The ACIT, 2(1), Bhopal v. M/s M.P.Hast Shilp Avam Hatkargha Vikas Nigam Ltd., Bhopal

ITA 59/IND/2011 | 2007-2008
Pronouncement Date: 30-11-2011 | Result: Dismissed

Appeal Details

RSA Number 5922714 RSA 2011
Assessee PAN AACCM3291N
Bench Indore
Appeal Number ITA 59/IND/2011
Duration Of Justice 6 month(s)
Appellant The ACIT, 2(1), Bhopal
Respondent M/s M.P.Hast Shilp Avam Hatkargha Vikas Nigam Ltd., Bhopal
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 30-11-2011
Assessment Year 2007-2008
Appeal Filed On 30-05-2011
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C. SHARMA ACCOUNTANT MEMBER ITA NO.59/IND/2011 A.Y. 2007-08 ASSTT. COMMISSIONER OF INCOME TAX 2(1) BHOPAL ... APPELLANT VS M/S M.P. HAST SHILK AVAM HATHKARGHA VIKAS NIGAM LIMITED BHOPAL PAN AACCM 3291N ... RESPONDENT CO NO. 11/IND/2011 ARISING OUT OF ITA NO. 59/IND/2011 M/S M.P. HAST SHILPK AVAM HATHKARGHA VIKAS NIGAM LIMITED BHOPAL ... OBJECTOR VS ASSTT. COMMISSIONER OF INCOME TAX 2(1) BHOPAL ... RESPONDENT DEPARTMENT BY : SHRI ARUN DEWAN ASSESSEE BY : SHRI S.S. DESHPANDE DATE OF HEARING : 08.11.2011 DATE OF PRONOUNCEMENT:30 .11.2011 2 O R D E R PER JOGINDER SINGH THE REVENUE IS AGGRIEVED BY THE DECISION OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DATED 6.1.2011 AND THE ASSE SSEE HAS ALSO FILED CROSS OBJECTIONS AGAINST THE AFORESAID ORDER. FIRS TLY WE SHALL TAKE UP APPEAL OF THE REVENUE WHEREIN THE ONLY GROUND RAISE D IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. FIRST APPELLATE AUTHORITY ERRED IN HOLDING THAT INTEREST INCOME FROM FDRS AS INCOME FROM BUSINESS WHICH IS NOT IN CONSONANCE WITH THE DECISI ON OF JURISDICTIONAL HIGH COURT IN THE CASE OF FERROR CONCRETE CONSTRUCT ION ((INDIA) P. LIMITED V. CIT; 290 ITR713 (MP) WHEREIN THE INTERES T RECEIVED ON BANK DEPOSIT WAS HELD TO BE ASSESSED AS INCOME FROM OTH ER SOURCES. 2. DURING HEARING OF THIS APPEAL WE HAVE HEARD SHR I ARUN DEWAN LEARNED SR. DR AND SHRI S.S. DESHPANDE THE LEARNED COUNSEL FOR THE ASSESSEE. THE CRUX OF ARGUMENTS ON BEHALF OF THE R EVENUE IS IDENTICAL TO THE GROUND RAISED WHEREAS THE LEARNED COUNSEL FOR T HE ASSESSEE CONTENDED THAT THE ASSESSEE WAS FORMED FOR PROMOTIO N OF HANDICRAFTS AND KHADI AND THE GRANTS WERE RECEIVED FOR SPECIFIC PURPOSES ONLY. IT WAS CONTENDED THAT IT HAS TO BE ALLOWED U/S 10(23BB ) OF THE ACT. 3 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CORPORATION WAS FORMED BY THE GOVERNMENT OF MADHYA PRADESH WITH THE PRIMARY OBJECT TO PROMOTE DEVELOPMENT OF HANDICRAFT S HANDLOOM PRODUCTS KHADI PRODUCTS OF VILLAGE INDUSTRIES ETC . THE ASSESSEE CORPORATION SHOWED NIL INCOME IN ITS RETURN FILED O N 31.10.2007 ALONG WITH AUDITED FINAL ACCOUNTS. THE ASSESSEE ALSO PRO DUCED BOOKS OF ACCOUNT VOUCHERS BANK STATEMENT ETC. AND THE SAM E WERE VERIFIED BY THE LEARNED ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEE SHOWED INTEREST INCOME OF RS.28 80 027/- IN