SAURYA URJA COMPANY OF RAJASTHAN LIMITED,JAIPUR vs. ITO WARD 1(1), JAIPUR, JAIPUR

M/s Saurya Urja Company of Rajasthan Limited (“assessee company”)is a joint venture between Government of Rajasthan and IL&FS Energy Development Company Limited (“IEDCL”) for the purpose of development of solar parks, in the state of Rajasthan.

The assessee company, as part of its business activity, plays the role of a Solar Power Park Developer (“SPPD”). In this regard, the assessee company provides necessary infrastructure for the various power producers (also known as Solar Park Developer or “SPD”) to set up their solar power plants.

Activities of the assessee company include, (i) Acquisition of land and getting the requisite clearances; (ii) developing such land; (iii) creating requisite infrastructure on the land such as developing approach roads, drainage system, providing water supply; (iv) providing infrastructure for setting up transmission lines and connecting them to the grid; (v) construction of common facilities such as offices, housing etc.; (vi) carrying out operation and maintenance of the facilities provided.

Assessee company, being a SPPD, sub-leases the plot of land along with the infrastructure so created to the individual SPDs. Assessee company enters into two kinds of agreements with SPDs, (i) Implementation and Support Agreement (“ISA”) which lays down the terms and conditions between such SPD and the assessee company and the revenue to be received by the assessee company for the infrastructure so provided; (ii) Sub-lease deed for the land sub-leased by the assessee company to the SPD.

Once the land and necessary infrastructure is provided by the assessee company to the SPD, such SPD is responsible for establishment, construction and operation of Solar Power Projects on the leased land allotted to it, along with the requisite infrastructure. SPD in turn becomes the owner of the Solar Project constructed by it on such leased premises, along with the equipment, machinery, furniture, fixtures and/or all moveable assets installed by such SPD.

Assessee company, as part of the Lease Agreement entered by it with its customers (also referred to as Solar Park Developers (“SPDs”), collects Local Area Development (“LAD”) charges. The same is collected in accordance with ISA entered by the assessee company with the SPDs. Relevant screenshot in this regard is as under: -

The above-mentioned clause, in relation to the collection of local area development mentioned clause, in relation to the collection of local area development mentioned clause, in relation to the collection of local area development charges on behalf of the S charges on behalf of the SPDs, is prevalent in all the ISA entered into by the assessee entered into by the assessee company.

These charges are collected by the assessee company for the These charges are collected by the assessee company for the purpose of carrying out purpose of carrying out development work, for the local community development work, for the local community, in and around the area where the solar , in and around the area where the solar park is situated. These charges are strictly to be expended for the development of These charges are strictly to be expended for the development of These charges are strictly to be expended for the development of the local people/community. the local people/community.

However, assessee company provides support to the SPDs, its customers, for carrying However, assessee company provides support to the SPDs, its customers, for carrying However, assessee company provides support to the SPDs, its customers, for carrying out development work of the local area, for and on behalf of SPDs. Further, assessee out development work of the local area, for and on behalf of SPDs. Further, assessee out development work of the local area, for and on behalf of SPDs. Further, assessee company being the lessor is also under an obligation to ensure development of company being the lessor is also under an obligation to ensure development of the local company being the lessor is also under an obligation to ensure development of area.

Thus, assessee company on one hand, collects LAD charges from its customers, Thus, assessee company on one hand, collects LAD charges from its customers, Thus, assessee company on one hand, collects LAD charges from its customers, i.e. SPDs, and on the other hand, incurs expenditures of the entire amount so i.e. SPDs, and on the other hand, incurs expenditures of the entire amount so i.e. SPDs, and on the other hand, incurs expenditures of the entire amount so collected.

For instance, if Rs.1000 is collected by the assessee company from its For instance, if Rs.1000 is collected by the assessee company from its SPDs, as LAD For instance, if Rs.1000 is collected by the assessee company from its charges, then the entire Rs.1000 is expended by the assessee company for the charges, then the entire Rs.1000 is expended by the assessee company for the charges, then the entire Rs.1000 is expended by the assessee company for the development of the local area. No part of the LAD changes is retained by the assessee development of the local area. No part of the LAD changes is retained by the assessee development of the local area. No part of the LAD changes is retained by the assessee company, as part of its income. Accordingly, the entire Rs.1000 is expended by t , as part of its income. Accordingly, the entire Rs.1000 is expended by the , as part of its income. Accordingly, the entire Rs.1000 is expended by t assessee company for the LAD, for and on behalf of SPDs. assessee company for the LAD, for and on behalf of SPDs. This is akin to a mutuality This is akin to a mutuality concept as prevalent in case of a maintenance society. concept as prevalent in case of a maintenance society.

However, there can be timing difference, in collection of such amount and, subsequently, such amount being expended. The LAD charges are collected by the assessee company on a year-on-year basis; however, the expenses are incurred as and when the need arises, which can be spread over a number of years, subsequent to the year in which they are collected. However, booked at over a period of time, not a single penny is to retained/to be retained by the assessee company out of such changes collected, as part of its income.

Thus, once the LAD charges are collected, assessee company only acts as a “trustee” for the amount, so collected, keeping such amount for and on behalf of the SPDs, till such amount is actually expended for the development of the local area. Accordingly, such LAD charges collected by the assessee company is not considered by it as part of its income, both while filing the return of income and also in the Audited Financial Statements, also demonstrated supra.

Since there is timing difference, between the collection of such charges and the ultimate expenditure being incurred, such amount is parked with a Scheduled Bank (HDFC Bank in the present case), as part of Fixed Deposits.

Interest earned on the Fixed Deposits is also utilised by the assessee company for the purpose of local area development only and no part of it is utilised for the purpose of its own business by the assessee company. This is for the reason that the assessee company keeps the charges collected with itself as a custodian. Accordingly, whatever benefits are derived on such amount, in terms of interest, are also utilised for the local area development itself.

Accordingly, assessee company, in other words, has no option, but to utilise even the interest amount, so collected, for the purpose of local area development. Thus, interest earned on the fixed deposits is also not considered by the assessee company as part of its income, while filing the return of income. Such interest income was shown as part of “Unearned Income” on “Liabilities Side” of Balance Sheet.

Thus, when interest is earned on the fixed deposits, TDS is deducted on the interest amount. The TDS deducted on such interest amount gets reflected in the Form 26AS of the assessee company. Although, such interest amount is not in the nature of income of the assessee company, however, still TDS gets reflected in the Form 26AS of the assessee company.

It is submitted that, the assessee company receives lesser amount as interest on such deposits, say Rs. 900 [out of Rs. 1000 of the interest amount] and the balance Rs. 100 gets reflected in the Form 26AS [assuming 10% being the rate at which TDS is deducted by the bank]. However, on the other hand, assessee company is duty bound, as per the Urja Company of Rajasthan Ltd. vs. ITO Saurya Urja Company of Rajasthan Ltd. vs. ITO agreement, to make expenditure of the entire Rs. 1000 [Rs. 900 actually received in the agreement, to make expenditure of the entire Rs. 1000 [Rs. 900 actually received in the agreement, to make expenditure of the entire Rs. 1000 [Rs. 900 actually received in the bank account and Rs. 100 reflected in bank account and Rs. 100 reflected in Form 26AS]. Resultantly, the TDS amount is Form 26AS]. Resultantly, the TDS amount is reflected in Form 26AS is also to be utilised by the assessee company for the local area reflected in Form 26AS is also to be utilised by the assessee company for the local area reflected in Form 26AS is also to be utilised by the assessee company for the local area development.

Resultantly, assessee company claims the entire amount of TDS reflected in the Form Resultantly, assessee company claims the entire amount of TDS reflected in the Form Resultantly, assessee company claims the entire amount of TDS reflected in the Form 26AS, in relation to the LAD charges and the interest earned on fixed deposits, while LAD charges and the interest earned on fixed deposits, while filing the return of income. filing the return of income.

This is for the reason that even the TDS amount is to be subsequently expended This is for the reason that even the TDS amount is to be subsequently expended This is for the reason that even the TDS amount is to be subsequently expended by the assessee company for the purpose of local area development only. by the assessee company for the purpose of local area development only.It by the assessee company for the purpose of local area development only. amounts to assessee company having paid/obliged to pay the amount equivalent TDS, assessee company having paid/obliged to pay the amount equivalent TDS, assessee company having paid/obliged to pay the amount equivalent TDS, therefore it gets the right to claim credit of said TDS against its tax liability. The TDS so therefore it gets the right to claim credit of said TDS against its tax liability. The TDS so therefore it gets the right to claim credit of said TDS against its tax liability. The TDS so reflected in 26AS of the assessee company is nothing but in the nature of reflected in 26AS of the assessee company is nothing but in the nature of “Self- reflected in 26AS of the assessee company is nothing but in the nature of Assessment Tax” which is deposited for and on behalf of assessee company by the which is deposited for and on behalf of assessee company by the which is deposited for and on behalf of assessee company by the bank.

During the year under consideration, During the year under consideration, assessee company had received interest from assessee company had received interest from HDFC Bank amounting to Rs. 1,38,45,526 on which Tax at Source was deducted at Rs. HDFC Bank amounting to Rs. 1,38,45,526 on which Tax at Source was deducted at Rs. HDFC Bank amounting to Rs. 1,38,45,526 on which Tax at Source was deducted at Rs. 17,17,674, whereas, the fact remains that the assessee company only earned interest as as, the fact remains that the assessee company only earned interest as as, the fact remains that the assessee company only earned interest as part of its income amounting to Rs. 5,00,843. part of its income amounting to Rs. 5,00,843. The balance amount of Rs.1,33,44,683 The balance amount of Rs.1,33,44,683 was pertaining to the interest received by the assessee company on Fixed was pertaining to the interest received by the assessee company on Fixed was pertaining to the interest received by the assessee company on Fixed Deposits created out of the L Deposits created out of the LAD Charges collected and was to be expended by the AD Charges collected and was to be expended by the assessee company for Local Area Development assessee company for Local Area Development.

As already submitted above, the assessee company collects local area development As already submitted above, the assessee company collects local area development As already submitted above, the assessee company collects local area development charges and considers them as part of its liability. These local area development charges and considers them as part of its liability. These local area development charges and considers them as part of its liability. These local area development charges, when collected, are treated as part of the charges, when collected, are treated as part of the Unearned Income of the assessee company. Such Unearned Income has been disclosed by the assessee company under Such Unearned Income has been disclosed by the assessee company under Such Unearned Income has been disclosed by the assessee company under Note 25 - Other Current Liabilities Other Current Liabilities in its Audited Financial Statements. For the year in its Audited Financial Statements. For the year under consideration, the under consideration, the Unearned Incomeamounted to Rs. 37,81,83,522 Rs. 37,81,83,522as at the end of the financial year. Relevant screenshot of ear. Relevant screenshot of Note 25 - Other Current Liabilities Other Current Liabilities, forming part of the Audited Financial Statements is set out herunder. forming part of the Audited Financial Statements is set out herunder.

It is pertinent to mention that the copy of the Audited Financial Statements was already It is pertinent to mention that the copy of the Audited Financial Statements was already It is pertinent to mention that the copy of the Audited Financial Statements was already submitted to the Hon’ble Bench during the course of the hearing as part of submitted to the Hon’ble Bench during the course of the hearing as part of Paper Book submitted to the Hon’ble Bench during the course of the hearing as part of 2 (refer Page No. 273).

The breakup of the Unearned Income of the assessee company, which includes the local area development charges collected, is detailed below. Breakup of the Unearned Income Amount (Rs.) Facilitation Charges 24,71,992 Local Area Development 33,95,21,187 Sub Lease Rent 3,61,90,343 Total 37,81,83,522

As evident from the information provided, the local area development charges forming part of the Unearned income of the assessee company as at the end of the financial year under consideration amount to Rs. 33.95 Crores. The ledger account of the local area development charges, as reflected in the books of the assessee company, has also been submitted to the Hon’ble Bench (refer to Paper Book 1, Page No. 225).Movement of local area development charges as collected by the assessee company is as under:

From the above table, it is evident that the assessee company earned Rs.1,33,44,683 as interest on the local area development charges, which were placed in fixed deposits. This interest income has been treated as part of the company's liability. However, the principal amount of Rs. 1.33 crore has not been offered as part of the taxable income of the assessee company and is reflected on the liability side of the balance sheet. The company claims that it holds this amount merely as a trustee on behalf of the SPDs for the purpose of developing the local area.

It is reiterated that the interest earned on the local area development charges, amounting to Rs. 1,33,44,683 has also been subjected to TDS by the bank. While the assessee company received a lesser net amount due to TDS deduction, it was required Saurya Urja Company of Rajasthan Ltd. vs. ITO to expend the full amount of Rs. 1.33 crore as part of the local area development obligation. The entire amount, including the TDS portion, has been shown on the liability side of the assessee company's balance sheet under current liabilities.

Accordingly, the assessee company asserts its entitlement to claim credit for the TDS amount deducted on the interest income. This is because the said income, though reflected as liability, has been utilized entirely for the purposes of the local area development project.”

We have heard the rival contention and perused the material available on record. Vide ground no. 2 the assessee challenges the finding of the ld. CIT(A) while giving direction to the AO in relation to the credit of tax deducted at source as appearing in Form no. 26AS of the assessee company. The assessee submits that so as far as interest as alleged to Saurya Urja Company of Rajasthan Ltd. vs. ITO have been received by the assessee company from HDFC Bank Ltd, for which the assessee explained that it is having the natural effect on the income of the assessee and thereby the assessee is entitled for claiming the entire such credit of tax deducted at source. To deal with the issue we take into consideration the brief facts of the case that the assessee – M/s Saurya Urja Company of Rajasthan Limited is a joint venture between Government of Rajasthan and IL& FS Energy Development Company Limited for the purpose of development of solar parks, in the state of Rajasthan. As is evident that there is no disputed as regards the income declared by the assessee vide its return of income on 09.01.2024 declaring total income at Rs. 15,31,91,980/- and what has been assessed u/s. 143(1) of the Act. But while processing the said return of income the claim of TDS to the extent of Rs. 86,66,719/- was denied because the income as reported in 26AS and in the return of income so filed were not matched in the income tax returned filed by the assessee. When the matter carried before the ld. CIT(A) he holds that TDS on income which is not offered during the year will not be allowed to the appellant at the same time he noted that the income which is offered by the assessee under the head operations and other income no reasons were Before us the ld. AR of the assessee contended that the ld. CIT(A) has not dealt with the contention of the assessee that income which are in the nature of revenue neutral and in fact is not income of the assessee for which the TDS deducted but the assessee has to compensate that TDS amount to the trust that it holds and therefore, the assessee be also granted an opportunity to prove this contention by placing on record the relevant material so as to avoid the duplication of litigation.