M/S. MID-DAY RADIO NORTH (INDIA)LTD, MUMBAI v. THE ITO 6(3)(4),

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH MUMBAI BEFORE SHRI D.K. AGARWAL JUDICIAL MEMBER AND SHRI RAJENDRA SINGH ACCOUNTANT MEMBER ITA NO. 475/MUM/2008 (ASSESSMENT YEAR: 2003-04) MID-DAY RADIO NORTH (INDIA) LTD. VS. INCOME TAX OFFICER - 6(3)(4) 156-D J. DADAJEE ROAD AAYAKAR BHAVAN M.K. ROAD TARDEO MUMBAI 400034 MUMBAI 400020 PAN - AACCM 2756 Q APPELLANT RESPONDENT APPELLANT BY: MS. RENU CHOUDHARI/ SHRI PARAS SAVLA RESPONDENT BY: MR. S.K. SINGH O R D E R PER D.K. AGARWAL J.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 23.11.2007 PASSED BY THE LEARNED CIT(A) FOR A .Y. 2003-04. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF OPERATING PRIVATE FM RAD IO CHANNEL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS INTER ALIA OBSERVED BY THE A.O. THAT DURING THE PERIOD UNDER CONSIDERATION THE COMPANY WAS ENGAGED IN IMPLEMENTATION OF THE PROJECT IN OTHER WORDS THE A SSESSEE HAS NOT STARTED ITS BUSINESS ACTIVITY. THE ASSESSEE WAS ASKED TO SH OW CAUSE AS TO WHY THE INTEREST INCOME OF ` 16 66 823/-BE NOT INCLUDED IN THE TOTAL INCOME OF T HE ASSESSEE. IN REPLY THE ASSESSEE VIDE LETTER DATED 1 6.10.2006 STATED AS UNDER: - DURING THE YEAR UNDER CONSIDERATION THE COMPANY E ARNED INTEREST INCOME OF RS.1666823/- ON FIXED DEPOSIT WITH BANK W HICH WERE PLACED AS MARGIN MONEY DEPOSIT WITH THE BANK FOR PR OVIDING GUARANTEE TO THE MINISTRY OF INFORMATION AND BROADC ASTING ON BEHALF OF THE COMPANY IN ORDER TO OBTAIN LICENSE TO OPERAT E THE FM BROADCASTING ACTIVITIES. THE ASSESSEE COMPANY HAD ENTERED INTO LICENSE AGREE MENT WITH MINISTRY OF INFORMATION & BROADCASTING GOVERNMENT OF INDIA NEW DELHI. AS PER SAID LICENSE AGREEMENT DATED 13 TH OCTOBER 2000 THE LICENSOR I.E. THE MINISTRY OF INFORMATION & BROADC ASTING HAD AGREED ITA NO. 475/MUM/2008 MID-DAY RADIO NORTH (INDIA) LTD. 2 TO GRANT LICENSE TO THE ASSESSEE I.E. THE LICENSEE TO CONSTRUCT/ERECT MAINTAIN AND OPERATE FM RADIO BROADCASTING STATION AT DELHI VALID FOR 10 YEARS ON TERMS AND CONDITIONS SPECIFIED IN T HE SAID LICENCE AGREEMENT. AS PER ARTICLE 16 OF THE ABOVE AGREEMENT THE LICEN SEE WAS REQUIRED TO FURNISH A BANK GUARANTEE EQUIVALENT TO FIRST YE ARS LICENSE FEES AMOUNTING TO RS.712.50 LACS. THE SAID BANK GUARANTE E WAS REQUIRED TO BE FURNISHED AT THE TIME OF EXECUTION OF THE AFO RESAID LICENCE AGREEMENT AND WHICH WAS VALID FOR A PERIOD OF TEN Y EARS. AS A PRE- CONDITION FOR ISSUING THE BANK GUARANTEE OF RS.712 .50 LACS IN FAVOUR OF MINISTRY OF INFORMATION & BROADCASTING THE ASSE SSEE WAS REQUIRED BY ITS BANKER TO KEEP MARGIN MONEY DEPOSIT TO THE E XTENT OF 20% OF THE GUARANTEE AMOUNT AS SECURITY FOR PROVIDING THE BANK GUARANTEE. THE COMPANY HAS EARNED INTEREST OF RS.1666823/- WHI CH WAS RIGHTLY DEDUCTED FORM EXPENDITURE INCURRED DURING THE CONST RUCTION PERIOD AS SUCH RECEIPT IS INEXTRICABLY LINKED WITH THE SET TING UP