M/S HUBLI ELECTRICITY SUPPLY CO. vs. THE DEPUTY COMMISSIONER

The following substantial questions of law are raised in ITA Nos.100025-27/2017: i) Whether in law the Tribunal was right in refusing to adjudicate the appeal in ITA No.537/Bang/2013 for the assessment year 2006-07 on merits, on the ground that the revision order under Section 263 dated 24.03.2011 of the Revisional Authority had attained finality due to the reason that appeal in ITA No.1638/Bang/2013 against the said revision order was dismissed on limitation by the ITAT? ii) Whether the benefit of deduction under Section 80-IA(4)(iv)(c) could be denied to the items of income that were derived by the business undertaking which were

The following substantial questions of law are raised in ITA No.100028/2017. i) Whether the Tribunal was right in law in dismissing in limine the appellant’s plea of condonation of delay, without considering the principles enunciated by the Hon’ble Supreme Court?

The appellant, a wholly owned company of Government of Karnataka is engaged in the business of distribution of electricity. During the assessment year 2006-07, its income included the following items of income which were treated as “income from profits and gains of business”. 1) Interest on bank Fixed deposits Rs.4,53,925 2) Interest on loans to societies

The appellant’s case was selected for scrutiny, subsequently, an assessment order was passed under Section 143(3) of the Act by the assessing officer accepting the returned income declared by the appellant. Thereafter, the revisional authority invoking the provisions under Section 263 of the Act, set-aside the scrutiny assessment, without directing a fresh assessment. It is the contention of the assessee that the said revision order setting-aside the assessment order passed under Section 143(3) of the Act, without directing a fresh assessment as envisaged under sub-

Aggrieved by the same, an appeal was preferred by the assessee against the order of the assessment under Section 143(3) read with Section 263 of the Act before the Commissioner of Income Tax

The items which are not reduced from the profits of the assessee as per the profits and loss account for the purpose of computing deduction are as under: i) Department of exam fees ii) Sale of department books iii) Sale of forms iv) Sale of scrap/stock excess found v) Meter reading testing charges vi) BBC theft ca collected etc.

Being aggrieved by the same, the appellant is in appeal challenging the order of the revisional authority as well as the orders passed by the ITAT for the A.Y.2006-07, 2007-08 and 2008-09.

Sri.V.K. Gurunathan, learned counsel appearing for the appellant/assessee would contend that the subsequent assessment order as well as the

It was contended that the assessing officer had no quarrel on the proposition that the assessee is entitled to deduction in respect of profits and gains of industrial undertaking engaged in infrastructure development etc. in terms of Section 80-IA(4)(iv)(c) of the

Reference was also made to Section 4(2) of the Karnataka Electricity (Taxation on Consumption) Act, 1959 and Circular No.05/2004, dated 15.07.2005, inasmuch as extension of tax benefit under Section 80-IA of the Act, in case of substantial renovation and modernization of transmission and distribution lines in the power sector.

Learned counsel Sri.Y.V. Raviraj, appearing for the Revenue supporting the impugned orders submitted that in order to claim deduction under Section 80-IA(4)(iv)(c) of the Act, it is essential to establish that the income of the assessee includes any profits and gains derived from an industrial undertaking

It was submitted that the revisional authority exercising the power under Section 263 of the Act revised the order of the Assessing authority, which was erroneous so far as prejudicial to the interest of the revenue. Revisional authority while canceling the assessment though has not directed a fresh assessment, consequential order being passed and the same being challenged by the assessee, assessee is

Learned counsel made an attempt to distinguish the judgments relied upon by the learned counsel appearing for the appellant to contend that the same are not applicable to the facts of the present case.

We have heard the learned counsel appearing for the respective parties and perused the material on record.

Section 80-IA(4)(iv)(c) of the Act is excerpted for ready reference:- 80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.

Section 263 of the Act reads thus: Revision of orders prejudicial to revenue. (1) The [Principal Commissioner or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment.

