COMMON EFFLUENT TREATMENT PLANT (THANE BELAPUR( ASSOCIATION,.), MUMBAI v. ITO 10(30(4), MUMBAI

ITA 2946/MUM/2011 | 2006-2007
Pronouncement Date: 24-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 294619914 RSA 2011
Assessee PAN AABCC4712H
Bench Mumbai
Appeal Number ITA 2946/MUM/2011
Duration Of Justice 10 month(s) 9 day(s)
Appellant COMMON EFFLUENT TREATMENT PLANT (THANE BELAPUR( ASSOCIATION,.), MUMBAI
Respondent ITO 10(30(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 24-02-2012
Assessment Year 2006-2007
Appeal Filed On 15-04-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI BEFORE SHRI RAJENDRA SINGH A.M. AND SHRI VIJAY PAL RAO J.M. S.NO. ITA NO. ASSESSMENT YEAR 1. 2946/MUM/2011 2006-07 2. 2947/MUM/2011 2007-08 3. 2948/MUM/2011 2008-09 M/S. COMMON EFFLUENT TREATMENT PLANT (THANE- BELAPUR) ASSOCIATION C/O. R.K. KHANNA & ASSOCIATES 402 REGENT CHAMBERS NARIMAN POINT MUMBAI-400 021 P.A. NO.AABCC 4712 H INCOME TAX OFFICER WARD 10(3)(4) AAYAKAR BHAVAN MUMBAI-400 020 ( APPELLANT ) VS. ( RESPONDENT ) APPELLANT BY : SHRI RAJA B. SINGH RESPONDENT BY : SHRI P.K.B. MENON DATE OF HEARING : 09/02/2012 DATE OF PRONOUNCEMENT : 24.02.2012 O R D E R PER RAJENDRA SINGH (AM) THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERE NT ORDERS ALL DATED 10.2.2011 OF CIT(A) FOR ASSESSMENT YEAR S 2006-07 TO 2008-09. AS DISPUTES RAISED IN THESE APPEALS ARE COMMON THESE ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER FOR T HE SAKE OF ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 2 CONVENIENCE. THE DISPUTES RAISED RELATE TO NATURE OF SUB SIDY INCOME AND APPLICABILITY OF PRINCIPLE OF MUTUALITY TO THE I NTEREST INCOME. 2. WE FIRST TAKE UP THE ISSUE RELATING TO NATURE OF IN COME RECEIVED FROM SUBSIDY WHICH HAS BEEN RAISED ONLY IN ASSESSMENT YEARS 2 006-07 AND 2008-09. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WH O IS AN ASSOCIATION FORMED AS A LIMITED COMPANY AND REGISTERED UNDER SECTION 25 OF THE COMPANIES ACT 1956 WAS ENGAGED IN TREATMEN T OF INDUSTRIAL EFFLUENTS GENERATED BY VARIOUS INDUSTRIES IN THANE-BEL APUR REGION. THE MEMBERS OF THE ASSOCIATION ARE THE INDUSTRIES OPERATING IN THAT AREA. THE ASSESSEE COMPANY HAD SET UP A COMMON EFFLUENT TREATME NT PLANT (CETP) OF 12 MLD CAPACITY WHICH HAD BECOME OPERATIONAL IN NOVEMBER 1997. SUBSEQUENTLY THE BOARD OF DIRECTORS DECIDED TO COMMISSION AN ADDITIONAL CETP PROJECT OF 15 MLD CAPACITY FOR REDUCING POLLUTION CONTROL. THE DISPUTE RAISED IN THIS GROUND I S REGARDING THE NATURE OF SUBSIDY INCOME RECEIVED BY THE ASSESSEE COMPANY BY GOVERNMENT IN RELATION TO THIS ADDITIONAL PLANT. T HE AO NOTED THAT BY THE YEAR ENDING 31.3.2006 WHEN THE PLANT WAS COMMISSION ED AT A COST OF RS.8.46 CRORES TOTAL GROSS VALUE OF THE FIXED ASSETS W AS RS.13.86 CRORES AGAINST THE TOTAL FUND FROM SUBSIDY AND CAPITAL CO NTRIBUTION BY MEMBERS OF RS.7.72 CRORES. THE ASSESSEE THUS HAD USED ITS OW N SURPLUS FUND TO MEET PART OF THE CAPITAL COST. THE AO A LSO NOTED THAT IN THE BALANCE SHEET THE SUBSIDY HAD BEEN SHOWN AS SOURCE OF FUNDS. ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 3 THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD BEEN REGUL ARLY RECEIVING SUBSIDY YEAR AFTER YEAR AS PER DETAILS GIVEN BELOW:- ASSESSMENT YEAR SUBSIDY FROM GOVT. INTEREST EARNED TOTAL INCOME 1998-99 RS.1 00 00 000 RS.3 72 097 RS.85 71 680 1999-00 RS.1 00 00 000 RS.12 26 117 RS.2 19 65 880 2000-01 RS.1 00 00 000 RS.29 52 307 RS.1 59 60 274 2001-02 RS .1 00 00 000 RS .45 46 878 RS.1 80 75 805 2002-03 RS.1 00 00 000 RS.52 42 233 RS.2 62 49 793 2003-04 RS.1 00 00 000 RS.59 13 876 RS.2 81 32 544 2004-05 RS.1 00 00 000 RS.66 14 580 RS.2 07 55 886 2005-06 RS.2 89 61 154 RS.57 08 416 RS.1 47 02 518 2.1 THE AO THEREFORE CONCLUDED THAT SUBSIDY RECEIVED BY THE ASSESSEE WHICH WAS SHOWN AS SOURCE OF FUND IN THE BALANCE SHEET WAS FOR CARRYING OUT TREATMENT OF EFFLUENT AND THEREFOR E WAS REVENUE IN NATURE. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD IT SELF WORKED OUT THE QUANTUM OF SUBSIDY ESTIMATED BY IT AND THE GOV ERNMENT AGENCIES HAD NEITHER WORKED OUT ANY SUBSIDY FOR CETP PL ANT NOR ANY SPECIFIC OBJECT OR PURPOSE WAS LINKED TO THE DISBURSEMENT O F THE SUBSIDY. THOUGH THE ASSESSEE HAD ENCLOSED A COPY OF CETP SCHE ME AS PER WHICH CENTRAL AND STATE GOVERNMENT WOULD CONTRIBU TE 25% EACH ASSESSEE WAS FREE TO UTILIZE THE SAID SUBSIDY IN THE MANNER IT WANTED. THE AO ALSO REFERRED TO THE JUDGMENT OF HON'BLE SUPRE ME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. VS. CIT (288 IT R 253) IN WHICH SUBSIDIES HAD BEEN GRANTED YEAR AFTER YEAR ONLY A FTER SETTING UP OF NEW INDUSTRY AFTER COMMENCEMENT OF TRADE OR BUSINESS W AS HELD BY ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 4 THE HON'BLE SUPREME COURT AS REVENUE RECEIPT. THE AO ACCORDINGLY TREATED THE SUBSIDY RECEIVED OF RS.1 56 41 456/- AND RS. 21 73 000/- FOR ASSESSMENT YEARS 2006-07 AND 2008-09 RESPECTIVELY AS RE VENUE IN NATURE AND ADDED THE SAME TO THE TOTAL INCOME. 2.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT THE SUBSIDIES HAD BEEN RECEIVED TOWARDS SETTI NG UP OF ADDITIONAL PLANT AND MACHINERY AND WERE THEREFORE CAPITAL IN NATURE AND COULD NOT BE TAXED. CIT(A) HOWEVER NOTED THAT THE ASSESSEE HAD FILED A PRINT OUT OF CETP SCHEME TAKEN OUT FROM WEBSIT E AS PER ANNEXURE-B TO STATEMENT OF FACTS TO POINT OUT THAT TH E SUBSIDY WAS ONLY TOWARDS CAPITAL COST. HOWEVER CIT(A) FROM PERUSAL OF DOCUMENTS NOTED THAT IT WAS A GENERAL STATEMENT AND N OT SPECIFICALLY RELATED TO THE CASE OF THE ASSESSEE. CIT(A) FURTHER OBSER VED THAT THE ASSESSEE HAD ENCLOSED A SCHEME OF WORLD BANK AIDED INDUSTRIA L POLLUTION CONTROL PROJECT AS ANNEXURE-C IN WHICH THERE WAS PROVISION OF SUBSIDY BUT THIS WAS ALSO A GENERAL LETTER AND NOT WITH REFERENCE TO THE SUBSIDY RECEIVED BY THE ASSESSEE. THE ASSESSEE HAD ALSO ENCLOSED A LETTER FROM CENTRAL GOVERNMENT ADDRESSED TO THE STAT E GOVERNMENT AS PER ANNEXURE-D WHICH CLARIFIED THE SCHEME OF CETP BUT THAT WAS ALSO GENERAL IN NATURE WHICH DID NOT SPEAK ABOUT SUBSIDY RECEIVED BY THE ASSESSEE. CIT(A) FORWARDED THESE DOCUMENTS TO AO FOR SUBMITTING REMAND REPORT. THE AO IN THE REMAND REPORT DATED 1 8.1.2011 ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 5 REITERATED THE STAND TAKEN IN THE ASSESSMENT ORDER THAT THE SUBSIDY WHICH WAS ACCOUNTED AS SOURCE OF FUND IN THE BALANCE SHEET H AD BEEN GIVEN FOR RUNNING THE BUSINESS AND IN VIEW OF THE JUDG MENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. (SUPRA) IT WAS REVENUE IN NATURE. IN REPLY TO THE REMAND REPORT THE ASSESSEE SUBMITTED THAT IT HAD ALREADY ANSWERED THE P OINTS MADE IN THE REMAND REPORT EARLIER. ASSESSEE ALSO REFERRED TO THE ORDER OF THE CIT(A) IN ASSESSMENT YEAR 2005-06 IN WHICH IT WAS H ELD THAT SUBSIDY RECEIVED BY THE ASSESSEE WAS CAPITAL IN NATURE. TH E CIT(A) HOWEVER OBSERVED THAT NATURE OF SUBSIDY INCOME WAS NOT A GROUND OF APPEAL BEFORE CIT(A) IN ASSESSMENT YEAR 2005-06 AND THE REFORE ORDER OF CIT(A) COULD NOT BE CONSIDERED AS DECISION ON THIS ISSUE . THE ASSESSEE ALSO ARGUED THAT EVEN IF SUBSIDY WAS TREATED AS R EVENUE IN NATURE THE SAME WAS NOT TAXABLE IN VIEW OF PRINCIPLE OF MUTUALITY APPLICABLE TO THE CASE OF THE ASSESSEE AS HELD BY HONBLE HIG H COURT OF BOMBAY IN ASSESSEES OWN CASE IN THE EARLIER YEAR. CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED ON THE GROUND THA T THE ISSUE OF SUBSIDY WAS NOT THERE BEFORE THE HIGH COURT. CIT(A) A CCORDINGLY UPHELD THE ORDER OF AO TAXING THE SUBSIDY RECEIVED FRO M GOVERNMENT AS INCOME OF THE ASSESSEE AGGRIEVED BY WHICH THE ASSESSEE IS I N APPEAL BEFORE THE TRIBUNAL IN BOTH THE YEARS. ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 6 3. BEFORE US THE LD. AUTHORISED REPRESENTATIVE FOR T HE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTH ORITIES THAT THE SUBSIDIES RECEIVED FROM GOVERNMENT WERE THE CONTRIBUTIO N TOWARDS THE CAPITAL COST OF THE PROJECT AND THEREFORE WERE CAPITA L IN NATURE. THE LD. AR POINTED OUT THAT THE AO WAS NOT CORRECT IN STATI NG THAT THE ASSESSEE HAD BEEN RECEIVING SUBSIDY REGULARLY FROM 1989-90 ONWARDS. IT WAS SUBMITTED THAT THE ASSESSEE HAD RECEIVED SUBSIDIES OF RS.65.00 LACS IN 1996-97 AND RS.35.00 LACS IN 1997-98 IN CONNECTIO N WITH THE EARLIER CETP PLANT OF 12 MLD CAPACITY WHICH HAD BEEN CO MMISSIONED IN NOVEMBER 1997. SUBSIDY IN THOSE YEARS HAD BEEN ACCEPTED AS CAPITAL RECEIPT. SUBSEQUENTLY ASSESSEE RECEIVED SUBSIDIES IN CONNECT ION WITH THE PRESENT CETP PROJECT OF 15 MLD CAPACITY AS PER DETAI LS GIVEN BELOW:- ASSESSMENT YEAR SUBSIDY RECEIVED ( RS.) 2005-06 1 89 61 154/- 2006-07 1 56 41 456/- 2007-08 44 74 390/- 2008-09 21 73 000/- TOTAL 4 12 50 000/- 3.1 THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAD E NCLOSED COPY OF MOU DATED 29.4.2002 BETWEEN ASSESSEE AND MAHARASH TRA INDUSTRIAL DEVELOPMENT CORPORATION (MIDC) FOR SETTING UP OF CETP PROJECT OF 15 MLD CAPACITY AS ANNEXURE-E OF STATEMENT O F FACTS BEFORE ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 7 CIT(A). ASSESSEE HAD ALSO ENCLOSED COPY OF LETTER DATED 6 .12.2004 FROM MINISTRY OF ENVIRONMENT & FOREST AS ANNEXURE-F CO NVEYING SANCTION OF PRESIDENT OF SUBSIDY BY CENTRAL GOVERNMENT O F RS.206.25 LACS IN WHICH THE TOTAL COST OF THE PROJECT WAS DULY MENTI ONED AT RS .8.25 CRORES. CIT(A) HAD NOT MADE ANY ADVERSE COMMENTS ON THESE DOCUMENTS AND IN FACT TOTALLY IGNORED THEM. IN THESE D OCUMENTS IT WAS CLEARLY MENTIONED THAT THE SUBSIDY WAS TOWARDS THE COST OF THE PROJECT. THE LD. AR FURTHER ARGUED THAT THE SAME ISSUE HAD BEEN DULY CONSIDERED BY CIT(A) IN THE ORDER DATED 17.2.2009 FOR ASSESSMENT YEAR 2005-06. IN THAT YEAR THE AO HAD REJECTED THE CLAIM OF MUTUALITY AND HAD TAXED THE ENTIRE SURPLUS ARISING FROM THE ACTI VITIES AS INCOME. THE CIT(A) HOWEVER FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSMENT YEAR 2001-02 IN ASSESSEES OWN CASE HELD THAT PRIN CIPLE OF MUTUALITY WAS APPLICABLE AND SURPLUS COULD NOT BE CHAR GED TO TAX. AS REGARDS SUBSIDIES WHICH WERE RECEIVED FROM GOVERNMENT AND WERE NOT CONTRIBUTION FROM MEMBERS CIT(A) AFTER EXAMINATI ON OF THE VARIOUS DOCUMENTS INCLUDING THE DOCUMENTS AT ANNEXURE-E AND F ENCLOSED BEFORE CIT(A) HELD THAT THE SUBSIDY WAS CAPITAL IN NATURE. THE LD. AR POINTED OUT THAT THE SAID DECISION OF CIT(A ) HAS BEEN ACCEPTED BY THE DEPARTMENT AND NO FURTHER APPEAL HAD BEEN FILED BY THE DEPARTMENT BEFORE THE TRIBUNAL AND THE DECISION H AS BECOME FINAL. IT WAS ALSO POINTED OUT THAT IN ASSESSMENT YEAR 2007-08 A LSO THE AO ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 8 HIMSELF ACCEPTED THE SUBSIDY RECEIVED IN CONNECTION WITH SA ME PROJECT OF 15 MLD CAPACITY AS CAPITAL IN NATURE. THEREFORE FOL LOWING THE DOCTRINE OF CONSISTENCY REVENUE AUTHORITIES WERE NOT PE RMITTED TO DEVIATE FROM THE POSITION ACCEPTED IN OTHER YEARS. 