OF THE CAPITAL STRUCTURE OF THE ASSESSEE COMPANY. IN SUPPORT OF THE ABOVE CONTENTION THE FOLLOWING CASE LAWS HAVE BEEN CITED BY THE ASSESSEE COMPANY: 1. CIT VS. KARNAL CO-OPERTIVE SUGAR MILLS LTD. 243 ITR 2 2. CIT VS. BOKARO STEEL LTD. 236 ITR 315 3. THE A.O. AFTER CONSIDERING ASSESSEES EXPLANATION O BSERVED THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF ` 1 01 86 626/- DURING THE PRE- COMMENCEMENT OF THE BUSINESS. THE INTEREST OF ` 16 66 823/- ON MARGIN MONEY AGAINST BANK GUARANTEE WAS CAPITALISED IN THE BOOKS AND ADJUSTED AGAINST THE PRE-COMMENCEMENT EXPENSES. THE A.O. AF TER RELYING ON VARIOUS DECISIONS INCLUDING THE DECISION OF THE HON'BLE APE X COURT IN TUTICORN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT 227 ITR 172 (SC) HOWEVER ASSESSED THE INTEREST INCOME OF ` 16 66 823/- AS INCOME FROM OTHER SOURCES. ON APPEAL BEFORE THE LEARNED CIT(A) IT WAS SUBMITTED B Y THE ASSESSEE THAT TO START THE FM RADIO STATION LICENCE IS REQUIRED TO BE TAKEN FROM THE MINISTRY OF INFORMATION AND BROADCASTING. UNLESS THE LICENCE IS OBTAINED FROM THE SAID MINISTRY THE ASSESSEE WOULD NOT BE ABLE TO OP ERATE THE FM BROADCASTING ACTIVITIES. IN ORDER TO PURCHASE THE L ICENCE ASSESSEE HAD TO GIVE BANK GUARANTEE WHICH REQUIRES THE ASSESSEE TO KEEP MARGIN DEPOSIT WITH THE BANK. ASSESSEE HAS EARNED INTEREST ON THE SAID INVESTMENT. IT IS INEXTRICABLY LINKED WITH THE SETTING UP OF THE BROA DCASTING SYSTEM BY THE ASSESSEE AND THEREFORE THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY DECISION IN THE CASE OF CIT VS. BOKARO STEEL LTD. ( 1999) 236 ITR 315 (SC) ITA NO. 475/MUM/2008 MID-DAY RADIO NORTH (INDIA) LTD. 3 CIT VS. KARNAL CO-OPERATIVE SUGAR MILLS LTD. (2000) 243 ITR 2 (SC) AND CIT VS. KARNATAKA POWER CORPORATION (2001) 247 ITR 268 (SC). HOWEVER THE LEARNED CIT(A) WHILE DISAGREEING WITH THE ASSESSEE S CONTENTION THAT THE AFORESAID AMOUNT IS INEXTRICABLY LINKED WITH THE SE TTING UP OF THE CAPITAL STRUCTURE RELIED ON CERTAIN DECISIONS AND HELD THA T THE A.O. WAS RIGHT IN TREATING THE INTEREST INCOME AS INCOME FROM OTHER S OURCES. 4. BEING AGGRIEVED BY THE ORDER OF THE CIT(A) ASSESSEE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUND OF APPEAL: - THE LEARNED INCOME TAX OFFICER HAS ERRED IN TREATI NG INTEREST RECEIVED OF RS.16 66 823/- ON MARGIN MONEY AGAINST BANK GUARANTEE DEDUCTED FROM INTEREST EXPENDITURE DURING THE PRE-C OMMENCEMENT EXPENSES AS INCOME CHARGEABLE TO TAX. 5. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN MID-DAY R ADIO NORTH (INDIA) LTD. VS. ITO IN ITA NO. 5721/-MUM/2008 FOR A.Y. 2004-05 DATED 26.02.2010 R.W. M.A. NO. 478/MUM/2010 DATED 10.12.2010. IT WAS THER EFORE SUBMITTED THAT THE INTEREST INCOME SHOWN BY THE ASSESSEE BE TREATE D AS BUSINESS INCOME. 6. ON THE OTHER HAND THE LEARNED D.R. SUPPORTS THE OR DERS OF THE A.O. AND LEARNED CIT(A). 