made in this regard is directed to be deleted. 21. As far as other income being tender fees and miscellaneous income is concerned, we find the Hon’ble Madras High Court in the case of M/s. Indian Power Projects Ltd., Vs. DCIT TCA No.543 of 2007 judgment dated 27.04.2015 dealt with identical issue arising in the case of an assessee which is a public sector undertaking such as the assessee and held as follows: “5. The short issue that arise for consideration in this appeal is "Whether on the admitted facts, the receipt of amount on the sale of tender documents should be treated as income from other sources or as capital receipt?". 6. For better appreciation of the case on hand, the reasoning of the Tribunal, as found in para-3 of its order, is extracted hereinbelow "3. We have considered the rival submissions made by both the sides and perused the materials available on record. It is an admitted position that the receipt by way of sale of tender documents is pre commencement receipt. There is no strong denial of the above fact. When it is pre commencement receipt
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the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd., cited supra, is directly on the point at issue. The decision of the Hon'ble Supreme Court in the case of Bokaro Steel Ltd., on which the Commissioner (Appeals) relied on, is distinguishable as the decision in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd., has directly dealt with the pre commencement expense and receipts. We are of the view that the order of the Assessing Officer bringing the receipt as income from other sources is perfectly justified and the deletion of the same by the Commissioner (Appeals) is not in accordance with law. We therefore set aside the order of the Commissioner (Appeals) and restore that of the Assessing Officer." 7. In Tuticorin Alkali Chemicals & Fertilizers case (supra), the issue before the Supreme Court was whether interest earned from borrowed capital, lying idle, should be treated as income from other sources or capital s in nature. In the facts of the said case, the Supreme Court was of the view that the company had surplus funds in its hands and in order to earn income out of the surplus funds, it invested the amounts for the purpose of earning interest and, therefore, held that it is revenue in nature and has to be taxed accordingly. The relevant portion is extracted hereinbelow for better clarity:- "In the case before us, the company had surplus funds in its hands. In order to earn income out of the surplus funds, it invested the amount for the purpose of earning interest. The interest thus earned is clearly of revenue nature and will have to be taxed accordingly. The accountants may have taken some other view but accountancy practice is not necessarily good law. In 8. S. C. Footwear's case (1972 (83) ITR 269), the House of Lords had no hesitation in holding that the accounting practice for calculating its profit followed by the assessee and accepted by the Revenue for 30 years could not be treated as sanctioned by law and was not acceptable for the purpose of computation of taxable income." 8. In the case of Bokara Steel (supra), the Supreme Court found that the activities of the assessee was in connection with three receipts,
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viz., rent charged by the assessee to its contractors for housing workers and staff employed by the contractor for the construction work of the assessee including certain amenities granted to the staff by the assessee; 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 finally the interest from advance made to the contractors by the assessee for the purpose of facilitating the work of construction of its plant undertaken by the assessee. The activities of the assessee in connection with all these three receipts were directly connected with or incidental to the work of construction of its plant undertaken by the assessee. The advances which the assessee made to the contractors to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitch as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable to the contractors and had gone to reduce the cost of construction. While considering this issue, the Supreme Court had occasion to take into consideration the judgment of the Delhi High Court in the case of ACIT - Vs - Indian Drugs & Pharmaceuticals (1983 (141) ITR 134 (Del.)) and endorsed the view of the Delhi High Court and, finally it was held that the receipts were capital receipts and not income of the assessee from any independent source. The relevant portion of the decision of the Supreme Court is extracted hereinbelow for better appreciation :- "In the case of Addl. CIT v. Indian Drugs and Pharmaceuticals Ltd. (1983 (141) ITR 134), the Delhi High Court considered a case where the work of construction of the factory of the assessee was in progress and production had not commenced. Receipts from sale of tender forms and supply of water and electricity to the contractors engaged in construction as also receipts on account of sale of stones, boulders, grass and trees were held to be receipts not from independent sources but were considered as inextricably linked with the process of setting up of business. These were directly related to the capital structure of business and were held to be capital in nature. We agree with this view taken by the Delhi High Court."
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A reading of the order of the CIT (Appeals) as also the Tribunal would reveal that the CIT (Appeals) has relied on the decision of the Supreme Court in Bokaro Steel case (supra), more particularly, para- 6, which has been extracted above, to come to the conclusion that in the case on hand, the receipt by way of sale of tender documents, even at the pre-commencement stage is inextricably linked to the process of setting up of business and, is therefore, capital in nature. Similar was the view of the Delhi High Court in the case of Indian Drugs & Pharmaceuticals (supra), which view has been endorsed by the Supreme Court. 10. However, a reading of the order of the Tribunal would reveal that there can be no iota of doubt that the Tribunal failed to appreciate the finding of the Delhi High Court, in similar set of facts, which was ultimately endorsed by the Supreme Court that the receipts which are inextricably linked to the process of setting up of business could not be construed in any other manner other than in the nature of capital receipt. 11. The Tribunal fell in error in merely stating that the decision in Bokaro Steel case (supra) is distinguishable from Tuticorin Alkali Chemicals & Fertilizers case (supra), without even understanding the scope of the decision in Bokaro Steel case (supra). The admitted fact in this case is that the amount received by the appellant/assessee in sale of tender documents at the pre-commencement stage is in relation to the establishment of the unit and, therefore, it could be clearly stated that it is intrinsically connected with the purpose of setting up of the unit. This Court is in agreement with the view expressed by the Supreme Court in Bokaro Steel case (supra), which has affirmed the view of the Delhi High Court in Indian Drugs & Pharmaceuticals case (supra) and is of the considered view that the said decision is squarely applicable to the facts of the present case. Accordingly, the first substantial question of law is answered in favour of the appellant/assessee and against the respondent/Revenue.”
Following the ratio laid down as above, we hold that the receipts are capital receipts which would go to reduce the cost of the project and
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inextricably linked with the setting up of the business of the assessee and not chargeable to tax as income from other sources. We hold and direct accordingly.
In the result, appeal of the assessee is allowed.
Pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/- (B. R. BASKARAN) (N.V. VASUDEVAN) Accountant Member Vice President Bangalore, Dated: 19.04.2022. /NS/*
Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.