In the case of Govinda Choudhury & Sons (supra), the Hon’ble Apex Court has observed thus: “ 6. This brings us to a consideration of the second question. The sum of Rs.2,77,692 was received by the assessee as interest on the amounts which were determined to be payable to the assessee in respect of certain contracts executed by the assessee and in regard to the payments under which there was a dispute between the two parties. The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well-settled that interest can be assessed under the head "Income from other sources" only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In our view, the interest payable to him certainly 5 of

The Hon’ble Apex Court in the case of Meghalaya Steels Ltd. (supra) has held thus: “ 28. It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognized by Section 14 of the Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head "income from other sources", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance received or receivable against exports schemes are included as being income under the head

The High Court of Gujarat in Empire Pumps Pvt. Ltd Vs. Assistant Commissioner of Income Tax,

In the light of these judgments, it can be held that the income from cash assistance, by whatever name called, received or receivable by any person chargeable under the head “profits and gains of business or profession”, shall be included under the

The Hon’ble Apex Court in the case of Meghalaya Steels Ltd. (supra), was dealing with the case where assistance was received to the assessee by way of subsidies, which were reimbursed on the incurring of costs relatable to a business. Similarly, in the case of Govinda Choudhury & Sons (supra), when the interest received by an assessee on the amount which are determined to be payable to the assessee in respect of certain contracts executed, held that the interest payable to the assessee certainly partakes the same character as of the receipts for the payment of which he was otherwise entitled to under the contract, which accrued due to the delay caused as a result of certain dispute between the parties.

On examining the present set of facts in the light of these judgments of the Hon’ble Apex Court, we are of the considered view that penalty recovered from

Unclaimed balance outstanding for many years which pertains to S.D./EMD of Contractor written back on their books of accounts also partakes the character of the receipts which arise mostly due to non performance of the obligation originating from contract. This amount is relating to the business undertaking and the same has to be construed as income derived by the industrial undertaking. It cannot be accepted how

As regards miscellaneous recovery from employees, ITAT in para-20 of its order, it is observed thus: 20. Now we are left with only one item i.e. miscellaneous recovery from employees of Rs.8,45,452. Regarding this item, nothing has been shown that these are on account of recovery of certain expenses incurred by the assessee and debited to Profit and Loss account and therefore, regarding reduction of this item from the profit of the assessee, we find no infirmity in the order of ld. CIT(Appeals).

Since no material was placed on record to show that this amount was recovered on account of certain expenses incurred by the assessee and debited to profit and loss account, finding of the authorities, on this point disallowing the deduction is justifiable and the same is affirmed.

As regards difference between WDV and books value of released assets, it is discernible that this income is not derived by an industrial undertaking nor

It was argued by the learned counsel appearing for the appellant that the assessee is entitled to deduction towards Commission for collection of electricity duty. Electricity duty is collected by the assessee from the consumers of electricity and the same is remitted to the government, in that process, commission is collected for the said service. This commission is nowhere related to the business activities of the assessee. Hence, we are of the opinion that the rejection of the claim made towards income derived by the undertakings for collection of commission under Section 80-IA(4)(iv)(c) of the Act by the authorities is justifiable.

It was pointed out that in terms of Section 4(2) of the Karnataka Electricity (Taxation Consumption) Act, 1959, licensee may be granted a

On account of the same, the assessee has claimed deduction under the head rebate from power generators, which has been denied by the authorities. This amount of rebate when certainly related to the business activities of the assessee and brings down the cost of manufacture of the goods, the assessee is entitled for deduction towards rebate collected.

In the case of Empire Pumps Pvt. Ltd. (supra), the High Court of Gujarat has held that the income earned from fixed deposit placed for business purposes cannot be treated as “income from other sources”, but must be seen as part of the assessee’s business income. We are in respectful agreement with the same. The amount of deposit parked in the

As regards the rental income, it is also required to be observed that it is an independent income having no direct nexus towards reimbursement of manufacturing or selling expenses, in the absence of the fact that the assessee was paying rent of staff quarters which was debited to profit and loss account. Thus , it cannot be construed as income derived from the industrial undertaking. This view of the Tribunal does not call for any interference by this Court. We confirm the finding of the Tribunal on this aspect.

Other items namely department exam fees, sale of service register/departmental books, sale of forms/booklet etc., sale of scrap/stock excess found, meter rating testing charges (part of business income), Back Billing Charges (BBC) theft cases collected are

For the foregoing reasons, we answer the substantial questions of law in favour of the revenue and against the assessee as far as certain items of income are concerned, i.e., miscellaneous recovery from employees, difference between WDV/book value of released assets, commission for collection of electricity duty, rental income. Income derived from the items, viz., penalty recovered from suppliers/contracts, unclaimed balance outstanding pertaining to SD/EMD of contractor written back in the books of accounts, rebate from power generators, interest income (FD for opening of LC to Power Grid Corporation Ltd., PGCIL) are allowable deduction under Section 80-IA(4)(iv)(c) of the Act, the substantial questions of law relating to these items are answered in favour of the assessee.

In view of the aforesaid, we are of the considered opinion that the dismissal of the I.T.A.

In the result, the appeals are disposed of as indicated above.