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE FACTS ARE NOT IN DISPUTE. WE FIND MERIT IN THE PLEA OF THE LEARNED C OUNSEL FOR THE ASSESSEE THAT ON SIMILAR ISSUE THE TRIBUNAL IN ASSESSEES OW N CASE FOR A.Y. 2004-05 (SUPRA) HAS HELD VIDE PARA 6 OF ITS ORDER AS UNDER: - 6. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED THE APPLICABLE LEGAL POS ITION AS ALSO THE FACTUAL MATRIX OF THE CASE. WE FIND THAT THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF CIT VS LOK HOLDS 308 ITR 356 HAVE OBSERVED THAT EVEN IN A SITUATION WHERE THE ASSESSEE IS ENGA GED IN THE BUSINESS OF DEVELOPMENT OF PROPERTIES INVESTS THE SURPLUS AMOUNT WITH THE BANK INTEREST EARNED ON SUCH DEPOSIT IS B USINESS INCOME. WE HAVE ALSO NOTED THAT IN THE CASE OF THIS VERY AS SESSEE FOR A.Y. 2001-02 THE ASSESSING OFFICER ACCEPTED THE SAME TR EATMENT GIVEN BY THE ASSESSEE TO INTEREST EARNED ON FD I.E. REDUCIN G THE SAME FROM EXPENDITURE INCURRED AND NOT AS INDEPENDENT SOURCE OF INCOME. AS OBSERVED BY THE HON'BLE SUPREME COURT IN THE CASE R EPORTED AS 193 ITA NO. 475/MUM/2008 MID-DAY RADIO NORTH (INDIA) LTD. 4 ITR 321 STRICTLY SPEAKING RESJUDICETA DOES NOT AP PLY BUT WHEN THE FUNDAMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASS ESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER. IN V IEW OF THESE DISCUSSIONS WE ARE OF THE CONSIDERED VIEW THAT THE RE WAS NO GOOD REASON TO DISTURB THE ACCEPTED PAST HISTORY IN THE CASE OF TREATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES. CONSE QUENTLY WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND DIRECT TH E ASSESSING OFFICER TO RECOMPUTED THE CLAIMS SO MADE BY THE ASSESSEE IN THE LIGHT OF THE DIRECTION GIVEN BY US IN THE AFORESAID PARA. 8. IN MA NO. 478/MUM/2010 DATED 10.12.2010 THE TRIBUNA L HAS SUBSTITUTED ITS FINDING IN PARA 6 SECOND LAST SENT ENCE AS UNDER: - IN VIEW OF THESE DISCUSSIONS WE ARE OF THE CONSID ERED VIEW THAT THERE WAS NO GOOD REASON TO DISTURB THE ACCEPTED PA ST HISTORY IN THE CASE OF TREATING THE INTEREST INCOME AS BUSINESS IN COME. 9. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGH T ON RECORD BY THE REVENUE AND KEEPING IN VIEW THE RULE OF CONSISTENCY WE HOLD THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE O RDER OF THE A.O. IN TREATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCE INS TEAD OF INCOME FROM BUSINESS. THE GROUND TAKEN BY THE ASSESSEE IS THER EFORE ALLOWED. 10. IN THE RESULT ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH FEBRUARY 2011. SD/- SD/- ( RAJENDRA SINGH ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 18 TH FEBRUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXVI MUMBAI 4. THE CIT VI MUMBAI CITY 5. THE DR I BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P. ITA NO. 475/MUM/2008 MID-DAY RADIO NORTH (INDIA) LTD. 5 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 09.02.11 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 10.02.11 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER