MUMBAI INTERNATIONAL AIRPORT P.LTD,MUMBAI vs DCIT 10(2)(2), MUMBAI

Income Tax Appellate Tribunal, “D”, BENCH MUMBAI

Before: SHRI G. MANJUNATHA & SHRI RAVISH SOOD&

For Appellant: Shri Vijay Mehta, AR

For Respondent: Shri H.N.Singh, CIT, DR

Hearing: 09/12/2019Pronounced: 10/01/2020

IN THE INCOME TAX APPELLATE TRIBUNAL “D”, BENCH MUMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER

ITA No.2018/Mum/2018 (Assessment Year: 2013-14) Mumbai International Airport Vs. DCIT,Circle-10(2)(2) Private Limited Room No.209,Aaykar Bhawan Finance Department M.K.Road 1st Floor, Terminal 1B Mumbai-400 020 Chhatrapati Shivaji Internaitonal Airport Santacruz (E) Mumbai-400 099 PAN/GIR No.AAECM6285C (Appellant) .. (Respondent) & ITA No.2385/Mum/2018 (Assessment Year: 2013-14) DCIT-10(2)(2) Vs. Mumbai International Room No.216-A,Aaykar Bhawan Airport Private Limited M.K.Road Finance Department, 1st Floor, Terminal 1B Mumbai-400 020 Chhatrapati Shivaji Internaitonal Airport Santacruz (E) Mumbai-400 099

PAN/GIR No.AAECM6285C (Appellant) .. (Respondent)

Assessee by Shri Vijay Mehta, AR Revenue by Shri H.N.Singh, CIT, DR

Date of Hearing 09/12/2019 Date of Pronouncement 10/01/2020 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):

2 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

These cross appeals filed by the assessee, as well as the revenue are directed against order of the Ld. Commissioner of Income tax (Appeals)-18, Mumbai, dated 16/01/2018 and it pertains to AY 2013-14. Since, the facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed-off, by this consolidated order.

ITA. No. 2018/Mum/2018:-

The assessee has raised the following grounds of appeal:- GROUND No.1: On the facts and in the circumstances of the case and the law, the Ld. CIT(A) erred in confirming the disallowance of leave encashment provision made in books of Rs.1,90,19,660/- based on the actuarial valuation and in reliance of Hon'ble Calcutta High Court in the case of Exide industries Ltd. v Union of India (292 ITR 470). The appellant prays that the same may be allowed. GROUND NO. 2: On the facts and in the circumstances of the case and the law, the Ld. CIT(A) erred in confirming the disallowance made u/s. 40(a)(ia) of the Act, pertaining to provision for expense of Rs.17,57,71,673/- made on "best estimate" basis and in reliance of the decision of ITAT Ahmedabad in the case of Bank of Maharashtra vs ITO (TDS), Anand (38 SOT 432). The appellant prays that the same may be allowed. GROUND NO.3: On the facts and in the circumstances of the case and the law, the Ld. CIT(A) erred in confirming the additions made by A.O of the Short-term Capital Gains of Rs 1,71,55,197/- which was earned from sale of units of 'Mutual Fund1 invested out of idle funds of borrowings of the project division. The appellant prays that nothing is taxable as short term capital gain In view of the circumstances, facts and the law. GROUND NO. 4:

3 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited On the facts and in the circumstances of the case and the law, the Ld. CIT(A) erred by ordering suo-moto enhancement of the interest Income of Rs 4,68,46,632/- under the head 'Income from other sources' earned from investments made in Term Deposits out of idle funds of borrowings of the project division. The appellant prays that the same may be deleted. GROUND NO. 5: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred by holding the Passenger Service Fee - Security Component [PSF (5C)] of Rs. 51,03,65,280/- as the taxable income of the Appellant. The appellant prays that the PSF (SC) is not the income of the appellant and hence be deleted. The Appellant craves leave to add, omit or alter grounds of appeal before or during the hearing of the appeal.

The brief facts of the case are that the assessee was incorporated on 27/02/2006 as a joint venture between the GVK Group companies and Airport Authority of India, to take over the existing Chatrapati Shivaji Airport [CSA] ( Domestic, international and Cargo terminal) to operate, maintaining and develop the airport and its related functions. During the previous year relevant to the year under appeal, the assesee has filed its return of income on 29/11/2013, declaring total income of Rs. 158,70,27,370/- and the same was revised to Rs. 152,59,15,230/- by filing return on 30/03/2015. The reduction in income declared in the revised return as compared to original return of income is on account of reduction in Passenger Service Fees (PSF) from Rs.57,14,77,420/-, declared in the original return to Rs.51,03,65,280/- in the revised return of income. The case was selected for scrutiny and the assessment has been completed u/s 143(3) of the I.T.Act, 1961, vide order dated 04/03/2016 and determined total income of the assessee at

4 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

Rs.484,05,59,660/-. The details of total income computed by the Ld. AO is as under:-

Sr.No. Particulars Amount (Rs.) Income from business 1 AS per return of income 81,43,35,673 2 Additions/Disallowances as under: a) Intangible Assets b) Treatment of CWIP claimed as revenue c) Disallowance u/s 40(a)(ia) d) Leave encashment e) Retrenchment compensation f) Development fee g) Disallowance u/s 14A r.w.r8D h) Delayed payment of employees contribution of PF &ESIC Income from other sources 3 As per return of income 19,11,27,544 Capital Gain 4. Short term capital gain 1,98,46,728 as per return Add: STCG adjusted 1,71,55,197 3,70,01,925 against project cost 5 Gross total income 433,99,54,336 6 Less: Deduction u/s 97,60,000 80G 7 Income after deduction 433,01,94,336 under Chapter VI-A 8 Add: Surplus from PSF 51,03,65,280 funds offered as per assessee’s return of income 9 Total income 484,05,59,616

5 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited 4. Being aggrieved by the assessment order, the assessee has filed an appeal before the Ld.CIT(A). The Ld.CIT(A) has disposed of appeal filed by the assessee vide, its order dated 16/01/2018, where he has allowed partial relief, in respect of various additions made by the Ld. AO, however confirmed additions made by the ld. AO towards disallowances of provision for encashment of leaves, disallowances of year end provision, u/s. 40(a)(ia), for non deduction of tax at source, additions made by the Ld. AO towards short term capital gains on sale of units of mutual funds invested out of idle funds of borrowing of the project division and additions towards Passenger Service Fees - Security component (PSF-SC) of Rs. 51,03,65,280/-. The Ld.CIT(A) has also enhanced the income of the assesee by adding Rs. 4,68,46,632/-, on account of interest income earned on bank deposits by relying on the decision of the Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. 227 ITR 172. Being aggrieved by the order of the ld.CIT(A), the assessee, as well as the revenue have filed the captioned appeals before the Tribunal.

The first issue that came up for our consideration from ground No.1 of assessee appeal is confirmation of disallowances of leave encashment of Rs.1,90,19,660/-. The Ld. AO had made disallowances of Rs.2,23,70,223/- by rejecting the contention of the assessee that provision of section 43B(f) had been held to be constitutionally invalid by the Hon’ble Kolkata High Court, in the case of Exide Industries Ltd. 292 ITR 470. The ld. AO had also noted that similar disallowances were made in AY 2008-09 to 2012-13. The Ld.CIT(A) upheld the additions after referring to the decision of ITAT, in the case of the assessee for AY 2012-13 and also in the case of

6 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited Pembril Engineering Pvt.Ltd.155 ITD 72 (Mum) and Mysore Sales International Ltd. 138 ITD 422 (Bang).

The ld. AR for the assessee, at the time of hearing submitted that although, the assesee has claimed deductions towards provision for leave encashment on the basis of decision of Hon’ble Kolkata High court, in the case of Exide Industries Ltd. (supra). But subsequently, the Hon’ble Supreme Court, vide its order dated 08/09/2018 has stayed the judgment of the Hon’ble Kolkata High court. Further, the final decision of the Hon’ble Supreme Court in this case is still awaited. The Ld. AR, further submitted that since, the matter is sub-judiced before the Hon’ble Supreme Court and also, the Hon’ble court, in its subsequent interim order has laid down conditions for claiming deduction for provision for leave encashment, as per which, the assessee can claim deduction by paying tax on the portion of amount claimed, as if section 43B(f) is on statute book. But, at the same time, it would not be entitled to make a claim in its return of income. The Ld. AR, further submitted that since, the matter is still pending before the Hon’ble Supreme Court, the matter may be set aside to the file of the Ld. AO and to decide the issue after final outcome of the decision of Hon’ble Supreme Court, in the case of Exide Industries Ltd. (supra). In this regard, he relied upon the decision of ITAT, Mumbai, in the case of Birla Sunlife asset Management company Ltd. in ITA No. 5457/Mum/2013, dated 30/06/2015.

The ld. DR, on the other hand strongly supported order of the Ld. AO, as well as the Ld.CIT(A), however he fairly accepted the issue may be set aside to the file of the Ld. AO to decide in

7 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited accordance with the final outcome of the final order of the Hon’ble Supreme Court in the case of Exide Industries Ltd. case.

We have heard both the parties, perused the material available on record and gone through orders of the authorities below. It is an admitted fact that the provision of section 43B(f) had been held to be constitutionally invalid by the Hon’ble Kolkata High court in the case of Exide Industries Ltd (Supra). On the basis of said decision, the assessee has claimed deduction for provision for leave encashment, as if provision of section 43B(f) is not in the statute. But, fact remains that subsequently, the Hon’ble Supreme Court has stayed operation of the decision of Hon’ble Kolkata High court in the case of Excide Industries Limited (supra), vide its order dated 08/09/2008. However, it has laid down certain conditions for claiming deduction for provision for leave encashment. Thus, as per the interim order of the Hon’ble Supreme Court, the initial stay granted by the Hon’ble Supreme Court gets vacated. Further, in the said interim order the Hon’ble Supreme court held that the assessee can claim deduction by paying tax on the amount claimed as deduction, as if section 43b(f) is on statute book. However, till final outcome of the decision of the Hon’ble Supreme Court, the revenue will not recover interest and penalty which may accrue. From the above, it is very clear that the issue is not attained finality and hence, we are of the considered view that unless, the Hon’ble Supreme Court settled the disputes on the matter the issue cannot be decided either in favour of the assessee or in favour of the revenue. Hence, we set aside the issue to the file of the Ld. AO and direct him to adjudicate the issue afresh, as per the final decision of the Hon’ble Supreme Court, in the case of Exide Industries Ltd (supra).

8 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

The next issue that came up for our consideration from ground No. 2 of assesee appeal is confirmation of disallowances u/s 40(a)(ia) of the Act of Rs. 17,57,71,673/-. The facts with regard to the impugned disputes are that during the course of assessment proceedings, the Ld. AO noted that in the tax audit report, the tax auditor had identified gross amount of Rs. 17,57,71,673/-, as amount inadmissible u/s 40(a)(ia) of the Act, for non deduction of TDS. However, in the computation of total income, the assessee has not made any disallowances u/s 40(a)(ia) of the Act. Therefore, after taking note of submissions of the assesse made disallowances of Rs. 17,57,71,673/- u/s 40(a)(ia) of the Act, for non deduction of tax at source. The Ld.CIT(A) after going through the details submitted by the assesse noted that provision made by the assesee had no scientific basis and more than 50% of the liability was non-existent. Therefore, he has upheld the disallowances, on the ground that, the provision was without any scientific basis and the liability had not accrued as on 31/03/2013.

10.

The Ld. AR, for the assessee submitted that the Ld. AO and the Ld.CIT(A) did not truly appreciate the basis of provision made towards various expenditure, on the basis of estimates provided by the departments heads and the excess provision, if any has been reversed subsequently, as and when, the final payment is made to the service providers. The Ld. AR, further submitted that the assessee has been following consistent method of making provision for expenditure at the end of the financial years, on the basis of estimates provided by the department heads. He, further submitted that the assessee, neither claims any double deduction, nor there is

9 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited any tax impact on the income of the assessee for the main reason that the assessee has huge losses and the entire exercise is tax neutral. He, further submitted that out of the total provision of Rs. 17,57,71,673/-, the assesee has subsequently deducted tax at source, in respect of expenditure of Rs. 7,73,42,027/-. However, at the time of payment of this provision, the assessee had not claimed any deduction. He, further submitted that the assesee had inadvertently included a sum of Rs. 2.25 crores towards unbilled revenue and this amount represents discount given to the party, but wrongly credited to provision account, instead of party account and this error has been rectified subsequently. Similarly, the balance provision of Rs. 7,59,29,646/- has been reversed in subsequent years, because said provision is no longer required. Therefore, if addition is made for non deduction of tax on the said amount, then it amounts to payment of tax on non existing liability. The Ld.CIT(A) without appreciating these facts had simply confirmed additions made by the Ld. AO.

11.

The Ld. DR, on the other hand, strongly supporting order of the Ld. AO, as well as the Ld.CIT(A) submitted that the assesse has made an adhoc provision for various expenses, even though, the liability is not crystallized or accrued, at the end of the financial year, which is evident from the fact that in subsequent years, the said provision has been reversed. The Ld. DR, further submitted that if you go through provisions of section 194C and other TDS provisions, it is very clear that the liability to deduct TDS is arises, even if, the amount is credited to a suspense account. Therefore, once amount is provided in books of account, it is the obligation of the assessee to deduct applicable TDS. Since, the assesse has not

10 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited deducted TDS on various expenditure. The Ld. AO was right in disallowances of said expenditure u/s 40(a)(ia) of the Act. The Ld.CIT(A) after considering relevant facts has rightly confirmed additions made by the Ld. AO and his order should be upheld.

12.

We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The assesse has made certain provisions at the end of the year for expenses based on reliable estimates provided by the department heads amounting to Rs. 17,57,71,673/- and said provision had been made on the basis of pending invoices/debit notes/claims from the parties. The assessee has been following consistent method making provision for expenditure at the end of the financial year, in respect of service provided by various parties and such estimate had been made on the basis of estimates provided by the department heads. Further, as and when, the amount has been paid to the service providers on receipt of proper invoices/claims, the assessee has dedcuted applicable TDS on said payment. We, further noted that the excess provision, if any is made, in respect of certain expenditure has been reversed, subsequently on payment of pending bills to the service providers. This practice has been followed right from last so many financial years. In the light of the above factual back ground, if you examine the claim of the assessee towards provision for year under expenses, we found that during the year under consideration, the assesee has made provision of total expenditure of Rs. 59,40,33,948/-. This provision comprised expenditure of Rs. 16,54,10,394/-, on which the assessee was not required to deduct any tax at source. Further, it also included expenditure of Rs. 25,28,51,881/-, on which TDS has been deducted

11 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited and paid before the due date of filing the return of income. This fact has not been disputed by the Ld. AO. The resultant balance amount of Rs. 17,57,71,673/- was disallowed by the Ld. AO verifying only couple of instances, which have been referred in the appellate order. It is the claim of the assessee before us that, out of total provision of Rs. 17,57,71,673/-, the assessee had subsequently deducted tax at source, in respect of expenditure of Rs. 7,73,42,027/-. However, at the time of payment of this provision, the assessee had not claimed any deduction. Similarly, it was the claim of the assessee that it had inadvertently included therein provision for reduction in unbilled revenue of Rs. 2.25 crores and this amount represents discount given to the party, but wrongly credited to provision account instead of party account and this error has been rectified subsequently. Further, balance provision of Rs. 7,59,29,646/- has been reversed in subsequent years, because said provision is no longer. From the above, it is abundantly clear that the assessee is following a consistent method of making provision for expenses at the end of the year, on the basis of estimates provided by the department heads by taking note of various factors, including services rendered by service provider, but bills and claims are not received from the said service provide. The excess provision if any is reversed, subsequently, as and when, the payment has been made to service providers on receipt of claims/bills from them after deducting applicable TDS as per law. Further, when the payments has been made to the parties, the assesee has not claimed any deduction for said expenditure. Thus, from the above, it is very clear that the provision made by the assesee at the end of the year is on scientific basis, based on estimates given by the department heads, which is in turn based on services rendered by the service providers.

12 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited Therefore, we are of the considered view that the Ld. AO as well as the Ld.CIT(A) were erred in, coming to the conclusion that the provision made for year end in expenditure is not based on any scientific method and such liability is not accrued to the assesse. We, further noted that, the assessee neither claimed any double deduction, nor there is any tax impact on the income of the assessee, because the assesee has huge losses and that the entire exercise is tax neutral. Further, the Ld.CIT(A) had come to the conclusion that the liability is not accrued and also, there is no scientific basis for making provision, only on the basis of verification of selective entries. Therefore, we are of the considered view that this matter needs to be examined by the Ld. AO, in light of various averments made by the assesee, including reversal of excess provision in subsequent financial year and deduction of TDS on said amounts, as and when, payment is made to the parties. Hence, we restored the issue to the file of the Ld. AO with a direction that if any disallowances is made in the year under consideration, the Ld. AO shall consequently allow deductions to the assessee in the year of actual payment or reversal, as a case may be.

13.

The next issue that came up for our consideration from ground NO.3 and 4 of assessee appeal is confirmation of addition of Rs. 1,71,55,197/-, on account of short term capital gain from transfer of units of mutual funds invested out of idle funds of borrowings of the project division and consequent enhancement of interest income from fixed deposits of Rs. 4,68,46,632/- under the head income from other sources. The facts with regard to the impugned disputes are that the assessee had temporarily invested projects funds in making investments in mutual funds units and earned income of

13 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited Rs.1,71,55,197/- on its sales and also, earned interest income from fixed deposits amounting to Rs. 4,68,46,632/-. The assessee has credited short term capital gain earned from sale of units of mutual funds and interest income earned from fixed deposits to the capital work-in-progress of the project, because the gain was inextricably linked with the project funds. The Ld. AO rejected the contentions of the assessee and added Rs. 1,71,55,197/- to the income of the assessee as short term capital gain. Similarly, the assesee has earned interest from fixed deposits kept in banks for short period and credited interest income into capital work-in-progress account of the project. The Ld.CIT(A) has enhanced the income to the extent of Rs. 4,68,46,632/- towards interest earned from banks, on the investments made in deposits out of funds inextricably linked with the project by following the decision of Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs CIT (supra).