ITS FINAL ACCOUNTS WHICH WAS CONSIDERED AS INCOME FROM OTHER SOURCES B Y THE ASSESSING OFFICER. ON APPEAL IT WAS ASSERTED BY THE ASSESSE E THAT INTEREST EARNED ON FDRS IS INCIDENTAL THEREFORE IT SHOULD BE TREA TED AS BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES. THE LEARNED CIT (A) HELD AS UNDER :- I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE SUBMISSION OF THE LD. AR WHICH IS PLACED ON RECORD. THE A.O. HAS TREATED INTEREST EARNED ON FDR AMOUNTING TO RS. 28 80 027/- AS INCOME FROM OTHER SOURCES AND HAS FURTHER STATED TH AT ONLY LOSS OF CURRENT YEAR AND UNABSORBED DEP CAN BE SET OFF AGAI NST THE SAID INCOME. THE LD. AR HAS CHALLENGED THE ORDER OF THE A.O. ON THE GROUND THAT THE INTEREST ON FDR IS BASICALLY AN INC OME ON UNSPENT PORTION OF THE GRANT-IN-AID RECEIVED BY THE APPELLA NT FROM THE STATE GOVERNMENT FOR THE BENEFITS OF VASTU SHILPI OF REMO TE VILLAGES OF THE STATE. EVEN OTHERWISE IT IS A PRE-CONDITION FO R THE GRANTS RECEIVED FROM THE GOVERNMENT THAT UNTIL AND UNLESS IT IS UTILISED FOR THE PURPOSE FOR WHICH IT IS GIVEN THE GRANT SHOULD BE KEPT IN THE BANK AS FDR AND THEREFORE IT CANNOT BE CALLED AS PA RKING OF SPARE FUNDS TO EARN INTEREST. THE INTEREST INCOME EARNED IS ALSO TO BE SPENT ON THE SPECIFIED ACTIVITIES FOR WHICH THE SAM E IS GIVEN BY THE STATE GOVERNMENT. THE APPELLANT IS PROHIBITED FROM MAKING ANY DEVIATION IN THIS REGARD AND IT IS INVARIABLY TO BE KEPT IN THE BANK 4 AS FDR. THE AUDITOR OF C&&AGAINST KEEPS STRICT WAT CH ON UTILISATION OF THE GRANT AS WELL AS THE INTEREST EA RNED. THUS THE MOTIVE BEHIND KEEPING THE GRANT IN AID IS NOT FOR E ARNING INTEREST BUT IT IS INCIDENTAL TO THE ACTIVITY OF THE APPELLA NT FOR WHICH IT IS CREATED BY THE GOVERNMENT. THE BASIC MOTTO AND OBJE CTIVE OF THE ASSESSEE IS TO PROMOTE HANDICRAFTS AND HANDLOOM PRO DUCTS OF THE VILLAGE INDUSTRIES AND IT IS CREATED FOR THE UPLIFT MENT OF POOR VILLAGE CRAFTSMEN. THUS IN MY CONSIDERED VIEW THE A.O. WA S NOT CORRECT IN TREATING THE INTEREST INCOME ON FDR AS INCOME FR OM OTHER SOURCES IN VIEW OF THE FACTS AND CIRCUMSTANCES OF T HE CASE. THE A.O. HAS TAKEN AN UNILATERAL DECISION OF TAXING INT EREST INCOME AS INCOME FROM OTHER SOURCES WITHOUT GOING INTO NATURE OF INCOME AND WITHOUT EXAMINING THE OBJECTIVE FOR WHICH THE H ASTA SHILP CORPORATION EXISTS AND THE REASONS FOR WHICH FDR HA S BEEN CREATED. THE A.O. IN FACT HAS NOT ASKED FOR ANY DE TAILS OR EXPLANATION FROM THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. THUS I AM INCLINED TO DIRECT THE A.O . THAT INCOME EARNED ON FDR AMOUNTING TO RS. 28 80 827/- SHOULD B E TAXED AS INCOME FROM BUSINESS AS SHOWN BY THE APPELLANT IN T HE RETURN OF INCOME AND NOT AS INCOME FROM OTHER SOURCES. THIS GROUND IS DECIDED IN FAVOUR OF THE APPELLANT. 4. IF THE CONCLUSION DRAWN IN THE IMPUGNED ORDER AN D THE ASSERTION MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE KEPT IN JUXTA POSITION WE FIND THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GONE BY TH E OBJECTIVE OF THE ASSESSEE IN PROMOTING HANDICRAFT AND HANDLOOM PRODUCTS OF THE V ILLAGE INDUSTRY AS THE SAME WAS CREATED FOR THE UPLIFTMENT OF POOR CRAFTSMAN BUT TH E MAIN QUESTION BEFORE US IS WHETHER THE INTEREST INCOME ON FDR IS INCOME FROM O THER SOURCES OR BUSINESS INCOME. AS PER THE ACT THERE ARE SPECIFIED HEADS OF INCOME THEREFORE UNDER WHICH HEAD THE INCOME WILL FALL DEPENDS UPON THE SOURCE. EVEN IF AN ITEM OF INCOME IS EARNED IN THE COURSE OF CARRYING ON OF THE BUSINESS IT IS ALWAYS NOT NECESSARY THAT IT WILL FALL WITHIN THE HEAD PROFITS AND GAINS OF BUS INESS. FOR EXAMPLE IF SECURITIES CONSTRUED STOCK IN TRADE OF THE BUSINESS OF AN ASSE SSEE INTEREST RECEIVED FROM THOSE SECURITIES WILL FOR THE PURPOSE OF DETERMINING THE TAXABLE INCOME BE SHOWN UNDER THE HEAD INTEREST ON SECURITIES. SIMILARLY DIVIDEND F ROM SHARES WILL BE SHOWN UNDER THE HEAD OTHER SOURCES. IF AN ASSESSEE CARRIES ON BUS INESS OF PURCHASE AND SALE OF 5 BUILDINGS THE PROFIT AND GAINS EARNED BY TRANSACTI ON IN BUILDING WILL BE SHOWN UNDER PROFIT AND GAINS OF BUSINESS BUT INCOME RECEIVED FROM BUILDING SO LONG AS THEY ARE OWNED BY THE ASSESSEE WILL BE SHOWN UNDER THE HEAD INCOME FROM PROPERTY. BEFORE TAKING ANY DECISION THE OBJECT NATURE AND SOURCE OF THE AMOUNTS/GRANTS HAS TO BE SEEN. FOR EXAMPLE INTEREST EARNED BY A COOP ERATIVE BANK FROM INVESTMENT OF PROVIDENT FUND AMOUNTS OF ITS EMPLOYEES IS NOT DEDU CTIBLE U/S 80P(2)(A)(I) OF THE ACT. ONLY SUCH INTEREST WHICH IS EARNED ON SUCH DEPOSITS NECESSARY FOR THE PURPOSE OF CARRYING ON THE BANKING BUSINESS IS TO BE TREATED A S BANKING BUSINESS AS WAS HELD IN BIHAR RAJYA SAHKARI BHUMI VIKAS COOP. BANK; 186 TAX MAN 84 (PAT.). IDENTICAL RATIO WAS LAID DOWN BY THE HON'BLE APEX COURT IN TOTGARS COOP. SALE SOCIETY LTD.; 188 TAXMAN 282 (SC). THE OBJECT OF THE ASSESSEE IS NOT TO EARN INTEREST RATHER HAS TO BE USED TO PROMOTE HANDICRAFT AND HANDLOOM PRODUCTS OF VILLAGE INDUSTRIES. IT IS NOT THE BUSINESS OF THE ASSESSEE TO EARN INTEREST. EVEN OTH ERWISE IF EARNED THEN IT HAS TO BE TREATED AS INCOME FROM OTHER SOURCES AND NOT THE BUSINESS INCOME. THE RATIO LAID DOWN BY HON'BLE APEX COURT THOUGH FOR THE PURPOSE O F 80HH OF THE ACT IN CIT V. STERLING FOODS (237 ITR 579) FURTHER SUPPORTS THE C ASE OF THE REVENUE. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF FERRO CONC RETE CONSTRUCTION (INDIA) PRIVATE LIMITED VS. CIT; (2007) 290 ITR 713 WHEREIN THE AS SESSEE WAS ENGAGED IN CIVIL CONSTRUCTION WORKS. FOR THE ASSESSMENT YEAR 1991-92 TO 1992-93 THE ASSESSEE RECEIVED RS. 3 85 578/- RS.4 09 583/- AND RS.3 69 608/- RESPECTIVELY BY WAY OF INTEREST EARNED ON BANK DEPOSITS AND BY SALE OF EMP TY BAGS CONTAINERS AND DRUMS. THE ASSESSEE CLAIMED THE ENTIRE INCOME BY TREATING THE SAME AS INCOME FROM BUSINESS WHEREAS THE ASSESSING OFFICER TOOK THE VIE W THAT IT WAS INCOME FROM OTHER SOURCES. THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HELD THAT IT WAS 6 BUSINESS INCOME. HOWEVER THE TRIBUNAL HELD THAT I T WAS INCOME FROM OTHER SOURCES. HON'BLE HIGH COURT HELD AS UNDER :- (I) THAT THE INCOME EARNED BY WAY OF INTEREST ON SHORT TERM DEPOSITS BY THE ASSESSEE WAS NOT ITS BUSINESS INCOME BECAUSE FIRSTLY IT WAS NOT ITS MAIN OR ANCILLARY BUSINESS AND SECONDLY NO MEMORANDUM OF ASSOCIATION WA FILED OR RELIED UPON TO SHOW THAT THE ASSESSEE IN ADDITION TO ITS MAIN BUSINESS OF CIVIL CONSTRUCTION ETC. WAS ALSO ENGAGED IN SOME KIND OF MONEY LENDING OR DEPOSIT BUSINESS WITH ITS SURPLUS FUNDS. THEREFORE THE INCOME EARNED BY THE ASSESSEE ON ITS FUNDS INVESTED IN SHORT TERM DEPOSITS IN ORDER TO EARN INTEREST WAS NOT BE TREATED AS ITS BUSINESS INCOME BUT IT WAS CHARGEABLE TO TAX UNDER SECTION 56 AS INCOME FROM OTHER SOURCE. WHILE COMING TO THE AFORESAID DECISION THE HON'BLE COURT FOLLOWED THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF T UTI CORIN ALKALI CHEMICALS & FERTILIZERS LIMITED (227 ITR 172) WHERE IN FOR THE ACCOUNTING YEAR ENDING ON 30 TH JUNE 1981 (ASSESSMENT YEAR 1982-83) THE ASSESSEE RECEIVED THE TOTAL AMOUNT OF INTEREST OF R S. 2 92 440/-. IN ITS RETURN OF INCOME FILED ON 22.6.1982 THE COMPANY DI SCLOSED THE SAID INCOME INCOME FROM OTHER SOURCES. IT ALSO DISCLOS ED BUSINESS LOSS OF RS.3 21 802/-. AFTER SETTING OFF THE INTEREST INCO ME AGAINST THE BUSINESS LOSS THE COMPANY CLAIMED THE BENEFIT OF CARY FORWA RD OF NET LOSS OF RS. 29 360/-. THE COMPANY LATER ON REALISED ITS MISTAKE ON DECEMBER 26 1984 AND FILED A REVISED RETURN SHOWING BUSINESS LO SS OF RS. 3 21 802/- 7 ................... IN VIEW OF THE CONFLICT OF DECI SIONS BETWEEN HON'BLE MADRAS AND ANDHRA PRADESH HIGH COURT THE TRIBUNAL REFERRED THE QUESTION REGARDING TAXABILITY OF INCOME DIRECTLY TO THE HON 'BLE APEX COURT WHEREIN IT WAS HELD AS UNDER :- HELD THAT THE COMPANY HAD SURPLUS FUNDS IN ITS H ANDS. IN ORDER TO EARN INCOME OUT OF THE SURPLUS FUNDS IT H AD INVESTED THE AMOUNT FOR THE PURPOSE OF EARNING INTEREST. THE INT EREST THUS EARNED WAS CLEARLY OF REVENUE NATURE AND WOULD HAVE TO BE TAXED ACCORDINGLY. THE ACCOUNTANTS MIGHT HAVE TAKEN SOME OTHER VIEW BUT ACCOUNTANCY PRACTICE WAS NOT NECESSARILY GOOD L AW. THIS WAS NOT A CASE OF DIVERSION OF INCOME BY OVERRIDING TIT LE. THE ASSESSEE WAS ENTIRELY AT LIBERTY TO DEAL WITH THE I NTEREST AMOUNT AS IT LIKED. THE APPLICATION OF THE INCOME FOR PAYM ENT OF INTEREST WOULD NOT AFFECT ITS TAXABILITY IN ANY WAY. THE COM PANY COULD NOT CLAIM ANY RELIEF UNDER SECTION 70 OR SECTION 71 SIN CE ITS BUSINESS HAD NOT STARTED AND THERE COULD NOT BE ANY COMPUTAT ION OF BUSINESS INCOME OR LOSS INCURRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEARS. IN SUCH A SITUATION THE EXPENDIT URE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF SETTING UP ITS