DCIT, CIRCLE - 11, KOLKATA, KOLKATA vs. M/S. WEST BENGAL HOUSING INFRASTRUCTURE DEV. CORPN. LTD., KOLKATA

Ground Nos.1 and 2 raised by the assessee read as follows : “1. That the Commissioner of Income-tax (Appeals) was wrong in confirming the Assessing Officer’s action in disallowing Rs.9,71,17,977/- u/s 40(a)(ia) in relation to the compensation paid in the form of interest by the appellant to various allottees for delays occurred in delivering the respective plots. 2. That without prejudice to the contention raised in Ground No.1 above, the Commissioner of Income-tax (Appeals) failed to appreciate the TDS Provisions under Section 194A had not been applicable to the payments made by the appellant.”

The assessee is a company incorporated under the Companies Act, 1956. The entire shares of the assessee are owned by Government of West Bengal. All the directors of the assessee are nominated by the Government of West Bengal. The assessee was formed for development of land for housing and for developing, operating and maintaining infrastructure facilities like sanitation and sewerage, drainage, water supply etc. The assessee also develops land by dividing land into several plots and offers it for sale to individuals, cooperatives, government projects etc.

We have heard the rival submissions. The ld. Counsel for the assesee submitted that section 194A of the Act provides for an obligation for deduction of tax at source by a person responsible for paying to a resident any income by way of interest. It was submitted by him that the expression “interest” has not been defined u/s 194A of the Act and therefore one has to take recourse with the definition of the expression “interest” as provided u/s 2(28A) of the Act. The aforesaid provision reads as follows :- “2(28A) “interest” means interest payable in any manner in respoec5t of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect o0f the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised; “

We have carefully considered the rival submissions. The issue for consideration is as to whether the sum of Rs.9,71,17,977/- which was a sum debited in the Profit and Loss account on account of obligation of the assessee to pay the allottees for the delay in delivery of possession of plots within the agreed time could be said to be interest. We have already noticed that there is no definition of interest u/s 194A of the Act which defines the expression “interest”. In our view a reading the definition of interest u/s 2(28A) of the Act clearly presupposes borrowing of money or incurring of debt. In the present case as we have already seen the sum in question was paid by the assessee as per the terms of allotment of plots for the delay in delivery of plots. The liability of the assessee in this regard is a contractual liability. The quantification of the liability is in terms of percentage of interest payable by State Bank of India. The manner of quantification on the basis of percentage of interest paid by State Bank of India on terms deposits will not make the sum in question as one in the nature of interest. In our opinion, there was neither borrowing or debt incurred by the assessee. The arguments of the ld. DR that the expression “moneys borrowed or debt incurred” is further qualified by the word ”claim” or other similar right or obligation and the liability of the assessee in question arises out of the claim made by an allottee of plot is also not acceptable. The expression “including a deposit, claim or other similar right or obligation” has to be read ejusdem generis with the expression “moneys borrowed or debt incurred”. In other words the expression ITA.1739-1742/Kol/2012 and ITA NO.113/K/2012 & 213/Kol/2012 W.B.Housing Infrastructure Dev.Corpn. Ltd. 5

Ground Nos. 3 and 4 raised by the assessee read as follows :- “3. That the Commissioner of Income-tax (Appeals) was wrong in confirming the action of the Assessing Officer in making an addition of Rs.26,85,000 as the appellant’s alleged interest income in relation to the deposit lying the Government of West Bengal. 4. That without prejudice to the contention raised in Ground No.3 above, the Commissioner of Income-tax (Appeals) failed to appreciate that there has not been any accrual of interest income in the hands of the appellant.”

We have given a careful consideration to the rival submissions and are of the view that the plea of the assessee for not recognising the interest income has been on the basis that the State Government had not issued orders for payment/credit of interest to the interest bearing treasury account of the assessee. There is no allegation that the State Government has refused to pay interest on the treasury account maintained by the assessee. It cannot also be said that the interest in question cannot be recognised owing to denial by the State Government of its obligation to pay interest or for the reason that the State Government is unable to pay interest. In such circumstances we are of the view that the revenue authorities were justified in bringing to tax interest on the premise that there was an accrual of income under the mercantile system of accounting. We do not find any ground to interfere with the order of the CIT(A). Ground Nos. 3 and 4 raised by the assessee are dismissed.

Ground No.s 5 and 6 raised by the assessee read as follows :- “5. That the Commissioner of Income Tax (Appeals) was wrong in confirming the action of the Assessing Officer in disallowing the appellant’s claim for deduction u/s 80- IA. 6. That without prejudice to the contention raised in Ground No.5 above, the Commissioner of Income-tax (Appeals) failed to appreciate the fact that the appellant

The aforesaid grounds of appeal are in relation to the claim of the assessee for deduction u/s 80IA(4)(i) of the Act. The aforesaid provision reads as follows :- “80IA(4) This section applies to— (i) any enterprise carrying on the business 27[of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely :— (a) it is owned by a company registered in India or by a consortium of such companies 28[or by an authority or a board or a corpora-tion or any other body established or constituted under any Central or State Act;] 29[(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. 30[Explanation.—For the purposes of this clause, “infrastructure facility” means— (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port31, airport, inland waterway 32[, inland port or navigational channel in the sea];]”

The ld. Counsel for the assessee submitted that in view of the aforesaid order of the CIT(A) the claim of the assessee for the aforesaid deduction should be allowed. The ld. DR submitted that the revenue has filed an appeal being ITA No.213/Kol/2012 against the order of CIT(A) for A.Y.2008-09 and therefore the said order cannot be said to be final. It was also pointed out by him that the impugned order of the CIT(A) is later in point of time than the order of the CIT(A) for A.Y.2008-09. It was also submitted that the CIT(A) while deciding the appeal for the assessee has not looked into the condition laid down in section 80IA(4)(i)(b) of the Act. According to him therefore the claim of the assessee for deduction u/s 80IA(4)(i) of the Act ought to be disallowed.

We have considered the rival submissions. The requirement of section 80IA(4) of the Act is that the assessee to claim the said deduction has to carry on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure. “Infrastructure facility” has been defined under explanation to section 80IA(4)(i) of the Act and the same includes housing or other activities. But that should be integral part of the highway project. The deduction has been claimed by the assessee presumably in respect of project developed at New Town, Rajarhat, Kolkata. Whether it forms part of highway project or not is not clear. Apart from the above the Authorised Representative harped on the point that there was a notification by the State Govt. Empowering the assesse to develop or operate and maintain infrastructure facility which can be equated to agreement between the assessee and the State Govt.. We further notice that the condition for grant of deduction u/s.80IA(4)(i) of the Act is that the assessee should start operating and maintain the infrastructure facility. As rightly contended by the ld. DR, the CIT(A) in deciding the appeal for A.Y.2008-09 has not considered any of the aforesaid requirements for allowing ITA.1739-1742/Kol/2012 and ITA NO.113/K/2012 & 213/Kol/2012 W.B.Housing Infrastructure Dev.Corpn. Ltd. 10

In the result ITA No.1739/Kol/2013 of the assessee is partly allowed.

This is an appeal by the assessee against the order dated 14.01.2013 of CIT(A)-XII, Kolkata relating to A.Y.2006-07.

Grounds Nos.1 and 2 raised by the assessee are identical to ground nos. 1 and 2 raised by the assessee in ITA NO.1739/Kol/2013 for A.Y.2005-06. Similarly ground No.s 3 and 4 and 5 and 6 raised by the assessee in this appeal are identical to ground nos. 3 and 4 and 5 and 6 in ITA NO.1739/Kol/2013 for A.Y.2005-06. While deciding the appeal identical grounds in ITA No.1739/Kol/2012 for A.Yr.2005-06 we allow ground No.s1 and 2 raised by the assessee and dismissed ground Nos. 3 and 4 raised by the assessee and allowed ground nos. 5 and 6 for statistical purposes.

In the result ITA No.1740/Kol/2013 of the assessee is partly allowed.

This is an appeal by the assessee against the order dated 14.01.2013 of CIT(A)-XII, Kolkata relating to A.Y.2007-08

Grounds Nos.1 and 2 raised by the assessee in this appeal are identical to ground nos. 1 and 2 raised by the assessee in ITA No.1739/Kol/2013 for A.Y.2005-06. For the reasons stated therein while deciding the aforesaid grounds these grounds of appeal are allowed.

In the result ITA No.1741/Kol/2013 of the assessee is allowed.

This is an appeal by the assessee against the order dated 15.03.2013 of CIT(A)-XII, Kolkata relating to A.Y.2009-10.

Grounds Nos.1 and 2 raised by the assessee in this appeal is with regard to the claim of deduction u/s 80IA of the Act. The facts and circumstances under which the deduction u/s 80IA of the Act was claimed by the assessee and disallowed by the AO is identical to the facts and circumstances as it prevailed in A.Y.2005-06. While deciding the identical ground nos. 5 and 6 for A.Y.2005-06 in ITA NO.1739/Kol/2013 we have already set aside the order of CIT(A) in this regard and remand the question of allowing deduction u/s 80IA(4) of the Act to the AO for fresh consideration for the reasons stated therein. Ground Nos. 1 and 2 raised by the assessee are treated as allowed for statistical purposes.

Ground Nos. 3 and 4 raised by the assessee in this appeal are identical grounds 1 and 2 in ITA No.1739/Kol/2013 and ground nos.5 and 6 in this appeal are identical to ground nos. 3 and 4 in ITA NO.1739/Kol/2013. For the reasons stated therein ground nos. 3 and 4 are allowed and ground no.s 5 and 6 are dismissed.

In the result ITA No.1740/Kol/2013 of the assessee is partly allowed.

ITA No.113/Kol/2012 is an appeal by the assessee while ITA No.213/Kol/2012 is an appeal by the revenue. Both these appeals are directed against the order dated 04.11.2011 of CIT(A)-XII, Kolkata relating to A.Y.2008- 09.

Ground Nos. 1 and 2 raised by the assessee is similar to ground nos. 1 and 2 raised by the assessee in ITA No.1739/Kol/2013 for A.Y.2005-06. While deciding the aforesaid ground in A.Y.2005-06 we have already held that the addition made by the AO and confirmed the CIT(A) cannot be sustained. For the reasons stated therein ground nos. 1 and 2 raised by the assessee in this appeal is allowed.

Ground Nos. 3 and 4 raised by the assessee read as follows :

The assessee received a sum of Rs.26.17 crore towards penal interest on delayed payment on sale of bulk land. This sum was offered to tax for A.Y.2007-08 and has been duly taxed. Consequent to the comments of the Controller and Auditor General this sum was considered as income of the assessment in A.Y.2008-09 also as prior period income. Before CIT(A) the assessee pointed out that a sum of rs.26.17 crore had already been offered to tax in A.Y.2007-08. Therefore the aforesaid sum should be excluded from the total income in A.Y.2008-08. The CIT(A) rejected the

In the result ITA No.113/Kol/2012 of the assessee is allowed.

Ground No.1 raised by the revenue reads as follows :-

As we have already seen that the assessee develops and sells land, flat etc. The assessee adopts a practice of recognising the income on sale of land and flats only when registration of conveyance is completed. The CAG commented in his report that since the assessee had allotted land and handed over the land and since the sale of land had been duly approved by the board of directors of the assessee and control of the land passed to the allottes and therefore sale should be treated as completed and the resulting income on sale of land ought to have been recognised by the assessee in the books of accounts. The CAG was of the opinion that there is an under statement of profit by reason of the assessee not recognising the sale to the extent of rs.204.67 crore. AO based on the report of the CAG concluded that there is an under statement of report by the assessee to the extent of Rs.204.67 crore and accordingly brought the same to tax.

On appeal by the assessee the CIT(A) deleted the said addition observing as follows :- “Regarding ground nos. 9 & 10 relating to addition of Rs.205,00,52,000/- due to CAG’s comments regarding understatement of profit for the year by Rs.204,67,00,000/-. The assessee has submitted that the appellant followed a practice to recognise sale of land/flat only when the registration of deeds for the entire allotted land/flat would be completed. However, CAG commented in its report that since the appellant had allotted and handed over the land for an aggregate sale value of rs.242.60 crores (having cost of Rs.37.93 crores) and the control of land passed to the allottees, the appellant should have accounted for such sale in its accounts resulted in understatement of profit of rs.204.67 crores. The appellant had considered the income from sale of land in the next year’s accounts relating to A.Y.2009-10. The appellant had submitted that the land being stock in trade and not being a capital asset, the definition of transfer u/s 2(47) of the I.T.Act, 1961 is not applicable to assessee company and the sale of land which is held as stock in trade should be recognised only when the legal title of the land is transferred to the relevant allottee. The assessee is consistently following this method of accounting and in A.Y.2009-10 appellant had already accounted for the relevant sales of Rs.203.3 crores. The assessee is entitled to relief of Rs.204.67 crores. Therefore ground nos. 9 & 10 are allowed.” ITA.1739-1742/Kol/2012 and ITA NO.113/K/2012 & 213/Kol/2012 W.B.Housing Infrastructure Dev.Corpn. Ltd. 15

We have heard the rival submissions. The ld. DR placed reliance on the order of the AO. The ld. Counsel for the assessee relied on the order of the CIT(A). We are of the view that the order of the CIT(A) does not call for any interference. It is not disputed by the revenue that there has been a method of accounting followed by the assessee was to recognise income only when registration of conveyance is completed in favour of the allottees. In fact the settled position in law is that a sale is complete only on registration of conveyance. The extended meaning of the definition “transfer” u/s 2(47) of the Act will not be applicable in the present case for the reason that sale of land by the assessee is sale of stock in trade and stock in trade is not a capital asset within the meaning of definition of the said term u/s 2(14) of the Act. The extended meaning of the definition “transfer” u/s 2(47) of the Act is applicable only to transfer of a capital asset. Besides the above we are of the view that the assessee has recognised this income from the sale of land in the subsequent year i.e. 2009-10. In the given facts and circumstances we are of the view that CIT(A) was fully justified in deleting the addition made by the AO. Consequently ground No.1 raised by the revenue is dismissed.

Ground No.2 raised by the revenue in this appeal is identical to ground nos. 5 and 6 in assessee’s appeal in ITA No.1739/Kol/2013 for A.Y.2005-06. For the reasons given therein in the aforesaid ground the issue is restored to the AO and the ground of appeal is treated as allowed for statistical purposes.

Ground No.3 raised by the revenue in this appeal is identical to ground nos. 3 and 4 raised by the assessee in ITA No.1739/Kol/2013 for A.Y.2005-06. For the reasons given therein in the aforesaid ground we allow the ground raised by the revenue. ITA.1739-1742/Kol/2012 and ITA NO.113/K/2012 & 213/Kol/2012 W.B.Housing Infrastructure Dev.Corpn. Ltd. 16

In the result ITA No.213/Kol/2012 of the revenue is partly allowed.