14.

The Ld. AR for the assessee submitted that the Ld.CIT(A) was erred in confirming additions made by the Ld. AO towards short term capital gain derived from sale of units of mutual funds, invested out of project funds for short period without appreciating the fact that the assessee has invested earmarked funds in mutual funds, when the funds are not immediately required for the projects in terms of agreement between the consortium banks and the assessee, dated 26/09/2007, as per which, as and when, the funds are released by the consortium banks, the same needs to be utilized for the projects without any other purpose. The Ld. AR for the assessee, further referring to agreement dated 26/09/2007 and more particularly clauses (e) & (f) submitted that the assesee was under obligation to

14 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited utilize the project funds, as per the terms specified in the agreement. He, further submitted that utilization of funds has been specified under clause (vii) of the agreement, as per which the assessee had not liberty to utilize the funds borrowed. But, it was obliged to utilize funds only in accordance with the agreement. He further submitted that as per the terms of agreement, any income earned from the authorized investments had to be credited to the TRA main account. From the above, it is very clear that even the consortium banks have allowed the assessee to park the funds in short term investments, but any income earned out of such investments needs to be utilized for the purpose of the project. The Ld. AR, further referring to paper book filed by the assessee, submitted that if you go through the investments in mutual funds and fixed deposits made by the assessee, the said investments have been made for a period which varies from 03 days to 45 days. From the above, it is very clear that there is a direct nexus between the funds borrowed and funds invested and accordingly, where funds are inextricably linked with the project, then any income arised out of said investments needs to be set off with capital work in progress of the project till, such time, the project was under implementation. The ld. AR, further submitted that although, the ld. AO, as well as the Ld.CIT(A) have heavily relied upon the decision of Hon’ble Supreme Court in the case of Tuticorin Alkali chemicals and fertilizers Ltd. (supra), but, if you go through the facts of the present case, the decision of Hon’ble Supreme court has no application, because in that case there was no discussion about linking of funds of the project to the investments. He, further submitted that whereas the Hon’ble Supreme Court in the case of CIT vs Bokaro Steel Ltd. 236 ITR 215 had considered an identical issue and after considering judgment of

15 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited Tuticorin Alkali chemicals and fertilizers Ltd. (supra) held that when, funds are inextricably linked with the project, then any income earned out of said funds needs to be set off with capital work-in- progress. In this regard, he relied upon various judicial precedents, including the decision of ITAT, Mumbai bench, in the case of Iceland star Mall developers Pvt.Ltd. vs ACIT in ITA No. 5078/Mum/2014.

15.

The Ld. DR, on the other hand, strongly supporting order of the Ld.CIT(A) submitted that the Ld.CIT(A) has brought out clear facts to the effect that interest income earned from deposits kept in banks out of project funds and short term capital gain earned from transfer of units of mutual funds needs to be assessed separately under the income from other sources, whether or not, the funds are inextricably linked with the project. The Ld. DR, further submitted that the Hon’ble Supreme Court has considered the issue in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra), where it was categorically held that to decide the nature and head of income, the nature of income earned is relevant, but not the funds. He, further submitted that even in case of Tuticorin alkali chemicals and Fertilizers Ltd., the facts before the Hon’ble Supreme Court was that during implementation period of the project the assessee has earned interest income and the same has been credited to capital work-in- progress account. Under those facts, the Hon’ble Supreme Court clearly held that to decide the head of income, the nature of income is more relevant, but not the funds, which earned income. The Ld.CIT(A) after considering relevant facts has rightly held that short term capital gain from sale of units of mutual funds and interest income from fixed deposits kept in banks out of idle funds of project

16 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited is assessable under the head income from other sources and his order should be upheld.

16 We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The background facts in respect of both the grounds are as follows. The assessee had entered into an arrangement with IDBI as lead banker and other banks in the consortium to avail funds of Rs. 4,231/- crores for its capital project. These funds were released from time to time as per the requirements of the project. However, the bank released funds as per its schedule which varied little with the timing of requirements and on occasions., the assessee had at its disposal more funds disbursed than current requirement. Therefore, in order to reduce the cost of interest and to meet the stipulations of sanctioned loan, the assessee had invested such funds in the meantime in liquid investments like bank FD and mutual fund and earned income by way of interest on deposits and short term capital gain. It is the case of the assessee that since the interest on borrowed project fund is being added to capital work-in-progress and that project is not completed,, the income earned from investment should be reduced from the capital work-in-progress as fund utilized for investment is raised for the project and it is inextricably linked with the setting up of the project.

17.

In order to ascertain the nature of investment, it is pertinent to note the terms and conditions in respect of funds borrowed and its utilization. The agreement dated 26.09.2007 was entered into between the assessee and IDBI led consortium, pursuant to which the assessee had arranged to borrow Rs. 4,231 crores. A copy of

17 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited the said agreement is filed at pages 193 - 241 of the PB. Further, our attention is invited to the clauses (E), (E) and (F) of the recital portions at page 199 of the PB, which read as under:

"(E) To enable the Borrower to meet the Project Costs, the Lenders at the request of the Borrower have agreed to lend and advance to the Borrower and the Borrower has agreed to borrow from each of them their respective rupee loans in aggregate not exceeding INR 4231 Crores (Rupees Four Thousand Two Hundred Thirty One Crores only) on the terms and conditions stipulated in the Common Loan Agreement (defined hereinafter). (E) All monies disbursed under the Common Loan Agreement are to be applied for or in connection with the financing for the project. (F) It is one of the conditions precedent for the Lenders making available the Loans to the Borrower for the Project that the Retention Accounts (as hereinafter defined) shall have been opened/established with the Account Bank and shall be operated in the manner specified in this Agreement".

18.

Thus, the assessee was under obligation to utilize the project funds as per the terms specified in the agreement. The utilization of funds has been dealt under clause 7 of the agreement and the relevant portion (pages 216 and 217 of the PB) reads as under:

"7. WITHDRAWALS 7.1 Permitted Withdrawals - General': Each of the parties agree that (a) no payments to, or withdrawals from, a Retention Account shall be made except as expressly permitted by this Agreement; (b) all amounts withdrawn from any of the Retention Accounts by the Borrower for application in or towards a specific payment or meeting a specific liability shall be applied in or towards making that payment or meeting that liability and for no other purpose; and (c) ......

18 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited 7.2 Withdrawal Procedures (a) All requests for withdrawals from any Retention Accounts [save in the case of a withdrawal for the purposes of making an Authorised Investment made in accordance with clause 13 herein and save as otherwise expressly set out in this Agreement] shall be made in accordance with sub-clause (b) set out below:

(b).... (c).." 19. The undertakings of the assessee have been spelt out in clause 8 of the agreement and the relevant portion (page 220 and 221 of the PB) is extracted below

'8 UNDERTAKINGS OF THE BORROWER: The Borrower undertakes to each of the Lenders that throughout the currency of the Facilities and so long as any sum is or may become payable under any Finance Document the Borrower shall, unless the Lender/Lenders Agent otherwise agree in wriging: (a)... (b)... (g) ensure that all amounts standing to the credit of any of the Retention Accounts are utilized/applied only in accordance with this Agreement: (h)...."

20.

Thus, the assessee had no liberty to utilize the funds borrowed but it was obliged to utilize the funds only in accordance with the agreement. Further, the assessee was obliged to invest the idle funds as per clause 13 of the agreement and the relevant portion (pages 223 to 225 of the PB) is extracted below

"13 A UTHORISED INVESTMENTS 13.1 Power to invest

19 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited The Borrower may require, subject to as provided in this Agreement, that such part of the amounts standing to the credit of Retention Accounts as it considers prudent shall be invested from time to time in Athorised Investments in accordance with this clause. 13.2 Procedure for Investment (a) Power to Invest So long as the Account Bank is not notified of an Even of Default by the Lender Agents, the Account Bank shall invest in Authorised Investments on the instructions of the Borrower, as provided in this Agreement from such part of the amounts standing to the credit of any of the Retention Accounts, in each case with respect to those amounts next anticipated to be transferred or withdrawn, having a scheduled maturity no later than such next anticipated cash withdrawal or transfer from such Account in accordance with this Agreement. ….

….. (d) Maturity The Borrower shall at all times procure that there are maintained a spread of Authorised Investments and shall match the maturities of the Authorised Investments with the payment or transfer obligations under this Agreement, having regard to the avail ability of Authorised Investments which are readily marketable. (e) Realisations Upon the realization of any investment made under this clause, the proceeds of realization shall be immediately credited to the relevant Retention Account by the Account Bank or immediately Invested in another Authorised Investment in accordance with the Borrower's instructions and this Agreement

(h) Interest on Authorised Investments Any Investment Income in respect of Authorised Investments shall be credited to the TRA main Account"

21.

Thus, it is evident that the income earned from the authorized investments had to be credited to the TRA main account. In other words, the assessee had no liberty to utilize the funds as well as income earned out of the investments made from the borrowed funds except for the purpose of project. It is

20 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited submitted that this vital factor has been overlooked by the CIT(A) while deciding the issue. It is submitted that as per the agreement, the assessee was provided the funds by the consortium in advance, but its actual utilization would depend upon the terms of payments that would become due. Therefore, the assessee was required to make investment in Authorised Investments in such a manner that the funds borrowed would remain available to discharge the liabilities on due dates. The particulars of investment made in mutual funds giving rise to the short-term capital gain are filed at page 184 of the PB. On its perusal, it can be seen that the assessee had invested in mutual funds on 26 occasions for short period which varied from 3 days to 42 days. The particulars of investment made in fixed deposit of the bank are filed at page 192 of the PB. On its perusal it can be seen that the assessee had invested in fixed deposit on 65 occasions for short period which varied from 8 days to 46 days. It is further submitted that there is direct nexus between the fund borrowed and fund invested. Therefore, the interest paid on borrowed amount needs to be taken into account while computing income from the investment. It is submitted that it is well settled is law that if the funds inextricably linked with the project are utilized in making income yielding investment, then such income earned would go to reduce the cost of the project and hence, such income should be reduced from the capital work-in-progress.

22.

In this respect, our attention is invited to the order of the Hon'ble Tribunal, Mumbai Bench, in the case of Island Star Mall Developers P. Ltd. v ACT (ITA no. 5078/Mum/2014) which is filed at pages 248 to 257 of the PB. In that case, the assessee had

21 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited borrowed funds from the bank and it was utilized in investing in ultra-short term fixed deposits. The interest income earned thereon of Rs. 7,35,674/- was credited to capital work-in-progress by the assessee. The Assessing Officer treated this income as 'income from other sources' u/s. 56 of the Act and the CIT(A) upheld the order of the Assessing Officer. On further appeal, the assessee relied on judgment of the Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (315 ITR 238) and claimed that the interest earned should be reduced from the work- in-progress as the FDRs were inextricably linked to setting-up of the project. The DR relied on the ratio of the Supreme Court in this case of Tuticorin Alkali Chemicals and Fertilisers Ltd. (227 ITR 172). Accepting the contentions of the assessee, the Tribunal held that the income on FDRs was required to be capitalized to be reduced from the capita work-in-progress and it was fully covered by the ratio of the judgment of the Hon'ble Supreme Court in the case of CIT v Bokaro Steel Ltd. (236 ITR 315} and not by judgment of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilisers Ltd (supra). The relevant observations of the Tribunal are extracted below:

"7. First of all, it is factually evident that the interest has been earned on FDRs KEPT WITH Banks for a very short period of time. The details are placed in the paper book at Pages-23 to 25, which show that the FDRs are placed for periods ranging from 10 to 30 days. The learned Representative explains 'hat the term loan was borrowed for the purpose of the project and in the interregnum i.e., between the date of receipt of loan funds from bank and its disbursal towards the project assessee used to place it temporarily for an ultra short period in FDRs, which have yielded income. The aforesaid fact / situation is not in dispute. Thus, it is quite apparent that the funds deployed in FDRs are tied up funds and not surplus funds. Rather in my considered opinion, the impugned funds are

22 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited inextricably linked to the development and construction of assessee's project of integrated market complex at White Field, Bangalore. In the background of the aforesaid factual position, in my view, the income on FDRs is required to be capitalized to be reduced from the capital work-in-progress, and is fully covered by the ratio of the judgment of the Hon'ble Supreme Court in the case of CIT v/s Bokaro Steel Ltd., [1999] 236 ITR 315 (SC), and not by the judgment of Hon'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilisers Ltd. (supra), as contended by the Revenue. The distinction in the application of the two aforesaid judgments of the Hon'ble Supreme Court has been aptly brought out by the Hon’ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra) in the following words:-

"In our opinion, the Tribunal has misconstrued the ratio of the judgment of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals [1997] 227ITR 172 and that of Bokaro Steel Ltd, [1999] 236 ITR 315. The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemical [1997] 227 ITR 172 is that if funds have been borrowed for setting up of a plant and if the funds are "surplus" and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head "Income from other sources". On the other hand, the ratio of the Supreme Court judgment in Bokaro Steel Ltd., [1999] 236 ITR 315 to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise "inextricably linked" to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses."

In the case before the Hon'ble Delhi High Court, issue related to the treatment to be accorded to the interest earned the monies received as share capital by the assessee which were temporarily put in a fixed deposit awaiting acquisition of land which had run into legal entanglements. The Revenue treated such income as income under the head "Income From Other Sources". As per the Hon'ble High Court, since the funds infused in the assessee were inextricably linked with the setting up of the plant, the interest income could not be treated as income from other sources. Since it has found to have been earned in a period prior to commencement of business, it was held to be in the nature of a capital receipt and was liable to be set-off against the pre- operative expenses.

23 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

In my view, the judgment of the Hon'ble Supreme Court fully covers the controversy before me. On facts, it is quite clear that the funds available with the assessee for deploying the ultra short period FDRs were not surplus funds and, therefore, the ratio of the judgment of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilisers Ltd. (supra) would not govern the present situation. 10. I conclude by holding that the assessee has rightly reduced the said interest income from the capital work-in-progress, because the funds deployed are only for an ultra short period which in inextricably linked with the project. Hence, I set aside the impugned order passed by the learned Commissioner (Appeals) and hold that the addition of Rs. 7,35,675, needs to be deleted. I order accordingly. The Ground of appeal no.l, raised by the assessee is allowed." 23. The assessee has raised upon the judgment of the Supreme Court in the case of CIT v Shree Rama Multi Tech Ltd. [403 ITR 426 (SCJ]. In that case, the assessee had invested share application money in bank deposits and earned interest of Rs. 1,71,30,202/- which was initially shown as 'income from other sources' but later the assessee claimed that the same should be set off against 'public issue expenses'. Since the assessee was unable to give specific working of interest for pre-allotment and post allotment period, the claim of the assessee was not allowed and interest income was added to total income of the assessee under the head "Income from other sources". The CIT(A) upheld the order of the Assessing Officer. However, the Tribunal, and later High Court, allowed the claim of the assessee. On further appeal by the Revenue, the Supreme Court upheld the order of the High Court and held that the rationale laid down in the case of Bokaro Steel Ltd. would apply. The relevant observations of the Supreme Court are extracted below for the sake of ready reference;

24 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

"11. Further, the rationale of judgment of Bokaro Steel Ltd. (supra) was followed in CIT vs. Karnal Co-operative Sugar Mills Lid. (2000) 161 CTR (SC) 241 : (2000) 243 ITR 2 (SC) . In this case,- the company had deposited certain amount with the bank to open letter of credit for purchase of machinery for setting up plant. On the money so deposited, it earned interest. In that background, this Court observed that this is not a case where any surplus shares capital money which was lying idle had been deposited in the bank for the purpose of earning interest. The deposit of money Is directly linked with the purchase of plant and machinery.

12.

The common rationale that is followed in all these judgment if, that if there is any surplus money which is lying idle and It has been deposited in the bank for the purpose of earning interest then it is liable to be taxed as income from other sources but if the income accrued is merely incidental and not the prime purpose of doing the act in question which resulted into accrual of some additional income then the income is not liable to be assessed and is eligible to be claimed as deduction. Putting the above rationale in terms of the present case, if the share application money that is received is deposited in the bank in light of the statutory mandatory requirement then the accrued interest is not liable to be taxed and is eligible for deduction against the -public issue expenses. The issue of share relates to capital structure of the company and hence expenses incurred In connect/on with the issue of shares are to bs capitalized because the purpose of such deposit is not to make some additional income but to comply with the statutory requirement and interest accrued on such deposit is merely incidental. In the present case, the respondent was statutor/ly required to keep the share application money in the bank till the allotment of shares was complete. In that sense, we are of the view that the High Court was right in ho/ding that the interest accrued to such deposit of money in the bank is liable to be set off against the public issue expenses that the company has incurred as the interest earned ii/jy inextricably linked with requirement of the company to raise share capital and was thus adjustable towards the expenditure involved for the share issue." (emphasis supplied).

24.

