THE COMMISSIONER OF INCOME TAX vs. INDIAN RENEWABLE ENERGY DEVELOPMENT LTD.

"Whether income in nature of interest on deposits, interest on staff loan, interest on Government securities, service charges for handling UNDP programme, miscellaneous income, profit on sale of fixed assets, difference in exchange rate, commitment fee and charges, application fee and MNES service charges is chargeable under the head; "business income" or under the head; "income from other sources?".


in Commissioner of Income-Tax, Madras-II v. S.S.Thiagarajan (Decd.), by LRs, (1981) 129 ITR 115. The order passed by the Commissioner of Income Tax (Appeals) is more detailed. She had examined various contentions of the assessee but rejected the same. She relied upon Tuticorin Alkali Chemicals & Fertilizers Limited vs. CIT, (1997) 227 ITR 172, Express Newspaper Pvt. Ltd. vs. CIT, 1997 227 ITR 325 and CIT Vs. M/s. Paramount Premises (P) Ltd. (1991) 190 ITR 259 (Bom). Some factual aspects have also been discussed and mentioned by her.

"We have considered the rival submissions. It is an undisputed fact that the assessee is a public financial institution as notified by the Government of India. The funds available with the Public Financial Institution are its commercial assets. The exploitation of the commercial assets of an assessee, which is a financial institution, would be its business. The income by the assessee from its lending, generated compliance investments as also in Memorandum and Articles of Association under which it has been created could be treated only as the business income of the assessee. Obviously, the assessee is not in the business of manufacture or such allied activities. The assessee is specifically using its funds available, which could be borrowed funds, or self generated funds, which are nothing but it is stock in trade for its business activities. The funds available with the assessee company are not used for acquiring


any machinery or some other stock in trade. The funds themselves have the characteristic of stock in trade, which could generate only business income. legislature in its wisdom has held that such notified assesses, who are doing specified business as notified, any income generated out of such notified activities are exempted under section 10(23G) of the Act. Thus what is to be appreciated is, it is out of the business income of the assessee that a particular portion of the said income, which has been generated out of the specified activity that the assessee is being granted the benefit of deduction under section 10(23G) of the Act. This being so, it cannot be held that the business income generated by the assessee out of its total activities in compliance with and in accordance with its creation and its Memorandum and Articles of Association would not be its business income just because it has not been granted the benefit of deduction under section 10(23G) of the Act. This being so, the various incomes which have been held by the Assessing Officer as the income from other sources are nothing but interest incomes so also service charges received, as also the commitment fee charged as also the application fee received are in the course of the business activities of the assessee and cannot be assessed under the head "income from Further even the Miscellaneous other sources". income received by the assessee the break up of which has been found at page 10 of the paper book is nothing but the income generated by the assessee out of its business activities and the same would also have to be assessed only under the head income from business. circumstances the finding of the the Commissioner of Income-tax (Appeals) as also the Assessing Officer on this issue stands reversed and the Assessing Officer is directed to treat the incomes as assessed by him under the head income from other sources as the business income of the assessee."

What is discernable from the aforesaid reasoning is that Tribunal has not discussed the factual matrix pertaining to each account resulting in income, what was the nature and source of income; the purpose and object in making the said investment and in


what manner the income had arisen. The three main heads for the assessment year 1998-99 were interest on deposits amounting to Rs.5,91,32,543/-, miscellaneous income of Rs.82,22,894/- and commitment fee and charges of Rs.2,58,71,825/-. There is no discussion or consideration as to the nature and character of the said incomes. Even the Memorandum and Articles of Association have not been examined and gone into. In these circumstances, we feel that the matter requires a remit and a fresh decision by the Tribunal. If required, the Tribunal will give liberty to the parties to file additional documents. The question of law is accordingly answered. The impugned order of the Tribunal is set aside for fresh decision.

Additional Issue

"Whether income of the respondent-assessee is exempted under Section 10(23G) of the Income Tax Act, 1961?"

"Ground No.1 is to the effect that on the facts and in the circumstances of the case, the Id. CIT(A) erred in allowing exemption u/s 10(23G) of the Act. It was the common case of both the parties that this issue stands covered by paragraph 8 of "B" Bench of Delhi Tribunal in ITA No.3742(Del)/2001 from assessment year 1998-99 (Supra), the necessary consequence of which is that


the assessee is entitled to exemption u/s 10(23G). This paragraph has already been reproduced by us in order on ITA No.2630(Del)/2005(Supra). Relying on this order, it is held that the assessee is entitled to deduction u/s 10(23G)."

- 8. Learned counsel for the parties agree that the aforesaid finding is cryptic and no reasons have been given. The matter requires a fresh decision by the Tribunal. On the second issue we therefore remit the matter for Tribunal for a fresh decision in accordance with law. - 9. The appeals are accordingly disposed of. No costs.

SANJIV KHANNA, J.

R.V.ĒAŠWAR, J

OCTOBER 21, 2011 mm