SHAPOORJI PALLONJI POWER COMPANY,MUMBAI vs. THE INCOME TAX OFFICER, MUMBAI
What did the Tribunal hold?
The Tribunal found that the assessee's reliance on previous decisions was not fully applicable as the current case involved interest on an income tax refund. The Tribunal remitted the issue to the Commissioner (Appeals) to examine the assessee's contention that the income tax was paid solely for setting up the business.
What were the facts?
The assessee received interest on an income tax refund and treated it as a capital receipt to reduce the cost of setting up its power project. The Assessing Officer and Commissioner (Appeals) held it to be income from other sources.
What were the issues?
Whether interest received on an income tax refund is a capital receipt to be set off against project costs or revenue income. Whether expenses incurred in relation to this interest income are allowable.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya
Heard together (2 matters)
Read from the judgment's own cause title. This page is filed under one of them.
These appeals by the assessee are directed against the order of learned Commissioner of Income Tax (Appeals) for the respective assessment years as above
2 Shapporji Pallonji Power Company Ltd. 2. The issues raised in these appeals are common and connected. Hence, by this common order, the appeals are disposed.
Grounds of appeal from AY 2010-11 read as under:-
The Learned Commissioner of Income Tax (Appeals) ("Learned CIT (A)" ) erred in law and on facts by treating the interest of Rs. 14,95,409/- received on income-tax refund as revenue receipt without considering the facts of this case and nature of income received which is of capital nature. The "Learned CIT (A}" failed to appreciate that interest received is of capital nature as the power project business has not yet been set up. Till then, the receipts cannot be held in the revenue field. Such receipts up to stage of setting up of business would go to reduce cost of setting-up of the project as held by Supreme Court in various cases.
Without prejudice to the above ground of appeal
, the appellant in the alternative submits that even if the amount of Rs.14,95,409/- is held as income under the head " other sources" expenses incurred should have been allowed u/s 57. (iii) of the Income Tax Act, 1961 by reason of close nexus between income and expenditure.
Brief facts of the case are that during the assessment proceedings the AO observed that the amount of Rs. 14,95,409/- credited to P&L account has been reduced from computation of income. Hence, the same was not offered to tax. The assessee contended that the business of the assessee has not been setup and ITAT in earlier years has held that interest income of the assessee is linked with the process of setting-up of its plant and machinery and hence, it is capital receipt. However, the AO was not satisfied. He found that the present case was different from the above issue decided by the ITAT. That there was no issue of interest on income tax refund in earlier year. That interest on income tax refund cannot be held to be linked with the process of setting-up of plant and machinery and hence, the same cannot be considered for reduction from the cost of assets. The AO held that interest income on income tax refund has to be assessed as income from other sources.
Upon assessee’s appeal, ld.CIT(A) confirmed the same.
3 Shapporji Pallonji Power Company Ltd.
Against the above order, assessee is in appeal before the ITAT
I have heard both the parties and perused the records. Ld. Counsel of the assessee again contended that issue is covered inasmuch as assessee has not set up the business. In earlier years, interest income has been held to be capital receipt liable to be deducted from the cost of machinery.
Per contra, ld. DR submitted that the present case it is not at all the case that assessee during the process of setting-up of business has made some deposits, from which it had earned interest income. Hence, it cannot be held to be deductible from cost of construction. He submitted that in the present case, it is interest on income tax refund. He submitted that interest income on income tax refund has to be assessed as income from other sources.
Upon careful consideration, I agree with the contention of the ld. DR that assessee’s reliance upon the earlier decision from that ITAT in assessee’s own case is not fully applicable. As in the present case, assessee has received interest income from income tax refund. In none of the cases referred by the assessee’s counsel, the issue was interest on income tax refund. In this regard, I note that assessee has contended that assessee paid the tax to the government only for the purpose of setting-up of its business. In other words, it is a submission that it was a requirement for the purpose of setting-up of business to make payment of income tax. I note that this aspect has not at all been elaborated by the assessee nor examined by the authorities below. How the assessee will pay income tax to the government for setting up of its business is not understood. In my considered opinion, this aspect needs to be examined and only thereafter, any finding can be given. Hence, I remit the issue to the file of ld.CIT(A). Ld.CIT(A) shall examine the veracity of the 4 Shapporji Pallonji Power Company Ltd.
assessees contentions that assessee paid the income tax to the government, only for the purpose of setting-up of its business. After obtaining the necessary explanation and due examination, the ld.CIT(A) shall decide whether the assessee’s submission that income tax was paid only for the purpose of setting-up of its business is correct or not. Thereafter, ld.CIT(A) shall decide as per law.
It is also noted that assessee has also raised additional ground challenging the validity of the jurisdiction of assessment. This has been done by way of additional ground. Since, it is a legal ground and the issue on merits is also remitted to the file of ld.CIT(A). I deem it appropriate to remit this issue also to the file of ld.CIT(A).
The above order applies mutatis mutandis for AY 2011-12 also.
In the result, appeals by the assessee stand allowed for statistical purpose.
Pronounced in the open court on 01.03.2022
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