The assessee has relied upon the Supreme Court in the case of CIT v Karnal Co-operative Sugar Mills Ltd. (243 ITR 2). In this case, the assessee had deposited money to open Letter of

25 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited Credit for purchase of machinery to set up its plant in terms of agreement with the supplier. The Assessing Officer taxed such interest as 'income from other sources'. The appeals filed by the assessee before CIT(A) and the Tribunal were dismissed. However, on further appeal, the High Court held that there was a direct nexus between the purchase of the machinery and the deposit of money in the bank. This nexus brought out a presumption in assessee's favour that money was deposited not without a purpose but with the object of acquiring machine from the supplier. Such interest income being directly relatable to the terms of the contract for acquiring a business asset should go to reduce the cost of the asset acquired out of the transaction. Hence, the interest could not be taxed as income from other sources, but should reduce the cost of assets acquired out of the transaction. The Revenue filed appeal before the Hon'ble Supreme Court and the same was dismissed with following observations:

"In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. v, CIT[1997] 227ITR 172, will not be attracted. The more appropriate decision in the factual situation in the present case is in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC). The appeal is dismissed. There will be no order as to costs-"

26 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited 25. The assessee has relied upon also to another judgment of the Hon'ble Supreme Court in the case of CIT v. Karnataka Power Corporation (247 ITR 268). In this case, the Revenue had filed appeal before the Supreme Court against the order of the High Court wherein it was held that interest receipts and hire charges received from contractor were capital in nature and would go to reduce capital cost. The Revenue filed appeal before the Supreme Court and raised the following question :

"1. Whether, on the facts and In the circumstances of the case, the Tribunal is right in law in upholding the order of the Commissioner (Appeals) who deleted the addition of Rs. 1,30,44,518 being interest receipts and hire charges from contractors by holding that the same are in the nature of capital receipts which would go to reduce capital cost ?" The Supreme Court replied to the said question as under:

"It is not in dispute that the first two questions must be answered in the affirmative and in favour of the assessee having regard to the judgments of this Court in CITv, Bokaro Steel Ltd. [1999] 102 Taxman 94 and CIT v. Alcock Ashdown & Co. Ltd. [1997] 224ITR 3S3/90 Taxman 521, respectively."

26.

The assessee has relied upon the order of the Tribunal, Hyderabad Bench, in the case of ITO v. KSK Wind Energy in ITA no, 1098/Hyd/2017 dated 30.11.2017. In this order, the judgment of the Andhra Pradesh High Court in the case of Raasi Cement Ltd. (232 ITR 554), which has been relied upon by the CIT(A), is duly considered and the Tribunal held income earned by the assessee out of investment made in the bank deposit during pendency of the project cannot be treated as income from other sources. The relevant observations of the Tribunal are extracted hereunder:

27 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

"........In the case before us, the funds deposited by the assesses with the banks are out of the equity capital of the assessee and not surplus funds and they were deposited in the bank because, the assessee was not in a position to proceed with the implementation of the project due to various bottlenecks beyond the control of the assessee. It is also to be noticed that the assessee was not paying any interest on such funds as it is its share capital which is meant were setting up of the project only. Such deposits are, in our opinion, inextricably linked with the project and are part of capital work-in-progress. The Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd., reported in (2009) 181 taxmann 249 (Del) and in the case of CIT Vs. Facor Power Ltd,, reported in (2016) 66 Taxmann.com have reiterated the principle laid down in the case of Bokaro Steel Ltd., (supra) to hold that 'the interest' earned on funds primarily bought for infusion in the business could not be classified as "income from other sources". We find that CIT(A) has followed these decisions for granting relief to the assessee. Therefore, we see no reason to interfere with the order of the CIT(A) on this issue."

27.

Coming to judgment relied upon by the Ld.CIT(A) in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v CIT ( 227 ITR 172) wherein it was held that interest earned on the surplus funds kept in short term deposits will be chargeable u/s. 56 of the Act. In that case, the assessee had chosen not to keep its surplus capital idle but decided to invest it fruitfully. It is submitted that the CIT(A) has overlooked the following vital observations of the Supreme Court;

" There is another aspect of this matter. The company, in this case, is at liberty to use the interest income as it likes. It is under no obligation to utilize this interest income to reduce its liability to pay interest to its creditors. It can reinvest the interest income in land or shares, it can purchase securities, it can buy house property, it can also set up another line of business, it may even pay dividends out of this income to its shareholders....."

28 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited 28. From the above, it is amply clear that in order to consider whether the income earned is of revenue or capital in nature, it is important to take into account whether the funds were inextricably linked to setting up of the project. If the assessee is under obligation to use interest income in prescribed manner, then such income should be reduced from the cost of the project. If the income earned from the investment can be utilized for any purpose as per the total discretion of the assessee, as it was in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra), then such income would be considered as revenue in nature liable to be taxed u/s. 56 of the Act. As pointed out hereinabove, funds of the assessee were inextricably connected with the project and the assessee had to credit any investment income to the TRA main income. Therefore, any income arising from investment made from borrowed funds should be reduced from work-in-progress as has been held in the various judicial pronouncements referred above. We further submitted that the decisions relied upon by the CIT(A), such as Tuticorin Alkali (supra), have been duly considered and covered by the aforesaid various judgments relied upon by the assessee. Therefore, the income earned by the assessee from investments made out of funds that are inextricably connected with the project should be reduced from work-in-progress.

29.

Coming to alternate argument of the assessee. Without prejudice to above, it is submitted that if income arising from the investment is considered as taxable income of the assessee under the Act, then the assessee should be granted deduction in respect of interest paid on borrowed funds which had been utilized in making investments giving rise to impugned income. The

29 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited Assessing Officer has declined to consider the interest paid on the borrowed funds, which were utilized for making investment in Mutual Fund, for the reason that there is no provision for allowing interest expenses for computing, income under Chapter VII of the Act. The CIT(A) has upheld the order the Assessing Officer. Further, the CIT(A) has added interest earned on fixed deposit without granting any deduction for interest paid on borrowed funds utilized for making investment in fixed deposits.

30.

It is submitted that interest paid on borrowed funds is required to be taken into account while computing the income of the assessee arising out of investments which were made by using borrowed funds. In this respect, our attention is invited to the order of the Tribunal, Mumbai Bench, in the case of DCIT v. Shri Fritz D, Silva in ITA no. 236/Mum/2010 dated 08.05.2015. In this case, the interest cost incurred for acquisition of shares was considered as cost of shares by the assessee while computing income under the head 'Capital Gains'. The Assessing Officer held that such interest paid by the assessee cannot be considered as expenditure while computing income under the head 'Capital Gain'. Accordingly, the Assessing Officer re-computed capital gain at Rs. 1,98,58,1017- as against capital gain computed by the assessee at Rs. 62,469/-. The CIT(A), by relying on the judgment of the Delhi High Court in the case of Mithilesh Kumar (92 ITR 9), accepted the contention of the assessee. Therefore, the Assessing Officer filed appeal before the Tribunal. After considering rival contentions and judgment of the Madras High Court in the case of Trishul Investments Ltd. (305 ITR 434), the

30 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited Tribunal affirmed the order passed by the CIT(A). The relevant observations of the Tribunal are extracted below:

"3. We have considered the rival stands. The controversy before us is as to whether the interest paid by the assessee on loans taken for acquiring the shares in the past can be allowed as a deduction u/s 48 as cost of acquisition while computing capital gain on sale of such shares. On this aspect, the Ld. Representative for the respondent assessee relied upon the Judgment of Hon'ble Madras High Court in the case of Trishul Investments Ltd. 305 ITR 434(Madras) which is directly on the point. In the case before the Hon'ble Madras High Court, the assessee was carrying on the business of investment in shares/securities and the profit derived from sale of shares was held subject to capital gains. Apart from other issues, the Revenue had contested the order of the Tribunal wherein the assessee was allowed the interest liability incurred on borrowings utilized to acquire the shares, while determining the cost of acquisition of shares for the purpose of computing capital gain. As per the Hon'ble High Court, the Tribunal was correct in holding that the interest paid for acquisition of shares would partake of the character of cost of shares and, therefore, the same was rightly capitalized along with the cost of acquisition of shares. The Hon'ble High Court affirmed the decision of this Tribunal that the interest payable on moneys borrowed for acquisition of shares should be added to the cost of acquisition of shares for the purpose of computing capital gains. The aforesaid legal position propounded by the Hon'ble Madras High Court fully covers the conclusion drawn by the CIT(A) in the present case. Notably, it is not disputed by the Revenue that the interest costs in question were incurred on the funds utilized for acquisition of shares in the past In fact as per the Statement of Facts filed before the CIT(A), the assessee had tabulated the amount of interest capitalized along with the cost of shares, which were purchased in the past. The assessee had also asserted before the CIT(A) without rebuttal, that the interest cost so incurred in the past was not claimed as a deduction against any other income. Be that as it may, in so far as the factual position is concerned, there is no denial by the Revenue that monies borrowed have been utilized for acquisition of shares in question. Therefore, having regard to the factual findings of the CIT(A), in our view, the legal position as propounded by the Hon'ble Madras High Court in the case of Tn'shul Investments Ltd (supra) supports the plea of the assessee that interest paid for acquisition of the shares would partake the character of cost of shares and, therefore, assessee had rightly capitalized the interest along with the cost of acquisition for the

31 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited purpose of computing capital gains. The conclusion of the CIT(A) thus deserves to be affirmed. "

31.

Further, the co-ordinate Tribunal Mumbai Bench, in the case of J. F. Laboratories Ltd. v ITO (96 ITD 448) has been relied upon, in this case, the assessee utilized borrowed funds for investing in term deposits for earning interest. The assessee claimed that the interest earned on term deposits was deductible from project cost. However, the Assessing Officer held that gross interest receipts ought to be brought to tax as 'income from other sources'. The CIT(A) upheld the assessment order. On further appeal, it was pleaded before the Tribunal that gross interest could not be brought to tax without considering the question of deductibility of expenditure incurred by the assessee including interest on borrowed funds from the gross interest. The Tribunal accepted the said plea and since no material was available to show the extent of deductible expenditure, the Assessing Officer was directed to verify such expenditure and consider the claim in accordance with law after giving adequate opportunity to the assessee. Thereafter, the Assessing Officer, by referring to the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals and Fetilizers Ltd. (supra), rejected the claim of the assessee without verifying or recording any finding as to whether funds originally borrowed for business were actually diverted for making investment in term deposit with a view to earn interest income. The CIT(A) upheld the order of the Assessing Officer, Hence, the assessee filed appeal before the Tribunal. The assessee brought to the notice of the Tribunal that the own funds and borrowed funds were mixed and available with the assessee and the pro-rata expenses details were furnished to the Assessing Officer. Further, it was submitted

32 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited that the Revenue had not raised any doubt about deployment of borrowed funds in term deposits for earning interest. The assessee also argued that actual use of the borrowed fund was important for the purposes of the Act and not the motive at the time when the funds were borrowed. The DR contended that borrowed funds intended to be used only for business purposes and the same needed to be capitalized in view of decision of the Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra). Referring to several other decisions and provisions of section 57, the DR argued that it is difficult to entertain assessee's claim of deduction of interest u/s.57(iii) of the Act. After taking into account rival submissions, the Tribunal held that the directions were issued to the Assessing Officer after taking into account that the principle of apportionment of expenditure allowable u/s. 57(iii) was inherent. However, the Assessing Officer proceeded with assumption that the assessee's claim was not allowable at all u/s.57(iii) of the Act. The Tribunal rejected the contentions of the DR in respect of alienability of deduction and apportionment and directed the Assessing Officer to work out quantum of interest expenditure which is allowable u/s. 57(iii) of the Act. The relevant observations of the Tribunal are extracted below:

"8. The Id. DR has laid great emphasis on the phraseology of section 57(iii) and has relied upon the Bombay High Court decision in the case of Globe Theatres Pvt Ltd. (supra) and the Delhi High Court decision in the case of Siddho Mal & Sons (supra). In these cases, the Hon'ble Courts were called upon to adjudicate the deducibility of certain expenses under section 10(2)(xv) of the Indian Income-tax Act, 1922, which corresponds to section 37(1) of the Income-tax Act, 1961. In these cases, it was observed that while deciding as to whether a particular amount is laid out or expended wholly or exclusively for the

33 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited purposes of business, it must be considered as to whether the expense has been incurred with the sole object of furthering the trade or business interest of the assessee, unalloyed or unmixed with any other private or non-business consideration. If the expenditure is partly attributable for non-business purposes, the same cannot be allowed as a legitimate business expenses. In our view, the ratio of these cases prescribes that before allowing any expenditure or part thereof under section 37(1), it must be ensured that the expenditure has been incurred wholly and exclusively for business purposes and that any part thereof is not referable to non-business or personal purposes. Difficulty arises where a consolidated account is maintained for the expenditure, part of which is deductible under section 37(1) [or for that matter under section 57(iii)J. In such cases, would it be reasonable to disallow the entire expenditure on the ground that a fraction of the expenditure does not pertain to business purposes. In our view, such a strict interpretation would defeat the very purpose of section 37(1) or section 57(111). In such a situation, in our view, the expenditure has to be apportioned and it is well known that the principle of apportionment is normally applied by the Income-tax Department in such cases. For example, if expenses like telephone expenses, motor car expenses, travelling expenses etc. are found to contain personal element also, the disallowance is made on estimate basis to cover such personal element. In other words, the expenditure is apportioned between legitimate business expenditure and personal expenses. It is true that the ITAT, Indore Bench, in the case of Mandideep Engineering & Packaging Industries P. Ltd. (supra) has taken a different view and they have held that the expenditure cannot be apportioned for the purposes of section 57(iii). However, we find that the cases which have been cited before us on behalf of the assessee appellant were not considered by the Indore Bench. The principle of apportionment has been accepted by the Supreme Court in the case of Continental Construction Ltd. (supra) and by the Gujarat High Court in the case of H.K. Investment Co. Pvt Ltd, (supra). The Id. OR has relied on the Supreme Court in the case of Smt. Padmavathi Jaikrishna (supra). In this case, the assessee derived income from other sources In the shape of interest dividend etc. Out of the interest of Rs. 26,986 paid by the assessee on monies borrowed, the ITO disallowed a sum of Rs. 10,239 on proportionate basis on the ground that to that extent the loan was used to discharge the assessee's liability for payment of income- tax, wealth-tax and annuity deposits. In these circumstances, it was held by the Supreme Court that the Department was justified in disallowing the interest on the loan, which was not incurred for the purpose of making investment yielding interest and dividend income. Similarly, in the case of Ms. Ila R. Ambani, the ITAT,

34 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited Mumbai Bench observed that the interest paid on loan used for acquiring jewellery cannot be said to have been incurred for making or earning income chargeable to tax under section 56. In our view, the assessee's claim for apportionment is clearly supported from the various judicial pronouncements and we feel that the view expressed by the ITA T, Indore Bench, with due respect, cannot be accepted having regard to the Supreme Court and Gujarat High Court decisions relied upon by the Id. counsel for the assessee. Further, as already mentioned above, the principle of apportionment was already accepted by the Tribunal when the matter was restored back to the Assessing Officer and in our view, the Assessing Officer was duty bound to verify the details filed before him to find out what portion of the expenditure is referable to the loan on which interest income is earned, which is chargeable to tax under section 56. These details have been reproduced by the Id. C1T(A) at pages 2 to 4 of his order and for proper understanding of the factual position, it would be worthwhile to reproduce below the statement of average/ad-hoc allocations of cost of borrowing and administrative expenses for the relevant assessment years as under:.....

……

……. From the above details, it appears that, since consolidated details of expenses have been maintained, apportionment has been done by the assessee on pro-rata basis. It is seen that the assessee- company has also taken into account the various administrative expenses. On estimate basis, the assessee-company has apportioned these administrative expenses as pertaining to earning of interest income. In our view, all administrative expenses have been primarily incurred for the purpose of the assessee's business and the assessee-company is not required to incur such administrative expenses for earning interest income, which flows from the term deposits made with the banks. Therefore, in our view, the administrative expenses or part thereof cannot be allowed under section 57(iii). Only interest expenditure is required to be apportioned to the investment which are yielding interest income to the assessee. The Assessing Officer is, therefore, directed to work out the quantum of interest expenditure, which is allowable under section 57(iii) on pro-rata basis as per the details already made available by the assessee and reproduced by the Id. CIT(A) in his order, in respect of all the three assessment years. Opportunity shall be allowed to the assessee."

35 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited 32. It is undisputed that the assessee has incurred interest cost on the borrowed funds that have been utilized in making investment in Mutual Fund and bank deposits. The details thereof have also been placed on record at pages 184 and 192 of the PB. Therefore, in view of the orders relied above, the assessee is eligible for deduction of interest cost from the corresponding income arising out of investments made out of borrowed funds. Hence, we direct the Assessing Officer to grant such deduction while arriving at taxable income arising from such investment. However, this is without prejudice to the main finding that the income itself is not taxable and should go to reduce the cost of the project.

33.

In this view of the matter and considering the ratio of case laws discussed hereinabove, we are of the considered view that short term capital gain derived from sale of units of mutual funds and interest earned from fixed deposits kept in banks out of idle funds of project is rightly credited to capital working progress account, during the implementation period of the project. Hence, we direct the Ld.AO to delete additions made towards short term capital gain derived from sale of units of mutual funds. We, further direct the ld. AO to delete enhancement made by the ld. CIT(A) towards interest income earned from fixed deposits with banks invested out of idle funds of project.

34.

The next issue that came up for our consideration from ground NO.5 of assessee appeal is dismissal of additional ground taken by the assesee claiming passenger service fees –security component of Rs.51,03,65,280/- not to be in the nature of income and the same

36 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited ought to have been excluded from the total income of the assesee. The assessee has filed an additional ground before the Ld.CIT(A) claiming exclusion of passenger service fee- security component of Rs.51,03,65,280/- from the total income. The Ld.CIT(A) has admitted additional ground filed by the assessee, but rejected the contention of the assessee, on the ground that said income being passenger service fee-security component is income of the assessee assessable under the head income from other sources.

35.