BUSI NESS COULD NOT BE ALLOWED AS DEDUCTION NOR COULD IT BE ADJUSTED AG AINST ANY OTHER INCOME UNDER ANY OTHER HEAD. SIMILARLY ANY I NCOME FROM A NON BUSINESS SOURCE COULD NOT BE SET OFF AGAINST TH E LIABILITY TO PAY INTEREST ON FUNDS BORROWED FOR THE PURPOSE OF P URCHASE OF PLANT AND MACHINERY EVEN BEFORE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE. THE HON'BLE MADRAS HIGH COURT IN CIT VS. SESHAYAYEE PAPER & BOARDS LIMITED (156 ITR 542) CLEARLY HELD THAT THE INTERES T EARNED BY THE ASSESSEE ON INVESTMENT OF SHARE CAPITAL IN CALL DEP OSITS COULD BE ASSESSED SEPARATELY UNDER THE HEAD OTHER SOURCES. 5. IF THE AFORESAID JUDICIAL PRONOUNCEMENTS ARE KEP T IN JUXTAPOSITION WITH THE FACTS OF THE PRESENT APPEAL THE ASSESSEE CORPORATION EARNED INTEREST INCOME ON FDRS. IT IS NOT THE BUSINESS OF THE ASSESSEE TO EARN INTEREST INCOME. SINCE EARNING OF INTEREST INCOME IS NOT THE MAIN ACTIVITY 8 OR BUSINESS OF THE ASSESSEE THEREFORE THE INCOME SO EARNED FROM FDRS IS INCOME FROM OTHER SOURCES. THE STAND OF LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) IS THEREFORE IN PRINCIPLE IS REVERSED. 6. ALTERNATIVELY THE LEARNED COUNSEL FOR THE ASSES SEE CLAIMED THAT IT HAS TO BE ALLOWED U/S 10(23BB) OF THE ACT. THIS AS SERTION OF THE ASSESSEE WAS NOT CONTROVERTED BY THE REVENUE. HOWEV ER THE LEARNED SENIOR DR DEFENDED THE ASSESSMENT ORDER. 6.1 IN VIEW OF THE ABOVE WE FIND THAT CHAPTER III DEALS WITH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME THEREFORE WE ARE REPRODUCING HEREUNDER SUB-SECTION (23BB) OF SECTION 10 OF THE A CT :- (23BB) ANY INCOME OF AN AUTHORITY (WHETHER KNOWN AS THE KHADI AND VILLAGE INDUSTRIES BOARD OR BY ANY OTHER NAME) ESTABLISHED IN A STATE BY OR UNDER A STATE OR PROVI NCIAL ACT FOR THE DEVELOPMENT OF KHADI OR VILLAGE INDUSTRIES IN T HE STATE. EXPLANATION.- FOR THE PURPOSE OF THIS CLAUSE KHADI AND VILLAGE INDUSTRIES HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN THE KHADI AND VILLAGE INDUSTRIES COMMISSION ACT 19 56 (61 OF 1956) IN VIEW OF THE CLEAR PROVISIONS OF THE ACT ON THIS ALTERNATE GROUND WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. IN ITS CROSS OBJECTION THE ASSESSEE HAS TA KEN THE GROUND THAT THE ASSESSMENT IS BARRED BY LIMITATION AS THE ASSESSMEN T WAS COMPLETED ON 7.1.2010 AND SHOULD HAVE BEEN COMPLETED BEFORE 31 ST DECEMBER 2009 CONSEQUENTLY THE ASSESSMENT ORDER BE QUASHED. SIN CE THE APPEAL OF 9 THE ASSESSEE REVENUE HAS BEEN DISMISSED AND THE ISS UE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE THEREFORE THE C ROSS OBJECTION OF THE ASSESSEE BECOMES INFRUCTUOUS AND DISMISSED AS SUCH. FINALLY THE APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRE SENCE OF LEARNED REPRESENTATIVES OF BOTH THE SIDES ON 30 NOVEMBER 2011. SD SD (R.C. SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED - 30 NOVEMBER 2011 COPY TO APPELLANT RESPONDENT CIT CIT(A) DR GUA RD FILE DN/-