3.2 THE LD. DR APPEARING FOR THE REVENUE ON THE OTH ER HAND STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND PLACED RE LIANCE ON THE FINDINGS GIVEN IN THE RESPECTIVE ORDERS. HE ALSO REFERRE D TO THE JUDGMENT OF HONBLE HIGH COURT OF PUNJAB AND HARYANA I N THE CASE OF LUDHIANA CENTRAL CO-OPERATIVE CONSUMERS' STORES LTD. V S. CIT (122 ITR 942) AND ON THE JUDGMENT OF THE HON'BLE SUPREM E COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. AND OTHERS (2 28 ITR 253) IN SUPPORT OF THE CASE. IT WAS ALSO POINTED OUT THAT IN ASSESSMENT YEAR 2005-06 THE ISSUE OF NATURE OF SUBSIDY WAS NOT BEFO RE CIT(A). 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE NAT URE OF SUBSIDY INCOME RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT. THE ASSESSEE IS AN ASSOCIATION OF DIFFERENT INDUSTRIES OPERATING IN TH ANE-BELAPUR REGION FORMED FOR TREATMENT OF INDUSTRIAL EFFLUENTS G ENERATED BY DIFFERENT INDUSTRIES. FOR THIS PURPOSE THE ASSESSEE HAD SE T UP A COMMON EFFLUENT TREATMENT PLANT (CETP) OF 12 MLD CAP ACITY WHICH ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 9 HAD BECOME OPERATIONAL IN NOVEMBER 1997. IN ORDER T O REDUCE THE POLLUTION FURTHER THE ASSESSEE HAD DECIDED TO COMMISSION A N ADDITIONAL CETP PROJECT OF 15 MLD CAPACITY IN ASSESSMENT YEAR 2005- 06. IN CONNECTION WITH SAID PROJECT THE ASSESSEE HAD RECE IVED SUBSIDY FROM BOTH CENTRAL AND STATE GOVERNMENT TOTALING TO RS.4 12 51 000/- SPREAD OVER THE ASSESSMENT YEARS 2005-06 TO 2008-09 THE DETAILS OF WHICH HAVE BEEN GIVEN IN PARA-3 EARLIER. THE SUBSIDY RECEIVED IN ASSESSMENT YEAR 2006-07 WAS RS.1 56 41 456/- AND IN ASSESSMEN T YEAR 2008-09 IT WAS RS.21 73 000/- WHICH HAD BEEN TRE ATED BY AO AS CAPITAL RECEIPT. THE ASSESSEE HAD SUBMITTED THE FOLLOWING DOCUMENTS TO PROVE THE POINT THAT THE SUBSIDY RECEIVED FROM GOVE RNMENT WAS TOWARDS COST OF THE PROJECT AND THEREFORE CAPITAL IN N ATURE. I) COPY OF CETP SCHEME FROM THE WEBSITE OF MINISTRY OF ENVIRONMENT & FOREST. II) COPY OF SCHEME OF WORLD BANK AIDED INDUSTRIAL POLLUTIO N CONTROL PROJECT. III) COPY OF LETTER ADDRESSED BY CENTRAL GOVERNMENT TO STA TE GOVERNMENT EXPLAINING THE SCHEME OF CETP. IV) COPY OF MOU DATED 29.4.2002 ENTERED INTO BY THE ASSESSE E WITH MIDC. V) COPY OF LETTER DATED 6.12.2004 FROM MINISTRY OF ENVI RONMENT & FOREST CONVEYING SANCTION OF PRESIDENT FOR SUBSIDY BY CE NTRAL GOVERNMENT. ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 10 4.1 THE DOCUMENT AT SL.NO. (IV) AND (V) HAD BEEN FIL ED BY THE ASSESSEE ONLY BEFORE CIT(A) AND WERE NOT AVAILABLE BEFO RE THE AO. CIT(A) HAD OBTAINED A REMAND REPORT ON THE SUBMISSION MADE BY THE ASSESSEE BEFORE HIM. THE AO IN THE REMAND REPORT REITE RATED THE EARLIER STAND THAT SUBSIDY HAD BEEN GRANTED FOR RUNNIN G OF THE BUSINESS AND THE SAME HAD BEEN MENTIONED AS SOURCE OF FUND IN TH E BALANCE SHEET AND THEREFORE REVENUE IN NATURE. CIT(A) HAS OBSERVED THAT THE DOCUMENTS AT SL.NO.(I) TO (III) WERE GENERAL IN NATUR E AND NOT SPECIFICALLY CONNECTED TO CETP SCHEME BEING IMPLEMENTED BY THE ASSESSEE. NEITHER THE AO IN THE REMAND REPORT NOT CIT( A) IN THE APPELLATE ORDER HAVE GIVEN ANY COMMENTS ON THE DOCUME NTS PRODUCED BY THE ASSESSEE AS MENTIONED AT SL.NO.(IV) AND (V). 4.2 IN THE DOCUMENTS AT SL.NO.(IV) WHICH IS THE MOU DA TED 29.4.2002 SIGNED BETWEEN THE ASSESSEE AND THE MIDC IN CON NECTION WITH THE CONCERNED CETP PROJECT. IT HAD BEEN CLEARLY ME NTIONED IN THE MOU THAT THE PROJECT WAS APPROVED BY MIDC/IIT AND PRO JECT COST WAS APPRISED BY BANK AT RS.8.25 CRORES. THE MOU ALSO MENTIO NED THE SOURCE OF FUNDING THE PROJECT WHICH INCLUDED 25% SUBSIDY F ROM CENTRAL GOVERNMENT AND 25% OF MIDC AND 5% FROM MAHARASHTRA P OLLUTION CONTROL BOARD. IT IS CLEAR FROM THE DOCUMENT THAT SUB SIDY WAS TOWARDS COST OF THE PROJECT. THE DOCUMENT AT SL.NO.(V) WHICH IS A LETTER DATED 6.12.2004 FROM MINISTRY OF ENVIRONMENT & FOREST CONVE YING TO THE ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 11 ASSESSEE THE SANCTION OF SUBSIDY BY THE PRESIDENT CLEARLY MEN TIONED THE COST OF THE PROJECT AT RS.8.25 CRORES AND SUBSIDY BY CE NTRAL GOVERNMENT AT RS.206.25 LACS BEING 25% OF TOTAL COST. THESE DOCUMENTS MAKE IT CLEAR THAT THE SUBSIDY GRANTED WAS TOWA RDS THE PROJECT COST. THESE HAVE NOT BEEN ADVERSELY COMMENTED UPO N BY CIT(A). 4.3 WE ALSO FIND THAT THE DOCUMENTS AT SL.NO. (IV) AND (V) HAD ALREADY BEEN CONSIDERED BY CIT(A) IN ASSESSMENT YEAR 2005 -06 AND AFTER CONSIDERING THE SAME IT HAD BEEN HELD BY HIM TH AT THE SUBSIDY RECEIVED IN ASSESSMENT YEAR 2005-06 IN RESPECT OF THE SAME PROJECT WAS CAPITAL IN NATURE. IT HAS BEEN ARGUED BY THE LD. DR THAT THE NATURE OF SUBSIDY WAS NOT THE ISSUE IN ASSESSMENT YEAR 2005- 06. WE ARE HOWEVER UNABLE TO ACCEPT THE ARGUMENTS ADVANCED. I N ASSESSMENT YEAR 2005-06 THE DISPUTE RAISED BEFORE CIT(A) WAS APPLICABILITY OF PRINCIPLE OF MUTUALITY TO THE SURPLUS GENERATED BY THE ASSESSEE COMPANY WHICH ALSO INCLUDED THE SUBSIDY RECEIVED. THE AO HAD REJECTED THE CLAIM OF MUTUALITY ON SEVERAL GROUNDS WHICH ALSO INCLUDED THE GROUND THAT ASSESSEE RECEIVED SUBSIDY FROM DI FFERENT CONCERNS WHICH WERE NOT MEMBERS OF THE ASSOCIATION AND THE REFORE THERE WAS NO COMPLETE IDENTITY BETWEEN CONTRIBUTORS AN D PARTICIPANTS. CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN ASSESSMENT YEAR 2001-02 HELD THAT PRINCIPLE OF MUTUALITY WAS ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 12 APPLICABLE IN THE CASE OF THE ASSESSEE. HOWEVER TO DECID E THE EXEMPTION OF SURPLUS GENERATED IT WAS NECESSARY FOR CIT( A) TO EXAMINE NATURE OF SUBSIDY BECAUSE IN CASE IT WAS REVENUE I N NATURE IT WOULD HAVE BEEN TAXABLE AS PRINCIPLE OF MUTUALITY COU LD NOT BE APPLIED TO THE AMOUNTS RECEIVED FROM NON MEMBERS. CIT(A) THERE FORE MADE DETAILED EXAMINATION OF THE NATURE OF SUBSIDY RECEIVE D BY THE ASSESSEE AND AFTER CONSIDERING VARIOUS DOCUMENTS WHICH INCLUDED THE DOCUMENTS PLACED AT SL.NO. (IV) AND (V) MENTIONED EAR LIER CONCLUDED THAT THE SUBSIDY RECEIVED BY THE ASSESSEE WAS CAPITAL IN NA TURE. THE LD. AR SUBMITTED THAT THE SAID DECISION OF CIT(A) HAS B EEN ACCEPTED BY THE DEPARTMENT AND NO FURTHER APPEAL HAS BEEN FILED AND THIS CLAIM HAS NOT BEEN CONTROVERTED BEFORE US. IT HAS ALSO BEEN SUBMI TTED THAT IN ASSESSMENT YEAR 2007-08 THE AO HAS HIMSELF TREATED THE SUB SIDY RECEIVED AS CAPITAL IN NATURE IN RELATION TO THE SAME C ETP PROJECT. THEREFORE NATURE OF SUBSIDY IN RELATION TO THE SAME P ROJECT HAVING BEEN ALREADY ACCEPTED BY THE DEPARTMENT AS CAPITAL IN N ATURE IN ASSESSMENT YEARS 2005-06 AND 2007-08 DEPARTMENT IS NOT E NTITLED TO TAKE A DIFFERENT VIEW IN ASSESSMENT YEARS 2006-07 AND 20 08-09 IN RELATION TO THE SAME PROJECT THE FACTUAL AND LEGAL P OSITION REMAINING THE SAME. MOREOVER THE DOCUMENTS AT SL.NO. (IV) AND (V) CLEARLY SHOW THAT THE SUBSIDY HAD BEEN GRANTED TOWARDS MEETIN G THE COST OF THE PROJECT AND THEREFORE SUCH SUBSIDY HAD TO BE TREAT ED AS CAPITAL IN ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 13 NATURE. EVEN IF PART OF SUBSIDY WAS RELEASED AFTER COMP LETION OF THE PROJECT IT CAN NOT CHANGE THE CHARACTER OF RECEIPT FROM CA PITAL TO REVENUE AS THE PURPOSE OF PAYMENT WAS FOR SETTING UP T HE PROJECT. 4.4 BOTH THE AO AND THE CIT(A) HAVE RELIED ON THE J UDGMENT OF HON'BLE SUPREME COURT ON THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. VS. CIT (SUPRA) BUT ON CAREFUL PERUSAL OF THE SAID JUDGMENT WE FIND THAT IT IS SUPPORTING THE CASE OF THE ASSESSEE. IN T HE SAID CASE THE HON'BLE SUPREME COURT HELD THAT THE NATURE OF SUB SIDY WHETHER CAPITAL OR REVENUE HAS TO BE DETERMINED AFTER CONSIDERI NG THE PURPOSE FOR WHICH SUBSIDY IS GIVEN AND IN CASE SUBSIDY GIVEN IS TO ASSIST THE ASSESSEE IN CARRYING ON HIS TRADE OR BUSINESS FUNCTIONS WIL L BE REVENUE IN NATURE. IN THAT CASE THE ASSESSEE HAD BEEN GIVEN SUBSI DY IN THE FORM OF REFUND OF SALES TAX SUBSIDY ON POWER CONSUMPTIO N AND EXEMPTION OF PAYMENT OF WATER CHARGES AFTER COMMENCEMEN T OF THE BUSINESS AND ACCORDINGLY IT WAS HELD THAT THE SAME WAS FOR CARRYING ON OF THE BUSINESS AND WAS THUS REVENUE IN NATURE. THE HO N'BLE SUPREME COURT IN THE SAID CASE NOTED THAT THE INCENTIVE GIVEN W AS PRODUCTION INCENTIVE AND COMPANY WAS ENTITLED FOR THESE INCENTIVES O NLY AFTER IT WENT INTO PRODUCTION. THE HON'BLE SUPREME COURT ALSO OBSERVED THAT THE AIM WAS NOT TO MAKE ANY PAYMENT DIRECTLY OR INDIR ECTLY FOR SETTING UP OF INDUSTRIES. THE SAID CASE IS OBVIOUSLY DISTINGUISHA BLE FROM THE PRESENT CASE IN WHICH SUBSIDY WAS GIVEN TO MEET THE COST O F THE ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 14 PROJECT. THE LD. DR HAS ALSO PLACED RELIANCE ON THE JUD GMENT OF THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF LU DHIANA CENTRAL CO-OPERATIVE CONSUMER STORES LTD. VS. CIT(SUP RA). THE SAID CASE ALSO DOES NOT COME TO THE RESCUE OF THE REVENUE. THE HONBLE HIGH COURT IN THE SAID CASE HELD THAT NATURE OF SUBSIDY H AD TO BE DECIDED BASED ON THE PURPOSE FOR WHICH IT IS GIVEN AND I N CASE SUBSIDY IS GIVEN TO REIMBURSE THE REVENUE EXPENDITURE IT HAS TO BE TREATED AS REVENUE IN NATURE. IN THAT CASE SUBSIDY WAS GIVEN FOR M EETING MANAGERIAL AND RENTAL EXPENSES AND THEREFORE HELD TO BE REVENUE IN NATURE. THE SUBSIDY WAS NOT TOWARDS MEETING THE COST OF THE PROJECT AS IN THE CASE OF THE PRESENT APPEAL. 4.5 IN VIEW OF THE FOREGOING DISCUSSION AND FOR THE RE ASONS GIVEN EARLIER WE HAVE TO HOLD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE HAS TO BE TREATED AS CAPITAL IN NATURE. ORDERS OF CIT(A) TREATING THE SUBSIDY AS REVENUE IN NATURE CAN NOT THEREFORE BE SUSTAI NED AND THE SAME ARE SET ASIDE AND CLAIMS OF THE ASSESSEE ARE ALLOWED. 5. THE SECOND DISPUTE IS REGARDING APPLICABILITY OF PRIN CIPLE OF MUTUALITY IN RELATION TO INTEREST INCOME RECEIVED BY THE ASSESSEE FROM DIFFERENT COMMERCIAL DEPOSITS. THE ASSESSEE HAD RECEIVED I NTEREST INCOME OF RS.60 775/- AND RS.91 476/- IN ASSESSMENT YEARS 2 006-07 AND 2007-08 RESPECTIVELY FROM MAHARASHTRA STATE ELECTRI CITY BOARD ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 15 (MSEB). IN ASSESSMENT YEAR 2008-09 IT HAD RECEIVED INTE REST INCOME OF RS.1 18 430/- FROM MSEB AND MIDC. IN ADDITION T HE ASSESSEE HAD RECEIVED INTEREST INCOME OF RS.61 57 068/- RS.50 22 690 /- AND RS.88 06 190/- RESPECTIVELY FOR ASSESSMENT YEARS 2006-07 20027-08 AND 2008-09 FROM BANK DEPOSITS. THE AO TREATED THE ENTIRE INTEREST INCOME AS INCOME FROM OTHER SOURCES AND DENIED THE BENEF IT OF MUTUALITY TO THE INTEREST INCOME. THE AO OBSERVED THA T THE ACTIVITY OF MAKING FIXED DEPOSITS AND OTHER DEPOSITS FOR EARNING O F INTEREST HAD NOTHING TO DO WITH THE MUTUAL ACTIVITY AND RUNNING AND MAINTENANCE OF CETP FOR ITS MEMBERS AND THEREFORE THE SAME WAS OUTSIDE THE PURVIEW OF PRINCIPLE OF MUTUALITY. 5.1 IN APPEAL CIT(A) HELD THAT IN VIEW OF THE JUDG MENT OF HONBL HIGH COURT OF BOMBAY IN ASSESSEES OWN CASE IN EARLIER YEAR THE INTEREST ON BANK DEPOSITS HAD TO BE TREATED AS INCOME FR OM OTHER SOURCES AND THUS WAS OUT OF THE PURVIEW OF THE PRINCIPLE OF MUTUALITY. IN REGARD TO OTHER DEPOSITS THE ASSESSEE SUBMITTED THAT THESE DEPOSITS WERE MADE WITH MSEB AND MIDC IN CONNECTION WIT H MUTUAL ACTIVITY OF THE COMPANY AND WERE THUS OF THE NATURE OF BUSINESS INCOME IN VIEW OF THE JUDGMENT OF HONBLE HIGH COURT O F BOMBAY IN CASE OF CIT VS. PARAMOUNT PREMISES (P.) LTD. (190 ITR 25 9) AND THEREFORE SHOULD BE COVERED BY THE PRINCIPLE OF MUTUA LITY. CIT(A) ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 16 HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED AND OBSERVE D THAT THE INTEREST INCOME WAS NOT INCOME DERIVED FROM BUSINESS AS HEL D BY HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. (183 CTR 999). THEREFORE FOLLOWING THE SAME ANALOGY AS IN THE CASE OF FIXED DEPOSITS WITH BANK CIT(A) HELD THAT PRINCIPLE OF MUTUALITY WOULD NOT APPLY IN CASE OF OTHER DEPOSITS ALSO. AGGRIEVED BY THE DECISION OF CIT(A) ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL IN ALL THE YEARS UNDER CONSIDERATION. 6. BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED TH AT THE HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN IN ASSESSMENT YEAR 2001-0 2 IN THE ORDER DATED 17.6.2010 IN INCOME TAX APPEAL NO.20 60 OF 2009 HAVE HELD THAT INCOME FROM DEPOSITS WITH BANK WILL NOT BE COVERED BY THE PRINCIPLE OF MUTUALITY. AS REGARDS THE OTHER DEPO SITS THE HIGH COURT HAD RESTORED THE MATTER TO THE TRIBUNAL FOR FR ESH DECISION AS THE SAME HAD NOT BEEN DECIDED BY THE TRIBUNAL. IT WAS THU S SUBMITTED THAT THE ISSUE OF INTEREST OF OTHER DEPOSITS WAS STILL OP EN. IT WAS ARGUED THAT INTEREST ON BANK DEPOSIT HAD BEEN HELD BY HONBLE HIGH COURT AS INCOME FROM OTHER SOURCES BUT THE SAME WAS NOT T RUE WITH RESPECT TO THE DEPOSITS WITH MSEB AND MIDC WHICH HAD BE EN GIVEN IN CONNECTION WITH THE BUSINESS ACTIVITIES AND WERE THUS IN T HE NATURE OF BUSINESS INCOME IN VIEW OF THE JUDGMENT OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF PARAMOUNT PREMISES (P.) LTD. (1 90 ITR 259). IT ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 17 WAS THUS ARGUED THAT THE INTEREST INCOME ON OTHER DEPOSI TS WILL BE COVERED BY PRINCIPLE OF MUTUALITY. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND ARGUED T HAT INTEREST ON OTHER DEPOSITS HAD BEEN RECEIVED FROM THIRD PARTIES AND NOT FROM MEMBERS OF ASSESSEE ASSOCIATION AND THEREFORE THE SAME WIL L NOT BE COVERED BY PRINCIPLE OF MUTUALITY. 7. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING APPLI CABILITY OF PRINCIPLE OF MUTUALITY IN RELATION TO THE INTEREST RECEIVED FRO M DEPOSITS MADE WITH MSEB AND MIDC. THE ASSESSEE HAD GIVEN THESE DEPOSIT S IN CONNECTION WITH THE MUTUAL ACTIVITIES OF EFFLUENT TREAT MENT FROM WHICH IT HAD RECEIVED INTEREST. THE PRINCIPLE OF MUTUALITY IS APPLICABLE ONLY IN RESPECT OF CONTRIBUTIONS FROM THE MEMBERS AS THERE HAS TO BE COMPLETE IDENTITY BETWEEN CONTRIBUTORS AND PARTICIPANT S. IN CASE FUNDS OF THE MUTUAL CONCERN ARE DEPOSITED WITH THIRD PA RTIES THE ISSUE WHETHER INTEREST INCOME RECEIVED FROM SUCH DEPOSIT WILL BE COVERED BY PRINCIPLE OF MUTUALITY OR NOT HAS BEEN A DEBATABLE ISSU E. ARGUMENTS ADVANCED IN FAVOUR OF THE APPLICABILITY OF MUTUALITY PRINCIPLE IN RESPECT OF SUCH INTEREST INCOME IS THAT DEPOSITS HAVE BEEN MADE FO R SAFE CUSTODY OF FUNDS OR FOR EFFICIENT UTILIZATION OF FUNDS O R FOR CARRYING OUT MUTUAL ACTIVITIES AND NOT FOR EARNING INTEREST AND T HEREFORE THESE HAD TO BE COVERED BY THE PRINCIPLE OF MUTUALITY. THE OTH ER VIEW WHICH IS ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 18 SUPPORTED BY THE JUDGMENT OF HONBLE HIGH COURT OF KAR NATAKA IS THAT INCOME RECEIVED FROM THIRD PARTIES WHO ARE NOT MEMBERS CANNOT BE COVERED BY PRINCIPLE OF MUTUALITY. WE FIND THAT THE SAME ISSUE HAD ARISEN IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 IN W HICH HONBLE HIGH COURT IN ORDER DATED 17.6.2010 IN INCOME TAX APPEAL NO.2060 OF 2009 HELD THAT INTEREST INCOME RECEIVED FRO M BANK DEPOSITS HAS TO BE EXCLUDED FROM THE PURVIEW OF MUTUALI TY. THE HIGH COURT HOWEVER DID NOT DECIDE THE ISSUE RELATING TO INT EREST INCOME FROM OTHER DEPOSITS AS THE SAID ISSUE HAD NOT BEEN DECIDED BY THE TRIBUNAL AND ACCORDINGLY THE MATER WAS RESTORED TO THE TRIBUNAL. THEREFORE THE ISSUE OF INTEREST FROM OTHER DEPOSITS IS S TILL OPEN. 8. WE MAY HOWEVER NOTE HERE THAT WHILE DECIDING THE ISSUEIN ASSESSMENT YEAR 2001-02 THE HONBLE HIGH COURT HAD FOLLO WED THE VIEW TAKEN BY THE HONBLE KARNATAKA HIGH COURT IN CASE OF ITI EMPLOYEES DEATH & SUPERANNUATION FUND (101 TAXMANN 31 5) IN WHICH THE HONBLE HIGH COURT HELD THAT THE PRINCIPLE OF MUT UALITY COULD ONLY COVER THE SURPLUS WHICH ACCRUES TO MUTUAL ASSOCIATION OUT OF CONTRIBUTION RECEIVED FROM ITS MEMBERS AND WOULD HAVE N O APPLICATION IN CASE OF SURPLUS RECEIVED FROM NON MEMBERS. THUS FOLL OWING THE SAID JUDGMENT INCOME EARNED FROM AN OUTSIDE AGENCY BY WAY OF INTEREST WOULD NOT BE COVERED BY THE PRINCIPLE OF MUTUALITY. THE HONBLE HIGH COURT OF KARNATAKA IN THE SAID CASE HAD ALSO OBSERVED TH AT IT WAS NOT A ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 19 CASE WHERE ASSESSEE ADVANCED FUNDS TO THE MEMBERS AND INTERE ST WAS RECEIVED FROM SUCH MEMBERS WHICH SHOWS THAT INTEREST RECEIV ED FROM MEMBERS ON ADVANCES GIVEN BY THE ASSESSEE CAN BE CONSIDERED F OR MUTUALITY BUT NOT INTEREST RECEIVED FROM ANY OTHER CON CERN. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE PLACING RELIANCE ON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT(A) VS. PARAMOUNT PREMISES (P.) LTD. (190 ITR 259) ARGUED THAT INTEREST INCOME IN THIS CASE HAD ARISEN FROM DEPOSITS MADE IN CONNE CTION WITH THE BUSINESS AND THEREFORE IT WAS BUSINESS INCOME AND THUS PRINCIPLE OF MUTUALITY WOULD APPLY. IN OUR VIEW THE ISSUE RAISED IN THIS APPEAL IS NOT WHETHER THE INTEREST EARNED FROM DEPOSITS WITH MUD C AND MSEB IS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. THE ISSUE IS WH ETHER INTEREST INCOME WILL BE COVERED BY THE PRINCIPLE OF MUT UALITY. THE INTEREST RECEIVED FROM DEPOSITS GIVEN IN CONNECTION WITH THE BUSINESS MAY BE CONSIDERED AS INCIDENTAL BUSINESS INCOME BUT SOURCE OF SUCH INCOME IS THE DEPOSITS WITH NON MEMBERS ARE NOT THE MUTU AL ACTIVITIES. IN OUR VIEW FOLLOWING THE JUDGMENT OF HONBLE HIGH C OURT OF KARNATAKA IN THE CASE OF ITI EMPLOYEES DEATH & SUPERANNUATION FU ND (SUPRA) WHICH HAS ALSO BEEN FOLLOWED BY THE HONBLE HIGH COURT OF BOMBAY IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2001-02 INTEREST INCOME RECEIVED FROM THE DEPOSITS WITH MIDC AND MSEB HAS TO BE EXCLUDED FROM THE PURVIEW OF MUTUALITY BECAUSE THE SOURCE OF THI S INCOME IS NOT ITA NO. 2946-47 & 48/M/11 A.Y.06-07 TO 08-09 20 MUTUAL ACTIVITY BUT THIRD PARTY CONCERNS WITH WHOM DEPO SITS HAVE BEEN KEPT. THE ORDERS OF CIT(A) EXCLUDING SUCH INTEREST FRO M THE PURVIEW OF MUTUALITY ARE THEREFORE UP HELD. 9. IN THE RESULT APPEAL OF THE ASSESSEE FOR THE ASSESSMENT Y EARS 2006-07 AND 2008-09 ARE PARTLY ALLOWED AND THAT FOR THE ASSESSMENT YEAR 2007-08 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.2.2012. SD/- SD/- (VIJAY PAL RAO) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI DATED: 24.2.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.