The ld. AR for the assessee, at the time of hearing submitted that this issue is covered in favour of the assesee by the decision of ITAT, Mumbai ‘B’ bench in assessee’s own case for AY 2008-09 in ITA No.2760/Mum/2012, vide order dated 06/09/2016, where under identical set of facts, the Tribunal held that passenger service fee- security component is not in the nature of income liable to be taxed in the hands of the assessee. He, further submitted that although, the Tribunal has held that said amount could not be characterized under the definition of income u/s 2(24) r.w.s. 5 of the I.T.Act, 1961, but, further went on to observe that in case any violation in utilizing the amount as per norms, then the Ld. AO would be at liberty to treat such misappropriation as income of the assessee. He, further submitted that this observation has been expunged by the Tribunal, when the assessee has filed miscellaneous application against the order of the Tribunal in M.A.No.239/Mum/2017, where it was categorically held that when, the assessee is having no control over the funds and also, said funds needs to be utilized for the purpose of security of the airport, as per the standard operating procedures, the question of taxation of said income as income of the assesse is incorrect and accordingly, expunged, the observation given in para

37 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited 14.44 of the Tribunal order. The Ld. AR, further submitted that since, the order passed in M.A filed for AY 2008-09 has been passed subsequent to the order of the Ld.CIT(A) and that very observations, which formed the basis of dismissal of additional ground by the Ld.CIT(A) have now been expunged by the Tribunal. Therefore, the Ld. AO may be directed to exclude Passenger Service Fees-Security component from the income of the assessee.

36.

The Ld. DR on the other hand strongly supporting order of the Ld.CIT(A) submitted that although, the issue is decided in favour of the assessee for earlier assessment year 2008-09, but, there is a specific observations in the order of the Tribunal to the effect that in case any violations in utilization of funds, then the Ld. AO is at liberty to treat such misappropriation as income of the assesse. The Ld.CIT(A) based on said observations of the Tribunal has brought out various misappropriations, in respect of utilization of funds as per audit report of CAG. Therefore, it is incorrect on the part of the assesee to say that the issue has been fully covered in favour of the assesses by the decision of ITAT for AY 2008-09

37.

We have heard both the parties, perused the material available on record and gone through orders of the authorities below. It is an admitted fact that the Tribunal had considered an identical issue for AY 2008-09 in ITA No.2760/Mum/2012 and after considering relevant facts, including agreement between the assesee and the AAI and also instructions, dated 19/01/2019 issued by MOCA held that PSF-SC collected by the assessee could not be characterized as income u/s 2(24) r.w.s 5 of the I.T.Act, 1961, on the ground that the assessee has collected PSF exclusively for the purpose of

38 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited security of the airport and also the assessee does not have any control over utilization of funds except for the stated purpose, as per agreement between the parties. We, further noted that although, the Tribunal, further observed that in case, there was any violation in utilization of the funds, as per the agreed terms, then the Ld. AO would be at liberty to treat such misappropriation as income of the assessee. But, said observations has been expunged in MA.239/Mum/2017 by the Tribunal. Form the above, it is very clear that the issue is fully covered in favour of the assessee by the decision of Tribunal for AY 2008-09 and as per which PSF-SC could not be characterized as income within the definition of income as defined u/s 2(24) and consequently, needs to be excluded from total income of the assesee. The relevant findings of the Tribunal are as under;-

14.6. We have gone through the orders passed by lower authorities, submissions made and documentary evidences produced before us by both the sides as well as judgments relied upon by both sides. In our considered opinion, we have been called upon to decide the following three issues to decide this ground: (1)Whether, the amount of PSF-SC collected by the assessee will be taxable in the hands of the assessee merely because the same has been offered to tax by the assessee during the course of assessment proceedings irrespective of correct position of its taxability in accordance with law? (2)Whether, office memorandum / clarifications issued by the CBDT or MOCA observing that the aforesaid amount is taxable in the hands of the assessee have been issued after considering provisions of Income-tax Act and whether the opinion expressed therein is binding upon the appellate authorities including the Income-tax Appellate Tribunal? (3)Whether, the impugned amount of PSF-SC collected by the assessee company on behalf of MOCA as per the relevant regulations for the purposes of meeting security expenses can be characterised as income in the hands of the assessee company and made liable to tax in its hands as per provisions of Income Tax Act, 1961? 14.7. Having heard both the parties, we have pondered over all the three issues and few other allied issues which were germane to the issues before us and necessary for deciding these grounds, and all these issues are decided hereunder one by one.

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14.8. With regard to the first issue, the brief facts and background brought before us are that in pursuance to process of privatisation of airports in India, the assessee company had entered into an agreement in the nature of OMDA with Airport Authority of India to operate, maintain, develop, design, construct, upgrade, modernise, finance and manage the Chhatrapati Shivaji International Airport at Mumbai (hereinafter called ‘airport’, in short). As per Rule 88 of the Aircraft Rules, 1937, the assessee was entitled to collect a fee termed as ‘Passenger Services Fee (PSF) from all the passengers embarking at the airport. The said fee was initially collected by the concerned airline and then handed over to the assessee company for the sake of administrative convenience. As per terms, the PSF was chargeable @ Rs.200 per passenger, out of which Rs.70/- (i.e. 35% of PSF) was for use of assessee company for passenger facilitation services and the balance amount of Rs.130/- (i.e. 65% of PSF) was to be utilised for payment to security agency designated by the central government for providing security services at airport and the said component was called as Passenger Service Fee- Security Component (in short referred to as PSF-SC). The said portion i.e. Rs.130/- (65% of PSF) was deposited in an ‘Escrow Account’ pending utilisation. 14.9. During the year under consideration, the assessee included passenger facilitation component of PSF (i.e. Rs.70/- being 35% of PSF) as income of the assessee company. But the balance amount of Rs.130/- (i.e. 65%) portion was kept in separate ‘Escrow Account’ for which separate books of account were maintained in accordance with the Standard Operating Procedure (SOP) formulated by MOCA and, therefore, the same was not included in the income of the assessee company. The assessee company did not include revenue pertaining to PSFSC as well as the corresponding expenses in the financial statements of the assessee company. During the course of assessment proceedings, the AO confronted to the assessee, an Office Memorandum issued by CBDT to MOCA and clarification from MOCA wherein it was stated that PSF – SC was also taxable in the hands of assessee and tax was to be recovered from the said funds. Under these circumstances, the assessee finally stated that the said amount may be included in its taxable income. The AO accordingly made addition in the income of the assessee. Being aggrieved, the assessee filed appeal before the Ld. CIT(A) wherein addition was confirmed. Still aggrieved, the assessee filed appeal before the Tribunal. During the course of hearing before us, the preliminary objection of the Ld. CIT-DR was that the assessee once having taken a stand during the course of assessment proceedings that the aforesaid amount was taxable, cannot now turn back and cannot claim it to be not taxable. On the other hand, the assessee’s Counsel maintains that the said amount was not included as part of its income in the return filed originally and only during the course of assessment proceedings, because of the pressure made by the assessing officer by showing letters of CBDT and MOCA, the said amount was offered for tax. But the assessment should be done strictly in accordance with law and mere acquiescence of the assessee expressed during the course of assessment proceedings would not alter the true position of law and would not make the aforesaid amount as liable to be taxed in the hands

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of the assessee, if the same is actually not liable to be taxed as per the provisions of the Income-tax Act. 14.10. We have analysed this issue. It is well settled position of law that an amount can be brought to tax in the hands of an assessee only in accordance with the provisions of Income tax Act. This fundamental position has been well explained and well settled in many judgments. It is well settled that there is no estoppels against law. No tax can be collected except with the authority of law as per clear mandate of Article 265 of Constitution of India. If the taxes are to be collected depending upon consent/concurrence of the taxpayers or otherwise, then it will lead to chaotic situation and administration of tax would become impossible. Therefore, if an amount is taxable under the law, assessee is bound to pay tax thereon and if an amount is not taxable under the Incometax law, then the tax cannot be recovered from the assessee without authority of law merely because assessee offered the same to tax during the course of assessment proceedings. Law in this regard is well settled now, and to begin with, reference is made on the landmark judgment of Hon’ble Delhi High Court in the case of CIT vs Bharat General Reinsurance Co Ltd 81 ITR 303 (Del.) Relevant portion from it is reproduced below: “It was true that the assessee itself had included that dividend income in its return for the year in question, but there was no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quite apart from it, it was incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it could not confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. Therefore the income from dividend was not assessable during the assessment year 1958-59, but it was assessable in the assessment year 1953-54. It could not, therefore, be taxed in the assessment year 1958-59.” 14.11. Our view is further fortified in view of judgment of Hon’ble Gujrat High Court in the case of CIT vs Keiser-EHind Mills Co. Ltd 128 ITR 486 (Guj.) in which their lordships have relied upon circular of the Board wherein a duty has been cast upon the Revenue officials to guide the assessee for making claims as permissible under the law. Relevant portion is reproduced below: “In view of the circular No. 14(XI-35) of 1955 dated 11-4- 1955, it was clear that for the purpose of the circular, what should be the guiding factor was whether the proceedings or other particulars before the Income-tax officer at the stage of original assessment disclosed any grounds for relief under section 2(5) (a) (iii ) of the Finance Act of 1964 or of the Finance Act of 1965, even though no claim was made for that relief by the assessee at the stage of those proceedings before him.

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Even if there is a deviation on a point of law, so far as the circular of the Board is concerned, that circular will be binding on all officers concerned with the execution of the Act and they must carry out their duties in the light of the circular. In view of this clear position regarding the effect of the circular, it was obvious that in the instant case it was incumbent on the Income-tax officer to advise the assessee to claim relief under section 2(5)(a )(iii) if the proceeding or any other particulars before him at the stage of the original assessment indicated that the assessee was entitled to such relief under the provisions of the relevant Finance Act, 1965, so far as the order under reference was concerned......” 14.12. Further reference is placed upon another judgment in the case of S.R. Koshti 276 ITR 165 (Guj) in which relief was granted to assessee with following observations: “The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is overassessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected.” [Para 20] 14.13. In the case of CIT vs Lucknow Public Educational Society 318 ITR 223, it was observed by Hon’ble Allahabad High Court that the income tax department should not take undue advantage of the ignorance of the assessee in view of Board’s Circular No. 14(XL-35)/1955, dated 11-4- 1955. 14.14. In the case of Nirmala L Mehta vs CIT 269 ITR 1, Hon’ble Bombay High Court, relying upon Article 265 of Constitution of India held that acquiescence cannot take away from the taxpayer, the relief he is entitled where tax is levied or collected without authority of law and, therefore, merely because the taxpayer offered a receipt to tax, that cannot take away its right in contending that the said amount was not chargeable to tax. 14.15. In the case of Balmukund Acharya vs DCIT 310 ITR 310 (Bom), Hon’ble Bombay High Court observed that the Apex Court and various High Courts have ruled that authorities under the Income-tax law are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate tax dues are collected. If any item of receipt is not taxable under the Act, then tax cannot be levied applying the doctrine of estoppel. The Hon’ble High Court considered the aforesaid judgements while expressing its opinion. 14.16. In the case of Mayank Poddar (HUF) vs WTO 262 ITR 633 (Cal), it was observed by the Hon’ble High Court that there is no estoppel against statute. Thus, if an assessee under misunderstanding, admission or miss-appreciation offered an amount to tax, then the same would not be taxable merely because of wrong understanding of law by the assessee or because of his admission or miss-appreciation of law and facts. It was also observed that there can also not be any waiver of legal right by the assessee.

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14.17. Thus, in view of the aforesaid legal discussion and facts of this case as discussed above, it is held that the amount in question cannot be taxed in the hands of the assessee merely because the same was offered to tax during the course of assessment proceedings under certain circumstances. Under these circumstances, we need to examine and determine whether the impugned amount of PSFSC collected by the assessee company is actually taxable in the hands of the assessee as per the provisions of Income-tax Act, 1961. 14.18. The aforesaid discussion takes us to the second issue wherein we have been called upon to decide about the binding legal force of the opinion expressed by CBDT and MOCA vide their office memorandum/ instructions for determining taxability of the impugned amount. It is admitted fact on record that the assessee company collected PSF-SC in view of the order issued by MOCA vide its order dated 09th May, 2006. The terms of the order have been modified / amended from time to time as per the requirements. One such order issued by MOCA was issued on 20th June, 2007. Subsequently, CBDT issued an Office Memorandum dated 30/06/2008 in pursuance to the request made by the concerned officials of MOCA regarding taxability of PSF–SC, wherein it has been observed that since the assessee company was collecting this amount in the course of business and assessee was rendering facilitation and securities services whether in-house or outsourced, therefore, the amount collected by the assessee in the form of PSF-SC was in the nature of income of the assessee and liable to be taxed in its hands. In support of its view, reliance has been placed by the Board on the judgement of Hon’ble Supreme Court in the case of Chowringhee Sales Bureau vs CIT 87 ITR 547 (SC) with a view to fortify its opinion. Subsequently, Ministry of Civil Aviation’s office issued an order dated 19-01-2009 laying down accounting audit procedure in respect of PSF–SC. It was intended to act as Standard Operating Procedure (SOP) for accounting / audit of PSF–SC by the airport operator. In the aforesaid document, the whole procedure was duly explained how the amount has to be collected and to be kept in escrow account and to be disbursed for the purpose of security. Relying upon the Office Memorandum issued by the CBDT dated 30-06-2008, it was mentioned therein that the tax component may be charged to the PSF–SC account in proportion to its liability on standalone basis. The assessee was of the opinion that the aforesaid amount was not taxable in the hands of the assessee company, and therefore, while filing the return the same was not included in the taxable income by the assessee. But during the course of assessment proceedings, the AO was of the opinion that the said amount was taxable in the hands of the assessee in view of Office Memorandum of CBDT dated 30- 06-2008 and instructions dated 19-01-2009 issued by MOCA. With a view to clarify the situation, representation was made before the CBDT as well as MOCA. In response, MOCA issued a letter dated 15-11-2010 wherein it was stated that the matter was examined with the Ministry of Finance and accordingly it is clarified that the whole amount of PSF – SC including security component was revenue receipt, and thus it was taxable under the Income-tax Act. 14.19. The assessee challenged before us, the validity and binding force of the aforesaid Office Memorandum issued by the CBDT and clarification received by MOCA. It has been noted by us firstly that in none of these documents, there seems to have been made any application of mind by the concerned authorities while expressing their opinion. None of the authorities have considered the aspect that the impugned amount was collected in the fiduciary capacity by the

43 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

assessee. None of the authorities have stated that under what provisions of law, the aforesaid amount can be brought to tax in the hands of the assessee. The CBDT in its Office Memorandum has made a reference to the judgment of the Hon’ble Supreme Court in the case of Chowringhee Sales Bureau (supra). But facts of that case have not been discussed. The aforesaid judgment has different facts, wherein, the amount of sales-tax was received by the said assessee and deposited in its bank account. The funds got mixed in assessee’s accounts. Thus, in case of non payment by the said assessee, the same became income of the seller (the said assessee), whereas the facts are totally different in the case before us. The amount here was collected purely in fiduciary capacity and the same was deposited in escrow account on which assessee had no control at all; the assessee had no discretion at all upon its usage. No reasoning has been made out by the CBDT while issuing its opinion as to how the said judgment was applicable on the facts of this case. It is noted by us that aforesaid judgment came up for consideration before many courts wherein its true meaning and scope of its applicability was explained time to time. In one such matter having similar facts as to the assessee before us, Hon’ble Allahabad High Court explained correct application of aforesaid judgment in the case of CIT vs. Sita Ram Sri Kishan Das 141 ITR 685 (All). In this case, the facts were that said assessee was a commission agent and was accountable for the recovery (called as Market Fee) which he made from the sellers of agricultural produce in terms of Krishi Utpadan Mandi Rules framed under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964. The Revenue treated the amount so collected by the agent as part of its taxable income being a trading receipt in view of judgment of Hon’ble Supreme Court in the case of Chowringhee Sales Bureau vs CIT 87 ITR 547 (SC), supra. After analysing the facts of the case, it was held by the Hon’ble Court that the market fee realised by the commission agent does not form part of his trading receipt as he (the commission agent) held this amount only as a trustee for and on behalf of the Market Committee. Hon’ble Court applied the judgment of Hon’ble Supreme Court in the case of CIT vs. Sitaldas Tirathdas 41 ITR 367 (SC) and distinguished that of Chowringhee Sales Bureau P. Ltd. vs. CIT, supra. 14.20. Thus, at the outset, it is clearly visible that both the authorities expressed their opinions without proper application of mind and without examining the nature of impugned receipt within the framework of provisions of Income-tax Act, 1961. 14.21. Apart from that, the binding effect of Office Memorandum issued by CBDT, clarification issued by MOCA is also under question. It has been argued that it has been held by Hon’ble Supreme Court many times that circulars issued by the Board are binding upon the authorities working under it, viz. the AO, etc. but these are not binding upon the appellate authorities including Income Tax Appellate Tribunal. We have examined this aspect also carefully. It is noted that as per section 119 of the Act, the CBDT has been empowered by the legislature to issue orders, instructions or directions to all the Income-tax authorities working under it for proper administration of the I.T. Act. And it has also been provided that this shall be binding upon the Income-tax authorities. But it is further noted that a proviso has been added to sub section (1) of section 119 which says that no such orders, instructions or directions shall be issued:- (a) so as to require any income-tax authority to make a particular assessment or to dispose a particular case in a particular manner; or (b) so as to interfere with the discretion of the Commissioner (Appeals) in exercise of his appellate functions . It is clear from the perusal of aforesaid proviso that neither the Board has power

