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Facts
The assessee, Kerala Transport Development Finance Corporation Limited, a PSU, faced assessment for AY 2016-17 where the AO denied depreciation, disallowed guarantee commission paid to the State Government, and made an addition for interest income discrepancy. The CIT(A) partially allowed depreciation at a lower rate (10% vs 25% claimed) but upheld the disallowance of guarantee commission and the addition for interest income discrepancy.
Held
The Tribunal condoned a 22-day delay in filing the appeal. It upheld the CIT(A)'s decision to allow depreciation at 10% for intangible assets (right to collect rent) by treating them as buildings, citing high court precedents. The disallowance of guarantee commission under Section 40(a)(iib)(B) was confirmed based on a Supreme Court ruling. The issue of interest income discrepancy was remanded back to the AO for due verification.
Key Issues
Whether depreciation on intangible assets (right to collect rent) should be allowed at 25% or 10%; Whether guarantee commission paid to the State Government is disallowable under Section 40(a)(iib)(B); Whether a discrepancy in interest income between 26AS and P&L account requires further verification.
Sections Cited
143(3), 40(a)(iib)(B), 40, 40(a)(iib), 289
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (in short “CIT(A)”), dated 28/02/2024 for Assessment Year (AY) 2016- 17.
Briefly the facts of the case are that the appellant is a wholly owned Public Sector Undertaking of Government of Kerala. It is formed with the objective of support and finance the Transport Service as NBFC and to build up commercially viable infrastructure like bus stations, commercial complexes etc., under BOT Model. The return of income for the AY 2016-17 was filed on 07/10/2021 declaring a total income of Rs. 5,00,98,340/- and the same was revised on 09/03/2018 at a total income of Rs.3,14,57,680/-. Against the said return of income, assessment was completed by the Assistant Commissioner of Income Tax, Circle-1(1),Trivandrum (hereinafter referred to as “AO”) vide order dated 26/12/2018 passed U/s. 143(3) of the Income Tax Act, 1961 (in short “the Act”) at a total income of Rs. 70,75,70,904/-. While doing so, the AO had denied the claim for allowance of depreciation of Rs. 55,89,29,335/- by holding that the appellant is not the owner of the asset. The AO also disallowed the claim of guarantee commission paid to Kerala State Government U/s. 40(a)(iib)(B) of the Act for Rs. 11,30,55,945/-. The AO also made an addition on account of discrepancy between the interest income as per 26AS and amount credited to P & L Account of Rs. 15,69,364/-.
Being aggrieved by the above additions, an appeal was filed before the CIT(A) who vide the impugned order allowed the depreciation in respect of intangible asset @ 10% treating as a building as against 25% claimed by the appellant following the order of the CIT(A) for the AY 2009-10. However, the CIT(A) confirmed the disallowance of guarantee commission paid to State Government as per the provisions of section 40(a)(iib)(B) of the Act.
Further, the CIT(A) also confirmed the addition on account of discrepancy of interest income of Rs. 15,69,364/-.
Being aggrieved by the decision of the CIT(A), the appellant is in appeal before us in the present appeal.
At the outset, it is noticed that there is a delay of 22 days in filing the appeal. In respect of belated filing of the appeal, the appellant filed an petition seeking condonation of delay along with an affidavit wherein it was stated that due to continuous holidays as well as the appellant being a PSU employees and officers were given charge of Lok Sabha Election held in the State and were under training as well as on election duty and hence the delay has occurred in filing the appeal. On a perusal of the reasons adduced by the appellant, we find that there is a sufficient and reasonable cause for filing the appeal beyond the prescribed time limit. Hence, we condone the delay of 22 days and proceed to adjudicate the appeal on merits.
Grounds of Appeal No.1 challenges the decision of the CIT(A) to restrict the depreciation of the intangible assets being the ‘right to collect the rent’ to 10%.
7. The factual background is that the appellant company undertook the development of projects of Bus Stations under the BOOT scheme in consideration of the ‘right to collect the rent’ from the buildings till the recovery of cost incurred on it. The cost incurred on development of these projects is claimed as intangible asset and claimed depreciation @ 25%. The AO denied the entire claim. Further, on appeal, the CIT(A) had restricted the depreciation @ 10% treating it as a building following the assessment orders for the AY 2009-10.
Having heard the rival submissions, we are of the considered view that the decision of the Ld. CIT(A) to allow depreciation treating it as buildings @10% is in line with the decision of the Hon'ble Delhi High Court in the case of Moradabad Toll Road Co. Ltd vs. ACIT [2014] 369 ITR 403; (ii) Hon'ble Allahabad High Court in the case of CIT vs. Noida Toll Bridge Co. Ltd [2013] 213 Taxman 333 and also on the principle of consistency, we hold that there is no illegality in the order of the CIT(A) in allowing the depreciation @ 10%. Accordingly, this Grounds of Appeal No.1 raised by the assessee stands dismissed.
The Grounds of Appeal No. 2 challenges the disallowance of guarantee commission paid to the Government of Kerala invoking the provisions of section 40(a)(iib)(B) of the Act. Undoubtedly, the guarantee commission was paid by the appellant company to the Government of Kerala which is charged @ 7.5% per annum. Its expenditure is hit by the provisions of section 40(a)(iib)(B) of the Act and also covered against the assessee company by the decision of the Hon'ble Supreme Court in the case of Kerala State Beverages Manufacturing and Marketing Corporation Ltd. v. ACIT (2022) 440 ITR 492. wherein the Hon’ble Apex Court has held as under:
"13. Section 40 of the Income-tax Act, 1961 is a provision which deals with the amounts which are not deductible while computing the income chargeable under the head 'Profits and gains of business or profession'. Section 40 of the Act is amended in the year 2013, and 40(a)(iib) is inserted by Amending Act 17 of 2013, which has come into force from 1-4- 2014. In terms of Article 289 of the Constitution of India, the property and income of a State shall be exempt from Union taxation. Therefore, in terms of Article 289, the Union is prevented from taxing the States on its income and property. It is the constitutional protection granted to the States in terms of the abovesaid Article. This protection has led the States in shifting income/profits from the State Government Undertakings into Consolidated Fund of the respective States to have a protection under Article 289. In the instant case the KSBC, a State Government Undertaking, is a company like any other commercial entity, which is engaged in the business and trade like any other business entity for the purpose of wholesale and retail business in liquor. As much as these kind of undertakings are under the control of the States as the total shareholding or in some cases majority of shareholding, is held by States. As such they exercise control over it and shift the profits by The Kerala State Financial Enterprises Ltd. appropriating whole of the surplus or a part of it to the Government by way of fees, taxes or similar such appropriations. From the relevant Memorandum to the Finance Act, 2013 and underlying object for amendment of Income-tax Act by Act 17 of 2013, by which section 40(a)(iib)(A)(B) is inserted, it is clear that the said amendment is made to plug the possible diversion or shifting of profits from these undertakings into State's treasury. In view of section 40(a) (iib) of the Act any amount, as indicated, which is levied exclusively on the State owned undertaking (KSBC in the instant case), cannot be claimed as a deduction in the books of State owned undertaking, thus same is liable to income tax.
Therefore, this Grounds of Appeal No.2 stands dismissed.
The Grounds of Appeal No.3 challenges the addition made on account of discrepancy between the amount reflected in 26AS and the amount shown in the P & L Account. It is submitted that the discrepancy has arisen on account of wrong grouping of the income in 26AS and also on account of deducting TDS on the Service Tax Component. This issue requires verification and therefore, we remand this matter back to the file of the AO for due verification. Accordingly, this Ground of Appeal No.3 is partly allowed.
In the result, appeal filed by the assessee stands partly allowed for statistical purposes.
Order pronounced in the open court on 15th July, 2025.
Sd/- Sd/- (SONJOY SARMA) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Cochin, Dated: 15th July, 2025 okk sps