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to decide the taxability of a particular receipt nor has it got any power to interfere with the appellate functions of Commissioner (Appeals), which is judicial in nature. Thus, in view of the aforesaid legal scenario coupled with facts of this case as discussed above, we have strong doubts if at all the Board could have issued any instructions to decide the taxability of amount collected by the assessee company on account of PSF –SC in a purely fiduciary capacity. This task of determination of taxability has been left by the legislature upon the shoulders of the designated AO, who is obliged under the law to determine the same strictly in accordance with the provisions of the Income-tax Act, 1961. 14.22. Further, aforesaid clarification issued by the Board in this case is actually an “Office Memorandum”. It is an interdepartmental communication. In our view, Office Memorandum would not carry the legal force of binding effect. Further, it has been provided in section 119 that orders, instructions and directions shall be binding upon the incometax authorities. It is noted that Income-tax Appellate Tribunal does not fall under the list of Income-tax Authorities as has been provided in section 116 of the Act. Thus, these orders, instructions and directions shall not be binding upon the Income-tax Appellate Tribunal. Further it is noted that these have been held to be not binding upon the CIT(A) as stated above. Therefore, there is no question of there being any binding effect upon the Income-tax Appellate Tribunal of any such communication issued by the Board. 14.23. It is noted by us that this issue is not res integra, as it has been settled by Hon’ble jurisdictional High Court and Hon’ble Supreme Court in many cases. It was held by Hon’ble Bombay High Court in the case of Banque Nationale De Paris vs CIT (supra) that circulars cannot override or detract from the provisions of the Act in as much as section 119 of the Act has empowered the CBDT to issue orders, instructions or directions for the proper administration of the Act. Hon’ble High Court has taken into consideration various earlier judgments of Hon’ble Supreme Court on this issue. Similarly, the Hon’ble Supreme Court in the case of CIT vs Hero Cycles Pvt Ltd (supra) held that circulars can bind the Income-tax Officer but will not bind the appellate authority or the Tribunal or the Court or even the assessee. It is further noted that law in this regard was further analysed by Hon’ble Supreme Court in the case of UCO Bank (supra). It was observed by the Hon’ble Supreme Court that CBDT has power to tone down the rigour of the law and ensure enforcement of its provisions of issuing circulars. The Board has been given for the purpose of just, proper and efficient management of work of assessment. However, these are not meant for contradicting or nullifying any provision of the statute. Relying upon its earlier judgment comprising of three judges in the case of Keshavji Ravji & Co vs CIT 183 ITR 1 (SC), it was inter-alia observed that Board cannot pre-empt judicial interpretation and the scope and ambit of a provision of the Act. Also, a circular cannot impose on the taxpayer a burden higher than what the Act itself on a true interpretation, envisages. The task of interpretation of the law is exclusively the domain of the Courts. However, the Board has the statutory power u/s 119 to tone down the rigour of the law for the benefit of the assessee by issuing circulars to ensure proper administration of the fiscal statute and such circulars would be binding on the authorities enshrined in the Act. 14.24. Thus, taking guidance from the aforesaid legal discussion as has been clarified by the Hon’ble jurisdictional High Court as well as by Hon’ble Supreme Court, it is clear that the Office Memorandum issued by CBDT to MOCA cannot hold an amount as taxable, if the same is otherwise not taxable as per the provisions of the Income-tax Act, 1961. Further, as far as the clarification issued

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by MOCA is concerned, it is noted that the role of MOCA was confined to issuing Standard Operating Procedures and other guidelines to the airport operators to ensure that funds collected by the assessee company in the fiduciary capacity on behalf of MOCA are properly kept and disbursed for the designated purposes only. It has no jurisdiction to determine the taxability of the impugned amount. It clearly had no jurisdiction in holding the same as taxable and, therefore, to that extent its order / clarification has no authority in the eyes of law and the same has been rightly ignored by the assessee as well as by the appellate courts while determining the taxability of the impugned amount. 14.25. Thus, the aforesaid discussion take us to the third issue wherein we have been called upon to decide whether the impugned amount of PSF-SC collected by the assessee company on behalf of MOCA as per the relevant regulations for the purposes of meeting security expenses can be characterised as income in the hands of the assessee company and made liable to tax in its hands. 14.26. The brief facts related to the issue have already been narrated by us in earlier part of our order and just to recapitulate the relevant part of it, the licensee of an airport in terms of provisions of Rule 88 of Aircraft Rule, 1937, is responsible for collecting a fee from embarking passengers referred to as Passenger Service Fee (PSF) @ Rs.200/- per ticket. Portion of PSF being 35% was on account of providing passenger facilitation and was to be retained by the airport operator for providing passenger related services and the balance 65% of PSF represents security component to be utilised for payment of security agency, i.e. CISF, who is designated by the Ministry of Home Affairs for providing security services. The assessee had included aforesaid 35% portion in its income but did not include PSF-Security Component in its income while filing the return of income. The dispute before us is with regard to this PSF – SC. Further facts brought out before us are that the assessee had collected during the year, total amount of Rs.180.27 crores on account of PSF – SC from the passengers embarking at Chhatrapati Shivaji International Airport, Mumbai. After meting out security deployment cost and various other related (allied) expenses, the net surplus worked out at Rs.133,13,47,580 and after adjustment of depreciation as per Companies’ Act and Income-tax Act, it was computed at Rs.132,58,59,023. During the course of assessment proceedings, the AO concluded that the aforesaid amount is part of taxable income of the assessee. The Ld. CIT(A) had confirmed the action of the AO. The assessee has contended before us that the aforesaid amount is not liable to be included in the income of the assessee. Detailed arguments made by the Ld. Counsel of the assessee have already been narrated by us in earlier part of our order and these are not being discussed here again for the sake of brevity. 14.27. We have gone through the assessment order as well as the order of Ld. CIT(A). Perusal of the orders of AO as well as Ld. CIT(A) reveals that none of the authorities have made independent application of mind to independently determine whether the impugned amount could have been characterised as income in the hands of the assessee. Relevant part of order of Ld. CIT(A) is reproduced hereunder, for the sake of ready reference:- “I have considered the submissions and arguments of the appellant. It is undisputed that the Ministry of Civil Aviation had already issued its guidelines and instructions to the assessee on 19.01.2009, thereby clarifying the taxability aspect of PSF(SC) in the hands of the assessee notwithstanding the assessee's resistance and belief that such receipts are fiduciary in nature and not taxable. Further, the Ministry of civil

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Aviation reaffirmed its decision once again vide Instruction dated 15.11.2010. Therefore, the appellant had erroneously resisted from offering the receipts on account of PSF(SC) to tax purely on the basis of its own belief that PSF(SC) receipts are fiduciary in nature, thereby ignoring the mandatory instructions issued by the Ministry of Civil Aviation from time to time under which, the assessee functions as an Airport Operator-the receipts being fiduciary in nature, and the mandatory instructions issued by the Ministry of Civil Aviation from time to time under which, the assessee functions as an Airport Operator make it taxable. When confronted by the second reconfirmation by the Ministry of Civil Aviation on 15.11.2010, the appellant had no other option, but to offer the receipts to tax for A.Y. 2008-09. Thus, as stated by the appellant on merits and in law that although the receipts of PSF (SC) in the hands of the appellant do not partake the character of income and by the 'Doctrine of Overriding Title' as they are to be utilized for security purposes-the issue being highly debatable and a legal difference of opinion being there the same has been offered for taxation. Hence I confirm this addition by the A.O. and thus, this ground of appeal is dismissed.” 14.28. It is noted by us that both of the authorities got influenced and swayed away with the opinion expressed by the CBDT/MOCA and admission made by the assessee under certain circumstances emerged during the course of assessment proceedings. Thus, both the authorities abstained from effectively and independently adjudicating the taxability of this amount as per of law in the hands of the assessee. Since related material and all the facts are before us, we shall determine characterization and taxability of the impugned amount in the hands of assessee-company purely as per law applicable on the facts of this case. 14.29. It is noted by us that Rule 88 of Aircraft Rule, 1937 provides as under: “88. Passenger Service Fee—The licensee is entitled to collect fees to be called as Passenger Service Fee from the embarking passengers at such rate as the Central Government may specify and is also liable to pay for security component to any security agency designated by the Central Government for providing the security service. Provided that in respect of a major airport such rate shall be as determined under clause (c) of sub-section (1) of section 13 of the Airports Economic Regulatory Authority of India Act, 2008” 14.30. In pursuance to the aforesaid rule, an order dated 09th May, 2006 was issued by concerned official of MOCA which reads as under:- “ ORDER Subject: Collection of Passenger Service Fee (PSF) at. Greenfield / Private airports - regarding Consequent to allowing private companies, Joint Venture. Companies to own and operate airports in the Country, the manner and mode of collection of Passenger Service Fee (PSF) at airports have been engaging the attention of the Government for some time. The matter has been deliberated with Airports Authority of India and other airport operators and it has now been decided that: - i. CISF will be deployed as per the assessment of BCAS at airports operated by JVCs or private operators also. ii. Passenger Service Fee (PSF) at airports would he collected by the respective Airport Operator, which could be AM, JVC, or a private operator.

47 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

iii. The amount of PSF to be collected will he fixed by the Ministry of Civil Aviation. The amount will continue to be Rs.200/- per passenger till further orders. The airport operator would retain Rs.70/- towards passenger facilitation. An Escrow account would be opened whenever the airport operator is a JVC or private operator. This account will be operated by the airport operator (not by AM). Rs.130/- of the PSF collected per passenger by such airport operator would be deposited in the Escrow account by the Airport Operator for payments to be made to CISF. The Escrow account would be subject to Government Audit of CAG. iv. In case any amount remains, this will be transferred to AAI by the airport operator through a process of mutual consultation for payment to CISF deployed for security purposes at other airports. In case of a dispute, the matter may be referred to the Ministry, of Civil Aviation whose decision will be treated as final and binding on both parties. 2. The new procedure will be effective from 01.042006. 3. This issues with the approval of the Minister of State for Civil Aviation (Independent charge).” 14.31. Subsequently another order was passed by MOCA dated 20th June, 2007 wherein it was inter alia clarified that security component of PSF was not regular revenue of the airport operator and the aforesaid amount will be utilised at the airport concerned only to meet security related expenses of that airport. Relevant part of the order is reproduced below:- “ORDER Sub: Collection of Passenger Service Fee (PSF) at Greenfield / Private airports – regarding. In this Ministry's Order of even no. dated 09.05.2006 on the subject noted above, the following modifications may be made- (a)Clause (iii) is modified as under- “The amount of PSF to be collected will be fixed by the Ministry of Civil Aviation. However, after Airports Economic Regulatory Authority (AERA) becomes functional, PSF will be fixed by AERA. The amount will continue to be Rs.200/-. per embarking passenger till further orders'. (b) Clause (vi) is modified as under Security Component of PSF, in short PSF (SC) is not a regular revenue income of an airport-operator. PSF (SC) collected at an airport-operator by a JVC or a privateoperator will be utilized at airport concerned only to meet the security related expenses of that airport. However, ‘AAI’ will be considered as a single licensee in respect of its airports for this purpose with liberty to pool the PSF(SC) collections from such airports and use the same for meeting the security related expenses at any of its airport'. This issues with the approval of the Minister of State for Civil Aviation (Independent charge).” 14.32. Thus, aforesaid rules and orders issued by MOCA clearly stipulates that security component of passenger service fee was meant exclusively to be utilised at the airport concerned, only to meet security related expenses of that airport. The security agency designated in this regard was CISF. It is further noted that the funds so collected were to be deposited in an Escrow account which was subject to the government audit of CAG. Further, in case of any amount was left in the said account, it was to be mandatorily transferred to Airport Authority of India by the airport operator. Thus, from the above said facts

48 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

and circumstances of the case and terms and conditions it is clear that the said amount was collected by the assessee on behalf of MOCA to be disbursed for security purposes to CISF deployed by the Ministry of Home Affairs. The amount was collected and retained purely in fiduciary capacity. The assessee had no discretion or freedom at all to utilise the aforesaid amount for any other purposes other than the designated purpose of meeting security expenses. So much so, even the surplus left if any, was not at the disposal of the assessee company but was to be mandatorily transferred to the account of Airport Authority of India as per the prescribed procedure. Under these circumstances, it is clear that assessee merely acted as a conduit or a trustee for collection and disposal of the impugned amount of PSF-SC. Under these circumstances, the aforesaid amount could not have been characterised as ‘income’ u/s 2(24), section 5 or any other provisions of the Income-tax Act, 1961. 14.33. It is noted that subsequently MOCA issued another order dated 19-01- 2009 containing Standard Operating Procedures for accounting / audit of Passenger Service Fee (Security Component) by the airport operators. The aforesaid order contained whole procedure in detail for collection and disbursement of the said amount. Relevant portion of the same is reproduced hereunder, for the sake of better clarity on facts related to conditions attached with regard to collection and disbursement of the aforesaid amount: “2. Nature of Security component of PSF: 2.1 Aviation security is an activity reserved for the Government of India. Force deployment at the airports, security requirements including the requirement of capital items and specifications thereof are laid down by the Government/Bureau of Civil Aviation Security (BCAS). As stated above, PSF is levied under Rule 88 of the Aircraft Rules, 1937 and covers security component as well as facilitation. While the fee is collected by the license of the airports, i.e., the airport operator, through the airlines, the security component thereof, which constitutes 65% of the total amount, can be used only in terms of directions issued by the Government/ BCAS, from time to time. The amount collected by the airport operator, which is kept separately in an escrow account, is thus held in fiduciary capacity. 2.2. Since the amount is held by the airport operator in fiduciary capacity for the Government, the accounts thereof would have to be maintained separately in accordance with the procedure laid down by the Government and have to be offered for audit by the Comptroller & Auditory General of India (CAG). 3. Escrow Account Operating Procedure: 3.1 For PSF (SC) a separate Escrow Account shall be opened by JVC/Private operator, with a Schedule Nationalized Bank. 3.2 An Escrow Account agreement will be entered with the Escrow Banker by the JVC/Private Operator. 3.3 The format of Escrow Agreement will include details such as, definitions for establishment of Escrow Account and declaration of Trust, the Escrow Account provisions, term and Termination, Representations and Warranties of Escrow Bank and JVC/Private operator and Miscellaneous provisions. 3.4 Parties to the Escrow Agreement would consist of JVC/Private operator and Escrow Bank. However, the Escrow Account Agreement will have a clause by which the MOCA will have supervening power to direct the Escrow Bank on the issues regarding operation as well as withdrawals from Escrow Account. 3.5 Escrow Account shall be maintained, controlled and operated by Escrow Bank under the Escrow Agreement as under:

49 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

i) PSF (SC) Account: JVC/Private Operator shall deposit immediately all PSF (SC) collections into the PSF (SC) Account. ii) Withdrawal from PSF (SC) Account: The Escrow Bank shall allow withdrawal by JVC/Private Operators of amounts deposited into the PSF (SC) account only towards the following purposes, in the order of priority by descending under: a. To pay amounts towards taxes, including Income Tax on PSF(SC) income as per provisions of Income Tax Act, 1961, Service Tax or any other statutory does. b. To pay for security related expenses to Central Industrial Security Force (CISF). c. To pay other security related expenses in terms of MOCA order dated 20.6.2007 or any other decision of MOCA/BCAS or any other Government agency, from time to time. iii) Deployment of Surplus: Any surplus standing at the credit of the Escrow Account should be deployed by the Escrow Bank in its own Deposit Account. On maturity or otherwise, the proceeds, shall be credited in Escrow Account. 14.34. The perusal of the above order containing SOP makes it clear that the amount collected by the airport operator is to be kept separately in ‘Escrow Account’ and the same is held by the airport operator in fiduciary capacity. It becomes further clear that the amount of any surplus left in the said account could not have been utilised for any purpose other than security related expenses. Under these circumstances, it was clearly not having any characteristics of income in the hands of the assessee company. The said SOP also contained certain guidelines with respect to taxability of the impugned amount. In our view, MOCA is not the designated authority to determine the taxability of the said amount as has also been discussed by us in detail in earlier part of our order and, therefore, to that extent, the observations or guidelines issued by MOCA exceed its jurisdiction and, therefore, these were not binding upon the assessee. The assessee was, of course, bound by remaining position of the guidelines as per concerned rules & regulations. 14.35. It has further been argued before us that the impugned amount would not be income in the hands of the assessee company in view of the Doctrine of ‘Diversion of Income by Overriding Title’. Few judgments have been relied upon before us in support of this argument, as mentioned above in the earlier part of our order. It has been vehemently argued by the Ld. Counsel of the assessee that the impugned amount could not have been brought to tax in view of diversion of income at the source. 14.36. Per contra, the stand of the Revenue has been that the amount has been disbursed on account of security arrangements, and therefore it amounts to ‘application’ of income and not ‘diversion’ of income. 14.37. We have carefully analysed legal intricacies and nuances involved here in this case. Law in this regard was clarified and Hon’ble Supreme Court way back in its landmark judgment in the case of CIT vs Sitaldas Tirathdas 41 ITR 367 (SC) which is still followed in many other judgments by various courts all over the country. The relevant part of the judgment laying down an acid test to decide such issues is reproduced hereunder: “In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an

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amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it does so, not as part of his income, but for and on behalf of the person to whom it is payable.” 14.38. Subsequently, in many judgments, various courts have, from time to time, analysed the law in this regard and suggested various tests to find out whether in a give facts it was a case of ‘diversion’ or ‘application’ of income. We find that the Hon’ble Allahabad High Court in the case of U.P. Bhumi Sudhar Nigam vs CIT 280 ITR 197 (All) formulated a set of four tests to find out whether in a given situation, it would be a case of diversion of income by overriding title or not. The Hon’ble Court, after analysing various other judgments suggested following principles:- (i) If a third person becomes entitled to receive an amount under an obligation of an assessee even before he could claim to receive it as his income, there would be a diversion of income by overriding title but when after receipt of the income by the assessee, the same is passed on to a third person in discharge of the obligation of the assessee, it will be a case of application of income by the assessee and not of diversion of income by overriding title. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about the hypothetical income which does not materialise. (iii) The existence or absence of entries in his books of account cannot be decisive or conclusive in the matter. (iv) The concept of real income must be applied in appropriate cases but with circumspection and must not be called in aid to defeat the fundamental principle of law of income-tax as developed. 14.39. Turning back to the facts of the case before us, if we apply the aforesaid principles, we will find that the impugned amount cannot be treated as taxable income in the hands of the assessee. If we apply the first principle, we find that as soon as the amount was collected from the passengers @ Rs.200/- per ticket, a portion of it, i.e. Rs.130/- per ticket became payable to CISF and/or any other agency designated for the purposes of security at the airport. The same was liable to be deposited in a separate ‘Escrow Account’ and the assessee had no right, whatsoever, in the same account. The aforesaid amount was axed or sliced at its very source. The amount was permitted or directed to be collected from the passengers with this clear understanding and prior stipulation that 65% of the same is meant for security agencies. Thus, the assessee merely acted as a collection agent. Thus, applying the first principle, the impugned amount would fall in the category of diversion of income. 14.40. As far as the other three principles are concerned, the crux of these three principles is to find out whether the assessee had, in substance, earned any income. In other words, these three principles suggest application of the concept of ‘real income’, which suggests that unless the income has been earned by a person in real sense, the same cannot be held as taxable income. There has to

51 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

be first income and only then its taxability could be determined. It is noted by us that in the facts before us, no portion of the amount collected on behalf of AAI / MOCA is reported to have been retained by the assessee as its income in as much as nothing belonged to it. Thus, the impugned amount is clearly not taxable in the hands of the assessee. 14.41. It is further noted by us that in many cases, wherein under some requirement of law if the amounts were transferred to the designated fund, then in such cases the Courts have held it to be a case of diversion of income by overriding title. In a matter before Hon’ble Bombay High Court in the case of Somaiya Organo Chemicals Ltd vs CIT 216 ITR 291 (Bom), the facts were that a portion of the sales price was transferred to a separate fund for building up adequate storage facilities under a statutory obligation, it was held to be diverted at source by overriding title could not form part of assessee’s income. 14.42. Ld. Counsel had also relied upon before us the judgment of Hon’ble Madras High Court in the case of CIT vs Salem Co-operative Sugar Mills Ltd (supra). The facts in this case were that the said assessee was a cooperative society, carrying on business of manufacturing and sale of sugar and in terms of Molasses Control (Amendment) Order dated 06-02-1972, transferred a sum in conformity with the statutory obligation cast by the above order and claimed it as deduction in the computation of its total income for the assessment year 1975- 76, which was disputed by the Revenue but allowed by the Tribunal. Hon’ble High Court affirmed Tribunal’s order and observed that even before collection of the amount as directed by the Central Government under the Molasses Control ('Amendment) Order, the assessee was directed to keep this amount under a separate account under the head “Molasses Storage Fund". Though, the assessee collected this amount under the statutory obligation, it did not belong to the assessee, but to the molasses storage fund. The assessee could not utilise the amount lying in the said fund for any other purpose. The amount was to be utilised for the purpose of constructing a storage tank in accordance with the specifications given by the Central Government. If the assessee had failed to collect such amount as directed by the Molasses Control (Amendment) Order, the Central Government would construct a molasses storage tank and recoup the construction charges from the assessee. It was held that there was diversion of title at the source of the income collected under the directions given under the Molasses Control (Amendment) Order. The sum in question was held to be not includible in the assessee’s total income. 14.43. Similar view was ultimately upheld by the Hon’ble Supreme Court in the case of CIT vs New Morrisson Sugar Mills Ltd 269 ITR 397 (SC) and CIT vs Ambur Cooperative Sugar Mills Ltd 269 ITR 398 (SC) wherein it was held that the amount set apart towards molasses reserve fund constituted diversion of income by overriding title, and therefore, it was held to be excludible from assessee’s total income. Similarly, in the case of CIT vs Bijli Cotton Mills Pvt Ltd 116 ITR 60 (SC), the Hon’ble Supreme Court held that when right from the inception, amount of ‘Dharmada’ was collected and held by the assessee company under an obligation to spend for charitable purposes only, then those amounts were not its trading receipts and was not taxable as business income. 14.44. Before parting with, we have also analysed the facts about utilization of the impugned amount. The Escrow Account maintained by the assessee is simply a pool created by the MOCA through assessee for meeting security expenses. Under these circumstances, if at all any income can be computed, that would be possible only if any surplus arises, which is not possible to happen

52 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited since entire amount collected by Assessee Company is deposited in Escrow Account which is earmarked wholly and exclusively for meeting security expenses. There is no flexibility for using the funds elsewhere. If at all any amount is left unspent from this account, then, the same is to be transferred to the account of Airport Authority of India for meeting security expenses. We had directed the assessee as well as the Ld. CIT-DR to examine requisite facts and inform us whether there was surplus or deficit in the escrow account finally. The information provided by the Assessing Officer, through Ld. CIT-DR, vide his letter dated 06-09-2016 reveals that upto the assessment year 2013-14 though there was surplus in the said account, but from A.Y. 2014-15 onwards, there was huge deficit, meaning thereby, the expenditure was more than the amount of collection. As per the terms of SOP issued by MOCA, if ultimately there was some deficit, then it was required to be funded by Government of India, and if there was ever any surplus (i.e. unspent amount), it was to be transferred to the account of Airport Authority of India (AAI). Thus, viewed from this angle also, there was no question of there being any income in this exercise, much less, any income, which could be characterised as taxable income in the hands of the assessee company. Thus, we have no hesitation in holding that the aforesaid amount is not taxable as income in the hands of the assessee company. The AO is directed to recompute the income of the assessee accordingly. The AO has also the liberty to examine that no portion of amount collected by the assessee on account of PSF-SC is utilised by the assessee for its own purposes or for any purposes which are not permitted by MOCA/other competent authorities. In case any violation is done by the assessee in this regard, then the AO will be at his liberty to treat the amount so misappropriated as income of the assessee but to that extent only. Further, if any refund is received by the assessee on account of TDS deducted on this component, i.e. on PSF-SC, then the same shall also be deposited by the assessee in the Escrow Account, as was fairly agreed by the Ld. Counsel during the course of hearing before us, failing which it would be treated as income of the assessee, to that extent only. We direct accordingly. This ground is allowed subject to directions given above.

38.

In this view of the matter and consistent with view taken by the co-ordinate bench, we are of the considered view that PSF-SC collected by the assessee towards security of airport and to be utilized as per terms of agreement between the parties could not be regarded as income of the assessee and hence, needs to be excluded from total income. Therefore, we direct the Ld. AO to exclude PSF-SC of Rs.51,03,65,280/- from total income of the assesee.

53 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

39.

In the result, appeal filed by the assessee is allowed for statistical purposes.

ITA No.2385/Mum/2018:-

40.

The revenue has raised the following grounds of appeal:

1) "On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred n deleting the disallowance of 25% depreciation on upfront fees of Rs. 150 crore without considering the fact that the assesses has not acquired any absolute rights on the Airport, so as to equate it with a license, but invested the AAI has granted the assessee the right to perform certain functions during the contract period of 30 years and hence the assesses is entitled for deduction only the proportionate amount i.e. l/30lh of Rs. 150 crore." 2(a)"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to treat the expenditure incurred towards various expenditure such as realignment of nallah's in forecourt of proposed integrated Terminal, reallocation of CPWD staff and other operational expenditure as revenue expenditure without appreciating that these expenses result in. enduring benefit to the assessee and hence is capital expenditure," 2(b) “On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to treat the expenditure incurred towards various expenditure such as realignment of nallah’s in forecourt of proposed integrated Terminal, reallocation of CPWD staff and other operational expenditure as revenue expenditure ignoring the ratio of the decision of the Hon'ble Supreme Court in the case of CIT Vs. Mangayarkarasi Mills (315ITR1H) wherein it was held that replacement expenditure is neither current repairs nor revenue in nature which is squarely applicable to the assessee's case." 3(a) "On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in deleting the disallowance paid as retrenchment compensation to AAI for the relevant assessment year 2013-14." 3(b) "On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in holding that retrenchment compensation is allowable as a deduction u/s 37(1) of the Income –tax Act, 1961.” 3(c) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that section 35DDA is not applicable without appreciating that such retrenchment compensation paid by the

54 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

assessee company is in connection with the voluntary retirement of employees." 3(d) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in relying on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Sinnar Bidi Udyog Ltd [2002 123 Taxman 59 (Bom)] and CIT vs, Maragarine & Refined Oils Co, Ltd. [2006 282 ITR 576 (Kar)] without appreciating that the said decision were rendered for the A.Y. 1989-90 and A.Y.1981-82 respectively i.e. prior to insertion of section 35DDA which is applicable for A.Y. 2002-03 onwards as the same was inserted by the Finance Act, 2001 w,e,f, 01.04.2002 and therefore the ratio of the decisions cited supra are not applicable to the assessment year under consideration." 4(a) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that Development Fee collected by the assessee from the embarking passengers at the Chhatrapati Shivaji International Airport, Mumbai during the Financial Year 2012-13, relevant for the assessment year 2013-14, is a capital receipt and not a revenue receipt." 4(b) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that Development Fee collected by the assessee company is a capital receipt based on its application for acquisition of capital assets without appreciating the fact that application of receipts does not determine the nature and taxability of the receipts," 4(c) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in relying on the decision of the Hon'ble Supreme Court in the case of Consumer Online Foundation vs.r Union of India & Others without appreciating that in that case the issue before the Hon’ble Apex Court was whether the assesse company as a lessee of AAI, can collect development fee from the embarking passengers at the Chhatrapati Shiavaji International Airport, Mumbai and the Apex Court did not give a finding regading the nature of receipt in the hands of lessess of the Airports, including the assessee company.”

4(d) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that once an amount is held to be in the nature of tax, it cannot be subjected to further tax without appreciating that such amount constitutes construction receipt in the assessee's hands and hence liable to be taxed." 5(a) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance u/s. 14 A, without appreciating the fact that the AO. has properly recorded his satisfaction for invoking the provisions of Rule 8D and therefore since Rule 8D is invoked, the disallowance has to be worked out as per the formula prescribed therein and there is no scope for any deviation therefrom.

55 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited 5(b)"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance u/s, 14A observing that since there is no exempt income, no disallowance can be made u/s. 14A without appreciating that as held in this decision of Special Bench of 1TAT, Delhi in the case of Chemiinvest 121 ITD 318 (Delhi) (513), provisions of section 14A are applicable even through no exempt income has been earned during the year," 6. "On the facts and in the circumstances of the case and in law, whether the Ld..CIT(A) Is correct in law to delete the disallowance on account of delayed deposit of employee's contribution to ES1C into Govt, treasury in light of the CBDT circular No. 22/2015, dated 1712.2015," 7. "On the facts and in the circumstances of the case and In law, the learned C1T(A) erred in upholding the assessee's claim that capital expenditure incurred by the assessee on taxiways, aprons, parking bays and bridges is entitled to depreciation @ 25% treating die same as Plant & Machinery ignoring that the taxiways, aprons, parking bays as akin to Roads and Buildings and therefore, entitled to depreciation @ 10%. 8. The appellant prays that the order of the CJT(A) on the above grounds be set aside and that of the AO be restored. 41. The first issue that came up for our consideration from ground NO.1 of revenue appeal is disallowances of depreciation @25% on upfront fees of Rs.150 crores paid by the assesee. The assesse had paid Rs.153.85 crores to AAI, as per the terms of OMBA. The Ld. AO noted that this issue has been examined at length in AY 2007-08 and depreciation claimed thereon was disallowed. According to the Ld. AO, the assesee is entitled to claim depreciation @1/30th of entire expenditure and accordingly, allowed depreciation of Rs.5 crores as against depreciation claimed by the assesee @25% on upfront fees paid to AAI.

42.

The Ld. AR for the assesee submitted that this issue is squarely covered in favour the assessee by the orders of the ITAT, Mumbai ’’B’’ bench in assessee own case for AY 2008-09 ITA No.3232/Mum/2012, where under identical set of facts, the Tribunal held that the assesee is entitled for depreciation @25% as

56 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited applicable to intangible assets. The Ld. DR, on the other hand, fairly accepted that this issue is covered in favour of the assessee for AY 2008-09 onwards.

43.

We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that the co-ordinate bench of ITAT, Mumbai ‘B’ bench had considered an identical issue for AY 2007-08 onwards and after considering relevant facts held that amount paid on account of upfront fees is in the nature of an intangible asset eligible for depreciation @25% as applicable to intangible assets. The relevant findings of the Tribunal are as under;-

7.4. We have gone through the orders of the lower authorities as well as the order of the Tribunal for A.Y. 2007-08 and find that the Tribunal has already decided this issue in favour of the assessee vide its order dated 14-02-2014 with the following observations: “We have carefully considered the orders of authorities below and submissions made by Ld. Representatives of the parties. We have also considered the relevant Articles of "OMDA" and the cases relied upon by the parties before the authorities-below (supra) as well as the cases referred before us. 10.1 The assessee is a Joint Venture company. it has entered into an agreement with "AAI" and under the agreement i.e. "OMDA", the assessee has been granted exclusive right, and authority to undertake some of the functions of "AAI" being functions of operation, maintenance; development, design, construction, up gradation, modernization, finance and management of Airport for an initial term of 30 years, which is extendable for a further period of 30 years on the same terms and conditions as applicable for the initial period, as per Article 18.1 of 'OMDA". Under the terms and conditions of OMDA", the assessee paid a sum of Rs.150 crores to "AAI" as upfront fee m described under Article 11.1.1 of Chapter-XI of "OMDA" which is reproduced as under: "11.1.1 Upfront Fee The JVC shall pay to the “AAI” an upfront fee (the 'Upfront fee") of Rs150 crores (Rupees one hundred and fifty crores only) on or before the Effective date. It is mutually agreed that this Upfront fee is non-refundable (except on account of termination of this agreement in accordance with Article 3.3 hereof and payable only once during the term of this Agreement" Besides, above payment, the assessee is also to pay Annual Fees

57 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

as per Article 21.1.2.1 for each year during the terms of the agreement. By virtue of above one-time payment of upfront fee of Rs.150 crores, the assessee has been given exclusive right and authority to collect payment of various nature from the users of Airport premises as per Article 2.1.2(iii) of Chapter-II, subject to the Regulations prescribed under Chapter –XII. The question arises as to whether the assessee has got the lease right or license by making this one-time payment of Rs.150 crores to "AAI" as upfront fee. 10.2 That the AO has stated that the assessee has got lease hold rights for a period of 30 years and whereas the assessee has contended that the assessee has got a license for a period of 30 years and as such it is an Intangible assets" . Thus, the assessee is entitled for depreciation as per section 32(1)(ii) of the Act. We observe that the said amount of Rs.150 crores paid by assessee is non-refundable. The assessee has got the privilege under OMDA" to collect charges of the nature as mentioned in the agreement entered into i.e. "OMDA" from the users of Airport premises. We observe that it is not a case where the assessee has got the transfer of a right to enjoy the Airport premises. The assessee only got a license or right to do something at the Airport premises. The Hon'ble Apex Court has held in the case of B. M. Lal (supra) that the transaction is a lease, if it grants the interest in the land and whereas it is a license if it gives a personal privilege with no interest in the land. We are of the considered view that the assessee has got the economic /commercial right under the said agreement to collect charges from the users of the Airport premises which is similar to grant of a license to the assessee. This case is similar to the case of Technoshares and Stocks Ltd and others (supra), wherein the Hon'ble Apex Court has held that a right given to member of Stock-Exchange to carry on the business at the premises of the Stock-Exchange is a business or commercial right which is akin to license in terms of section 32(1)(ii) of the Act, therefore, eligible for depreciation. Their lordships have held that right to participate in the market is an economic and money value, itself satisfies the test of being a license. There is no dispute to the fact that the said payment of Rs.150 crores paid to "AAI" has not resulted to the assessee in the acquisition of any "tangible assets" like building, machinery, plants or furniture, Therefore the said payment of Rs.150 crores has not resulted into acquisition of tangible assets". Thus, the assessee has only acquired right to collect charges from the users of the Airport preemies, which is a business or commercial right in the form of license and therefore it is an Intangible assets" as per section 32(1)(ii) of the Act. The Hon'ble Delhi High Court In the case of Hindustan Coca Cola Beverages Pvt Ltd (supra) has also held that the assets which are included in the definition of "intangible assets" include, along with other things, any other business or commercial rights of similar nature. In this regard, it is relevant to state that the decision of Delhi High Court in the case of ONGC Videsh Ltd (supra) has held that the assessee who was

58 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited assigned the rights to participate in oil exploration in Russia through a consortium for a period of 25 years and paid the total consideration for obtaining 20% membership in the consortium, amounting to Rs. 155.9 crores, was treated to acquire a license, being intangible assets, and thus assessee was entitled to claim depreciation u/s 32(1)(ii) of the Act. The Pune bench of the Tribunal in the case of Ashoka Info (P) Ltd (supra) has also held that the expenditure incurred on construction of highway is eligible for depreciation @25%, as this expenditure has given rise to an 'intangible assets' in the hands of the assessee. In view of above decisions and the facts of the case, we hold that the Ld. CIT(A) has rightly held that the payment of upfront fee of Rs.150 crores paid by assessee to 'AAI" has created capital assets in the form of license to develop and modernize the Airport and collect charges as per terms and conditions as prescribed under the agreement entered into which is an "intangible assets" to the assessee. Thus assessee is entitled for depreciation. 10.3 Hence, the disallowance of Rs.22.50 crores made by AO has rightly been deleted by Ld. CIT(A) by directing the AO to allow depreciation at the rate of 25% on the said payment of upfront fee of Rs.150 crores. Thus, Ground No.1 taken by department is rejected.” 7.5. Thus, it is noted from the above that the Tribunal has held that the amount paid on account of upfront fee is in the nature of an “intangible asset” eligible for depreciation and accordingly allowed the claim of depreciation upon the same. The assessee has claimed depreciation in the impugned year on the WDV of the same asset. Therefore, we find that no different decision can be taken in the year under consideration, more so, when no distinction has been made on facts or law, therefore, respectfully following the order of the Tribunal, the claim of depreciation on the upfront fee is allowed. This ground is rejected.

44.

In this view of the matter and consistent with view taken by the co-ordinate bench, we are of the considered view that the Ld.CIT(A) was right in deleting additions made by the Ld. AO towards excess depreciation and hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue.

45.

The next issue that came up for our consideration from ground No.2(a) and 2(b) of revenue appeal is disallowances of various expenditure such as realignment of Nallah, reallocation of CPWD staff, etc., as revenue expenditure The Ld. AO had considered such expenditure as capital in nature. However, the Ld.CIT(A) allowed such expenditure by following the orders of his predecessors and

59 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited orders of the Tribunal in assessee’s own case for earlier assessment years.

46.

The Ld. AR for the assessee, at the time of hearing submitted that this issue is also covered in favour of the assessee by the decision of ITAT, ‘B’ bench for AY 2012-13 in ITA No.4382/Mum/2015, where it was held that expenditure incurred for realignment of Nallah and reallocation of CPWD staff etc., are revenue in nature.

47.

The Ld. DR, on the other hand, fairly accepted that the issue is covered in favour of the assessee by the order of the Tribunal for earlier years.

48.

We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that an identical issue had been considered by co-ordinate bench of ITAT, Mumbai, in assessee’s own case for AY 2012-13, where the Tribunal by following its earlier order for AY 2011-12, held that expenditure incurred for realignment of Nallah in forecourt of proposed integrated terminal, reallocation of CPWD staff and other operational expenditure are revenue expenditure. The relevant findings of the tribunal are as under:

Ground no.2 relates to the treatment of various expenses incurred towards realignment of nallah's in forecourt of proposed integrated Terminal, reallocation of CPWD staff and other operational expenditure as revenue expenditure. The learned DR contended that the assessee has incurred a sum of ` 13,83,37,443,/- towards civil works/operational expenses as revenue expenditure. Both the parties agreed that identical issue had arisen in the case of the assessee for A.Ys. 2009-10, 2010-11 and 2011-12 and whatever view is taken therein shall be applicable to this year also. We find that the Tribunal vide its order dated 13.11.2017,

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in the A.Ys 2009-10, 2010-11 and 2011-12 has decided the issue in favour of the assessee, by observing as under: 22. We have heard the rival submissions and carefully considered the same along with the orders of the authorities below. We have also gone through various judgments as has been to before us as well as the CIT(A). It is a settled law, in view of the decision of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT (82 ITR 363), that assessee’s entitlement to a particular deduction or not, will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can existence or absence of entries in the books of accounts be decisive or conclusive in the matter. We have also gone through the decision of Hon’ble Supreme court in the case of Empire Jute Co. Ltd. vs CIT (124 ITR 1) wherein the deductibility or otherwise of an expenditure incurred during the course of business activities was decided by observing as under: There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. …………………………………………………………………………………… ………..... The Test of enduring benefit is, therefore, no certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particulars facts and circumstances of a given case.” (Emphasis Supplied) The undisputed facts placed before us are that the assessee under the OMDA agreement with Airport Authority of India is operating, maintaining, managing developing the Mumbai Airport as per the international standard. Other obligations relate to overall management, development etc. As per the terms of OMDA, the assessee has to discharge various obligations in maintaining and operating the airport so as to bring it to the international standard. Thus, the assessee has to incur various expenses for such development and maintenance of the airport. During the year, the assessee has incurred the expenditure on various activities. The assessee has incurred the expenditure in maintaining existing assets which has either been repaired or renovated. Out of the expenditure of ` 20,35,73,477/- of sum of ` 16,07,30,868/- has been contributed by the assessee to MMRDA for the construction of Sahar Elevated access road from Western Express Highway to Chhatrapati Shivaji International Airport. The ownership of this road would remain with the MMRDA and would not be transferred to the assessee. The assessee’s interest, in our view, in this road was that the passengers would have a smooth access to Chhatrapati Shivaji International Airport and provide a look as per international standard. The rest of the expenditure relate to the maintenance and upkeep of the existing assets. The Assessing Officer treated the whole of the expenses to be capital expenditure as the assessee itself has treated the said expenditure in the books of account as capital expenditure. The

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allowability of expenses for the purpose of Income tax, as has been held by us in the previous paragraphs, following the decision of Hon’ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT (supra), will depend on the provision of income tax Act and not on the view which the assessee might take of his rights nor can existence or absence of entries in the books of accounts be decisive or conclusive in the matter. Since the ownership of the road vest with MMRDA, the assessee in our opinion does not get any direct benefit of enduring nature. No doubt the passengers travelling to the international airport were benefited by way of smooth access to the airport. The assessee made one time contribution for the construction of the said road. By this contribution no asset is created by the assessee but in commercial sense, in our opinion, the incurrence of such expenditure certainly facilitates the business of the assessee. This expenditure cannot be held to be capital expenditure merely because the business of the assessee is getting enduring benefit. In our view, the business exigencies demand the assessee to incur this expenditure by making the contribution to MMRDA. 23. We have gone through the judgment of the Hon’ble Allahabad High Court in the case of Additional CIT vs. Dhampur Sugar Mill P. Ltd. [2015] 370 ITR 194 (All). We noted that the assessee was engaged in the business of manufacture and sale of sugar, chemicals and power and had a distillery. The assessee made payment of Rs. 8.48 crores to the UPPCL, which was the only customer, for construction of a transmission line and other supporting work for supply of power. When the said expenditure was held as capital expenditure by the Assessing Officer, the Hon’ble High Court held as under: “that the power transmission lines which were laid by the assessee were, upon erection, to constitute the exclusive property of the UPPCL. The UPPCL was the Mumbai International Airport P Ltd. 14 only consumer of the electricity generated by the assessee. The assessee incurred the expenditure to facilitate its own business. The fixed capital of the assessee was untouched and there was no capital accretion for the assessee. The expenditure which was incurred by the assessee in the laying of transmission lines was clearly on revenue account. Upon the erection of transmission lines, they were to vest absolutely in the UPPCL. The expenditure which was incurred by the assessee was for facilitating the efficient conduct of its business since the assessee had to supply electricity to its sole consumer the UPPCL. This was not an advantage of a capital nature.” 24. Further, we noted that Hon’ble Bombay High Court in the case of National Organic Chemicals Ltd. vs. CIT [1993] 203 ITR 410 (Bom) took a view that the assessee incurred expenditure for the purpose of construction of jetty for handling, storage and transportation of materials manufactured or handled by the assessee. The assessee was granted license by the state government. Under the terms of license, the assessee was given the right to use the jetty without payment of any charges for a period of three years from its completion. However, the ownership would remain with the state government. It was held that such

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expenditure was incurred with a view to obtain commercial advantage and, therefore, it was revenue expenditure. 25. Further, we noted that Hon’ble Rajasthan High Court in the case of CIT vs. Raj Spinning & Weaving Mills Ltd. [2005] 272 ITR 487 (Raj), following the decision of Hon’ble Supreme Court in the case of Empire Jute Co. Ltd. [1980] 124 ITR 1 (SC) held as under: “In determining whether a particular expenditure is capital expenditure or revenue expenditure the test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. The mere fact that the amount spent has been used for construction of a building or structure of permanent nature is not the decisive test for holding the expenses to be capital outlay or revenue outlay. Where such construction does not result in acquisition of any capital assets to the trade of the assessee or the property does not become the property of the assessee, it does not result in acquisition of an asset enduring nature by the assessee. Secondly, it is also clearly discernible that if such expenses are incurred for the purpose of the business for deriving any benefit whether to preserve the business or to facilitate the running of the business more smoothly or to make the business more profitable or to secure any other advantage for the assessee’s business such expenses are to be treated as having been incurred wholly and exclusively for the business of the assessee and are revenue expenditure.” 26. We have also gone through the decision of Hon’ble Madras High Court in the case of CIT vs. Coats Viyella India Ltd. [2002] 253 ITR 667 (Mad). We noted that in this case, the Hon’ble High Court following the decision of Hon’ble Supreme Court in the case of L H Sugar Factory And Oil Mills (P.) Ltd. vs. CIT [1980] 125 ITR 293 (SC), held as under: “Held, that, in the present case, the bridge was built by the Government and the assessee did not acquire any ownership over the bridge by paying contribution towards construction of the bridge. The assessee received no addition to the value of any of the assets owned by it for the payment. The bridge merely facilitated the movement of the workmen to gain access to the assessee’s factory and for the movement of the goods over the bridge. The payment of contribution was made to the Government for construction of a new bridge in place of the old one which became unserviceable. The expenditure incurred was revenue expenditure in respect of the assessment year 1991-92.” 27. In view of the aforesaid discussion, we do not find any infirmity in the order of the CIT(A) treating the said expenditure to be a revenue expenditure. It is accordingly upheld. Ground nos. 3 & 4 for A.Y. 2009-10, ground nos. 2 & 3 for A.Y. 2010-11 and ground no.2 for A.Y. 2011-12 are dismissed. Respectfully following the said order of the Tribunal, we confirm the order of the CIT(A) and dismiss the ground taken by the Revenue.

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49.

In this view of the matter and consistent with view taken by the co-ordinate bench, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue.

50.

The next issue that came up for our consideration from ground NO. 3(a) and 3(b) of revenue appeal is disallowances of amount paid to AAI for retrenchment compensation u/s 37(1) of the I.T.Act, 1961. The Ld. AO has allowed Rs.4,22,56,320/- out of Rs.21,12,81,600/- claimed by the assessee, in accordance with provision of section 35DDA of the I.T.Act, 1961 and made additions of Rs16,90,25,280/- to the income of the assessee.

51.

The Ld. AR for the assessee submitted that this issue is covered in favour of the assessee by the decision of ITAT, Mumbai ‘B’ bench for AY 2012-13, where under identical set of facts, the Tribunal held that amount paid to AAI towards retrenchment compensation is allowable as deduction u/s 37(1) of the I.T.Act, 1961.

52.

The Ld. DR, on the other hand, fairly accepted that this issue is covered in favour of the assessee

53.

We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that co-ordinate bench of ITAT, Mumbai, considered an identical issue in assessee’s own case for AY 2012-13 and by following its earlier order for AY 2011-12 decided the issue in favour of the assessee. The relevant findings of the Tribunal are as under:-

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Ground no.4 relates to deletion of the disallowance of ` 17,22,24,000/- paid as retrenchment compensation to AAI. Both the parties agreed that identical issue had arisen in the case of the assessee for A.Ys. 2010-11 and 2011-12 and whatever view is taken therein shall be applicable to this year also. We find that the Tribunal vide its order dated 13.11.2017, in the A.Ys 2009-10, 2010-11 and 2011-12 has decided the issue in favour of the assessee, by observing as under: “33. We have heard the rival submissions and have carefully considered the same along with the orders of the authorities below. We noted from the facts on record for A Y 2010-11 that the assessee, under an agreement of OMDA with Airports Authority of India, is developing and maintaining Chhatrapati Shivaji International Airport. The assessee has to carry out operations, maintenance and development of the airport with certain terms conditions. As per clause 6.14 in Chapter 6 of the OMDA, the assessee is obliged to make an offer of employment to a minimum of 60% General Employees at any time during the Operation support period but not later than three months prior to the expiry of the operation support period, that it wants to employ, an option to accept or reject the offer by employees. This clause further provides that if less than 60% of the general employees accept the offer of employment made by the assessee, then assessee shall pay to the Airports Authority of India retrenchment compensation for such number of general employees as represented by the difference between 60% of the general employees accepting the offer of employment made by the assessee. Thus, this clause specifically deals with the treatment of the retrenchment compensation to be paid to the Airports Authority of India at the occurrence of the events maintained in the said clause. The operational support period of three years has expired during the impugned assessment years under consideration and, accordingly, Airports Authority of India issued invoice dated 08.03.2010 for its claim towards retrenchment compensation amounting to ` 260,86,03,400/- The assessee has accordingly capitalized an amount of ` 260,86,03,400/- under the head intangible assets in its books of account but for the purpose of income tax he has claim said expenditure in the computation of income but disallowed itself a sum of ` 106,62,84,312/- as no tax has been deducted at source during the impugned assessment year but claimed remaining sum of ` 154,23,19,088/- as revenue expenditure. The Assessing Officer was of the view that the assessee is eligible only for one fifth of ` 154,23,19,088/- as per the provisions of section 35DDA amounting to ` 30,84,63,818/- in the year under consideration and the remaining amount is to be allowed in equal installments over the period of four immediately succeeding assessment years. 34. We have gone through the provisions of section 35DDA. We noted that the said provision is applicable only if the assessee has incurred any expenditure in any previous year by way of payment of any sum to a employee in connection with voluntary retirement. In this case, we noted that the assessee has not incurred any expenditure by way of payment made to employees but the payment has been made by the assessee to Airports Authority of India in accordance with clause 6.14 of the OMDA

65 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited on account of retrenchment compensation to be paid by Airports Authority of India to its employees. It is not an amount which the assessee is paying to its employees on their retrenchment. Therefore, the provisions of section 35DDA will not apply. It is not denied that the expenditure incurred by the assessee is revenue expenditure. We noted that the CIT(A) while dealing with the issue, following the order of his predecessor in the assessee’s own case for A.Ys. 2010-11 and 2011-12 deleted the said disallowance.

54.

In this view of the matter and consistent with view taken by the co-ordinate bench, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue.

55.

The next issue that came up for our consideration from ground No.4(a) to 4(d) of revenue appeal is development fee collected by the assessee being treated as capital receipts by the Ld.CIT(A) instead of holding it has revenue receipts. The Ld. AO has made additions to the total income of the assesee, in respect of development fees collected from passengers. The said fees was deducted by the assessee from the block of plant and machinery and depreciation had been claimed on reduced amount of block of assets. However, the Ld. AO has treated development fees so collected as business income, since, it was collected and utilized for the purpose of business of the assesee.

56.

The Ld. AR for the assesee submitted that this issue is covered in favour of the assessee by the decision of ITAT, Mumbai, ‘B’ bench in assessee own case for AY 2012-13, where under identical set of facts, the tribunal held that development fee collected from the passengers is in the nature of capital receipt and not exigible for tax.

66 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited 57. The ld. DR, on the other hand, fairly accepted that this issue is covered in favour of the assessee by the orders of Tribunal for earlier years.

58.

We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that a similar issue had been considered by the co-ordinate bench in assessee’s own case for earlier assessment years and after considering relevant facts, it was held that development fees collected from passengers could not be regarded as income of the assesee within the meaning of section 2(24) of the I.T.Act, 1961. The relevant findings of the Tribunal are as under:-

Ground no.5 relates to the treatment of development amounting to ` 25,98,50,335/- as capital receipt. Both the parties agreed that identical issue had arisen in the case of the assessee for A.Ys. 2010-11 and 2011- 12 and whatever view is taken therein shall be applicable to this year also. We find that the Tribunal vide its consolidated order dated 13.11.2017, for A.Ys 2009- 10, 2010-11 and 2011-12 has decided the issue in favour of the assessee, by observing as under: “37. We have heard the rival submissions and have carefully considered the same along with the orders of the authorities below. The learned DR relied on the order of the Assessing Officer while the learned AR vehemently contended that the said development fees has been collected with the permission of the Ministry of Civil Aviation pursuant to the provisions of Rule 22A of the Airports Authority of India Act, 1994 and are in the nature of cess or tax to met the shortfall that arise in the development of aeronautical assets. The development fees so collected are utilized only for purpose of development of capital assets and the same is certified by the chartered accountant. Therefore, the said income is a capital receipt. We noted that the CIT(A) has elaborately discussed the provisions of the agreement entered between both the parties and has held as under: “9.5 I have considered the submissions of the appellant and the order of the AO. The appellant is engaged in operating, managing, developing, designing, constructing, upgrading, modernizing and financing the Chhatrapati Shivaji International (“CSI”) Airport of Mumbai under an agreement known as "OMDA"' with Airport Authority of India ("AAI"). The estimated cost for modernizing and development of CSI Airport of Mumbai was Rs.9,802/- crores. Against this estimated expenditure which

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includes the substantial expenditure on account of capital expenditure for modernizing and development of the Airport, the availability of finance from various means with the appellant was less by Rs.2,3507- crores. Thus, there was a short fall of Rs.2,350 crores. 9.6 In view of the shortfall of finance required for the development of the Airport which includes substantial capital expenditure, the appellant approached the Ministry of Civil Aviation; Government of India for levy of Development Fee for meeting out the said shortfall at such rates as may be approved by the Ministry. Pursuant to section 22A of the AAI Act, 1994, the Ministry has conveyed the approval of the Central Government u/s.22A of AAI Act authorizing the appellant to collect the Development Fee vide letter dated 27.02.2009, a copy of which has been filed by the appellant during the appellate proceedings. The appellant has been permitted by the Ministry of Civil Aviation. Government of India to charge fee of Rs.100 from departing domestic passengers and Rs.600 from departing international passengers. There are certain conditions attached with the collection of Development Fee. The fee so collected has to be spent mainly for development of 'Aeronautical Assets' only. The appellant cannot spend any amount from the collected Development Fee at will and has to maintain an account of the same which is subject to supervision and audit from the Central Government. The appellant has been permitted to collect amount only for 48 months and the same cannot be exceeded funding gap of Rs.1,543/- crores. The Ministry of Civil Aviation has vide F.No. AV.24011/001/2009-AD dated February 27, 2009 had in para (g) to (j) has stated as under: "(g) The amount collected through DF would under no circumstances exceed the ceiling of Rs.1543 cores and in case of any cost escalation beyond Rs.9802 crores, the amount representing the escalation would have to be brought in by MIAL, through other sources. The ceiling amount would be exclusive of taxes, if any. (h)Rate and tenure of levy are premised upon the traffic projections and other estimates. In case due to actual figures being different than those estimated, the 'collections during levy period exceed the amount of Rs, 1543 crores, or any other amount, which the Regulator/Government may determine, the excess amount so collected shall not be utilized, for any purpose whatsoever, without the prior approval of the Regulator/Central Government. (i)An independent Auditor appointed by AAI would audit the receipts/accruals of MIAL on periodic basis. Periodicity of the audit would be decided by AAI in consultation with MIAL. AAI would report the results of audit to Government/ Regulator for necessary directions. (j)MIAL would undertake real estate development programme on a time bound basis through competitive bidding at the earliest. In case, the amount actually received/receivables as a result of competitive bidding is more than the presently estimated amount of Rs.1,000/- crores, the funding gap of Rs. 1543 crores would be revised downwards at the time of review." The above clearly indicates that the government had worked out the collection of Rs. 1543 crores in the total gap of Rs.2,350 crores by factoring that MIAL can earn around Rs.1,000 crores through the real estate development program.

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9.7 As per clause (b) (ii) of the said letter, the AAI and Central Government would have supervision powers in respect of escrow account to ensure that all the receipts are properly accounted for and are utilized only for permitted purposes. Clause (c) of the said letter provides the entire Development Fee receipts would be utilized only for the purpose of development of "Aeronautical Assets", which are "Transfer Assets" as defined under the OMDA and therefore would go to reduce the actual cost of Aeronautical Assets to that extent. I also notice that Clauses (b) (iii) of the said letter dated 27.02.2009 specifically provides that DF would be subject to AAI's supervision from time to time. Further, Clause (g) of this letter stipulates that the amounts collected through Development Fee would under no circumstances exceed the ceiling of Rs. 1,543 crores and in case of cost escalation beyond Rs. 9,802 crores the escalation would have to be brought in by the appellant through other sources. Clause (h) of the said letter provides that in case of excess collection, the same cannot be utilized by the appellant for any purpose whatsoever without the prior approval of Regulator or the Government. Further, Clause (h) of the said letter also stipulates for downward revision of the amount of Development fee to be calculated in certain case. 9.8 Based on the above, it is evident that the levy of Development Fee is solely for the purpose of bridging the funding gap in connection with the development of Aeronautical Assets. For convenience, such Development Fee would be collected by various Airlines at the time they sell the tickets to the passengers and would be paid to appellant. Accordingly, the airlines are collecting the Development Fee levied u/s 22A of AAI Act from the passengers and paying the same to the appellant towards meeting the funding gap for development of Aeronautical Assets which are transfer assets as per OMDA. In support of the contention that the Development fee so collected has been utilized only for the developing the capital assets i.e. Aeronautical Assets, a copy of the certificate from a chartered accountant has been placed on record certifying the utilisation of Development fee for construction of Aeronautical Assets as per provisions prescribed u/s 22 A of the AAI Act. 9.9 The appellant has placed strong reliance on the judgment of Hon'ble Supreme Court in the case of Consumer Online Foundation Vs Union of India & others (2011 5 SCC 360) where Hon'ble Supreme Court bus categorically made the distinction between Section 22 and Section 22A of AAI Act. In the said judgment, Hon'ble Supreme Court has also held that Development Fee is in the nature of Cess or Tax for generating revenue for the specific purposes mentioned in Clause (a), (b) and (c) of Section 22A of AAI Act. The Hon'ble Supreme Court in the said decision held that the nature of levy u/s.22A of 2004 Act is not charges or any other consideration for services for the facilities provided by the Airports Authority. The Supreme Court in this judgment also quoted from the decision in the case of Vijayalashmi Rice Mills & Ors. v. Commercial Tux Officers, Palakot & Ors. (Supra) that a cess is a tax which generates revenue which is utilized for a specific purpose. The levy under Section 22A of AAI Act though described as fees is really in the nature of a cess or a tax for generating revenue for the specific purposes mentioned in clauses (a), (b) and (c) of Section 22A of AAI Act. Further, the appellant also contended once the SC has held that the Development fee is in the

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nature of tax or cess, no further tax can be levied on the same treating the same as income of the appellant. I find the reliance of the appellant on the said Supreme Court decision is a good reliance and the same is squarely applicable to the facts of the appellant's case and therefore, Development Fee collected by the appellant is in the nature of cess or tax and a capital receipt and it cannot be subjected to further tax. 9.10 During the appellate proceedings before me, the appellant was asked to clarify as to how Development Fee and Toll Charges are not similar in nature. The appellant made a detailed submission in the matter, clearly bringing out the distinguishing factors between Development Fee and Toll Charges. After a careful perusal of the distinguishing factors between the two, I find that the Development Fee and Toll Charges are being levied and collected entirely on different footings and context. The origin of the Development Fee is from the provision of section 22A of the AAI, 1994 and the same is held to be cess or tax and to be used strictly for the purpose of subsection (a), (b) & (c) of section 22A of AAI Act. Thus, 1 notice that the collection of Development Fee has a legal backing and in the nature of cess or tax being collected with the approval of Ministry of Civil Aviation, Government of India/ Regulatory Authority as prescribed U/s.22A of the Act. This view has been confirmed by the Hon'ble Supreme Court in the case of Consumer Online Foundation vs. UOI & Ors (supra). So far as the collection of Toll Charges is concerned, the same is collected to recover the capital cost, operating and maintaining cost along with profit. The Toll Charges are determined as per the policy of the Government of India and are not in the nature of tax or cess. The Toll Charges are treated as revenue receipts in the hands of Developer. Letter dated 27.02.2009 received from the Ministry of Civil Aviation which is on record indicates that Development Fee is a capital receipt. 9.11 I further notice that Airport Regulator has clearly mentioned in its order that for the purpose of allowing return to Airport Operator, it will consider Asset Base (RAB) net off Development Fee amount and no depreciation will be allowed on such assets. I further find from the letter dated 18.12.2012 of Airport Authority of India addressed to the Director, Ministry of Civil Aviation which was placed on record, wherein it is mentioned that the treatment of Development Fee should be as per the guidelines given in AS-12 - Accounting for Government Grants issued by the Institute of "Chartered Accountants regarding grant against the assets. The another important and distinguishing factor is that the collection of Development Fee is required to be kept in a separate Escrow Account and subject to several restrictions whereas there is no such stipulation in the case of Toll Charges. The Toll Charges cover operating and maintenance cost of a particular facility and the quantum of the same is fixed as per the policy of the Government of India. 9.12 Looking to the distinguishing factors between the Development Fee and Toll Charges, I find that there is no similarity at all. The Toll Charges by itself is a revenue receipt embedded with the recovery of the cost of the assets, administrative expenses as well as the profits and the same is collected after the asset is created and put to use. The Development Fee is collected under the authority of a law meant for utilization of specific purposes and prior to creation of assets. The appellant's hands are

70 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

completely tied in utilizing the Development Fee whereas the same is not the case of Toll Charges. Thus, the distinguishing factors clearly place the Development Fee in the category of capital receipts and not revenue receipts. 9.13 Looking to the facts of the case in its entirety, I find that Development Fee collected by the appellant with the permission from the Ministry of Civil Aviation, Government of India under the provisions of 22A of AAI Act 2004 is a receipt in the nature of cess or tax and in the nature of capita! receipt. Further, the same has been already considered by the Hon'ble Supreme Court in the case of Consumer Online Foundation Vs Union of India & others, cited supra, wherein it has been held the Development Fee is a receipt in the nature of cess or tax for generating revenue for the specific 'purposes mentioned in clause (a),(b) & (c) of section 22A of the AAI Act. Further, it is pertinent to note once amount held to be in the nature of tax, it cannot be subject to further tax. It is also seen that various restrictions have also been imposed by the Central Government to ensure that the Development fee so collected is utilized only for the purpose of development of 'Aeronautical Assets' as per provisions of section 22A of the AAI Act. Further, a certificate from a Chartered Accountant has also been placed on record certifying the utilization of the Development fee so collected only for the purposes of acquiring /constructing the Aeronautical Assets. Accordingly, the collection of Development fee is therefore, meant only for specific purpose of acquisition / construction of capital assets and therefore, it is on capital account and not on revenue account. Thus, the nature of the receipt is capital and not revenue. Accordingly, I hold that the receipts of Rs.2,87,83,48,538/- on account of Development Fee being in the nature of tax or cess is a capital receipt and therefore the same cannot be brought to tax. Accordingly, the addition of Rs.286,30,14,565/- is deleted. The AO is also directed to reduce an amount of Rs.19,85,99,146/- from the block of building and Rs.700,70,264 from the block of plant & machinery and recomputed the depreciation after the said reduction as claimed by the appellant in the return of income. Accordingly, Ground Nos. 11 and 12 are allowed.” 38. We find that the CIT(A) has elaborately discussed the provisions of section 22A of Airports Authority of India Act 1994, under which the assessee has collected the development fees and also the terms and conditions attached to the said collection as well as its utilization. Not only this, the CIT(A) has also referred to the decision of Hon’ble Supreme Court in the case of Consumer Online Foundation vs. Union Of India & Others [2011] 5 SCC 350 (SC), where the apex court has categorically made the distinction between section 22 and section 22A of Airports Authority of India Act. In the said judgment, the Hon’ble Supreme Court has also held that development fees is in the nature of cess or tax for generating revenue for specific purposes as mentioned in section 22A(a) to section 22A(c) of the Airports Authority of India Act. In the said judgment it was held that the nature of levy u/s. 22A of 2004 Act is not charges or any other consideration for services for the facilities provided by the Airports Authority. The learned DR, even though relied on the order of the Assessing Officer, he did not deny the interpretation given by the Hon’ble Supreme Court in respect of section 22A of the Airports

71 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited Authority of India Act. It is not denied that the development fees so collected are utilized only for the purpose of aeronautical assets as per the provisions of section 22A of the Airports Authority of India Act. In view of this fact, we do not find any illegality or infirmity in the order of the CIT(A), which warrant our interference, while holding that the development fees so received by the assessee is a capital receipt. We accordingly, confirm the order of the CIT(A) and dismiss ground nos.10 & 11 in A.Y. 2010-11 and ground no.5 in A.Y. 2011-12. This disposes of all the grounds in the revenue’s appeal for A.Y. 2010-11.” We noted that the CIT(A) while dealing with the issue, following the order of his predecessor in the assessee’s own case for A.Ys. 2010-11 and 2011-12, decided the issue in favour of the assessee.

59.

In this view of the matter and consistent with view taken by the co-ordinate bench, we are inclined to uphold, the findings of the Ld.CIT(A) and reject ground taken by the revenue.

60.

The next issue that came up for our consideration from ground No. 5(a) and 5(b) of revenue appeal is deletion of disallowances u/s.14A of the Act, r.w.s Rule 8D of I.T.Rules, 1962. The facts with regard to the impugned disputes are that during the year under consideration, the assessee had not earned any exempt income. However, since the assesee had made investments in equity shares of fully own subsidiary, the ld. AO sought to invoke provision of section 14A r.w.Rule 8D of I.T.Rules, 1962 and accordingly, made disallowances of Rs.5,500 to the total income of the assessee as well as added the same, while computing book profit u/s 115JB of the I.T.Act,1961

61.

The Ld. AR for the assessee, at the time of hearing submitted that this issue is also covered in favour of the assessee by the decision of ITAT ‘B’ bench for AY 2012-13, where under identical set of facts, the Tribunal deleted additions made by the Ld. AO towards disallowances u/s 14A of the I.T.Act, 1961. The Ld. DR, on the other

72 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited hand, fairly accepted that this issue is covered in favour of the assesee.

62.

We have heard both the parties, perused the material available on record and gone through orders of the authorities below. Admittedly, the assessee had not earned any exempt income for the year under consideration. Once, there is no exempt income, then the question of disallowances of expenditure incurred in relation to said exempt income does not arise. We, further noted that the co- ordinate bench had considered an identical issue for AY 2012-13 and by following the decision of Hon’ble Bombay High Court decision, in the case of Pr.CIT vs .Ballarpur Industries Limited in ITA No.51/2016, dated 13/10/2016 has deleted additions made by the Ld. AO towards disallowances made u/s 14A r.w.Rule 8D of I.T.Rules, 1962. The facts are being pari materia with facts, which have been already considered by the Tribunal for earlier years. Therefore, by respectfully following the decision of co-ordinate bench, which in turn referred the decision of Hon’ble Bombay High Court in the case of CIT vs Ballarpur Industries Ltd. (supra). We are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue.

63.

The next issue that came up for our consideration from ground No.6 of revenue appeal is disallowances of employees contribution of ESIC u/s 36(1)(va) r.w.s. 43B of the I.T.Act, 1961. The Ld. AO had disallowed belated remittances of employees contribution to ESIC, on the basis of inputs given in tax audit report by relying on the provision of section 2(24) (x) r.w.s. 36(1)(va) fo the Act. The

73 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited Ld.CIT(A), by following the decision of Jurisdictional High Court of in the case of Hindustan Organics Ltd. 48 taxmann.com 42 and Ghatge Patil Transports Ltd. 368 ITR 749, deleted the additions made by the Ld. AO.

64.

The Ld. AR for the assessee submitted that this issue is also covered in favour of the assessee by the decision of Hon’ble Jurisdictional high Court, in the case of Ghatge Patil Transports Ltd.(supra), where it was held that if, payments have been made on or before due date of filing return of income, then the same cannot be disallowed u/s 36(1) (va) r.w.s. 43B of the I.T.Act, 1961.

65.

The Ld. DR, on the other hand fairly accepted that this issue is covered in favour of the assessee.

66.

We have head both the parties, perused the material available on record and gone through orders of the authorities below. It is an admitted fact that the assesee had remitted employees contribution to ESIC before filing the return of income. In fact, the payments have been made within due date as per respective statute and delay is only on the part of banks in realizing the cheques. Once, the payments have been made on or before due date of filing return of income, then they same cannot be disallowed u/s 36(1)(va) r.w.s.43B of the I.T.Act, 1961. This legal proposition is supported by the decision of Hon’ble Bombay High Court, in the case of Hindustan Organics Chemicals Ltd. (supra) and Ghatge Patil Trasnports Ltd. (supra). Therefore, by respectfully following the above two decisions, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue.

74 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

67.

The next issue that came up for our consideration from ground No.7 of revenue appeal is disallowances of excess depreciation on taxiways and aprons as plant and machinery as against depreciation by treating the same as building. The Ld. AO has noted that the assesee had claimed depreciation @15% on taxiways, aprons, parking bays and bridges, as a part of plant and machinery. The ld. AO, further noted that such higher claim of depreciation was made by way of revised statement of total income, but not by filing revised return of income and accordingly, rejected the claim of the assesee by following the decision of Hon’ble Supreme Court, in the case of Goetz India Ltd.(284) ITR 323

68.

The Ld. AR for the assessee, at the time of hearing submitted that this issue is also covered in favor of the assessee by the decision ITAT, Mumbai ‘B ‘bench in assessee’s own case for AY 2012-13, where under identical set of facts, the Tribunal has directed the Ld. AO to allow depreciation @15% on taxiways, aprons, bridges and parking bays as plant and machinery as claimed by the assessee.

69.

The Ld. DR, on the other hand, fairly accepted that the issue is covered in favour of the assesse by the decision of ITAT, for earlier years.

70.

We have head both the parties, perused the material available on record and gone through orders of the authorities below. We find that an identical issue had been considered by the co-ordinate bench of ITAT, Mumbai, in assessee’s own case for AY 2012-13,

75 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited

where the Tribunal by following its earlier order for AY 2007-08 held that the assessee is entitled for depreciation @15% on taxi ways, aprons, bridges and parking boys as plant and machinery. The relevant findings of the Tribunal are as under:-

Ground no.7 in revenue’s appeal relates to the rate of depreciation allowed on taxiways, aprons, parking bays and bridges @15% instead of 10%. We find that the CIT(A), while allowing depreciation @15% on taxiways, aprons, parking bays and bridges, has followed the decision of the Tribunal in assessee’s own case for A.Y. 2007-08 in ITA No. 7111/Mum/2011, wherein it has observed as under: 35. We have carefully considered the orders of authorities below and submissions of ld. Representatives of the parties. There is no dispute to the facts that runway, taxiway are necessary part of Airport operation and are specific part of infrastructure for use of aircrafts. These are not merely concrete structures. The Hon’ble Bombay High Court in the case of CIT V/s Mazagaon Dock Ltd (1991) 191 ITR 460(Bom) has held that dry dock and wet dock created for ships are to be treated as plant and not building. The Hon’ble Apex Court has held in the case of Karnataka Power Corpn. (supra) that power generating station building is not a simply concrete structure but a specially designed building and is to be treated as part of plant. Similarly, the Hon’ble Apex Court has held in the case of Dr. B. Venkata Rao (supra) that the operation theatre in an hospital building is not simply a concrete structure but 30 necessarily a part for running of the hospital and the assessee is entitled to claim depreciation as applicable to plant and machinery. If we apply the above, decisions to the facts of the case before us, we are of the considered view that taxiways and aprons, parking bays cannot be said to be merely concrete structures but are necessary tools for operating/using the Airport. Hence, the same are to be considered as part of plant and machinery. Therefore, we hold that assessee is entitled for depreciation at the rate as applicable on plant and machinery in respect of taxiways, aprons, parking bays etc. Hence, Ground No.2 of the appeal taken by assessee is allowed.” Following the said order of the Tribunal we have allowed the assessee depreciation @15% for A.Ys. 2009-10, 2010-11 and 2011-12 also. Facts and circumstances being similar and respectfully following the order of the Tribunal in the asessee’s own case, which has been relied upon by the Mumbai International Airport P Ltd. 29 CIT(A), we see no reason to interfere with the impugned order. We uphold the same and dismiss the ground raised by the Revenue.

76 ITA Nos.2018 & 2385/Mum/2018 Mumbai International Airport Private Limited 71. In this view of the matter and consistent with view taken by the co-ordinate bench, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue.

72.

In the result, appeal filed by the revenue is dismissed.

73.

As a result, appeal filed by the assessee is allowed for statistical purpose and appeal filed by the revenue is dismissed.

Order pronounced in the open court on this 10/01/2020

Sd/- Sd/- (RAVISH SOOD) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 10/01//2020 Thirumalesh Sr.PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. BY ORDER, 6. Guard file. स�यािपत �ित //True Copy// (Asstt. Registrar) ITAT, Mumbai

MUMBAI INTERNATIONAL AIRPORT P.LTD,MUMBAI vs. DCIT 10(2)(2), MUMBAI