IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : H : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI I.C. SUDHIR, JM
ITA Nos.3956 &6457/Del/2012
Assessment Years : 2008-09 & 2009-10
ACIT, Vs. THDC India Ltd.,
Circle Haridwar, Bhagirathi Bhawan,
D-29 & 30, Industrial Area, Pragatipuram,
Haridwar. Bye Pass Road,
Rishikesh.
PAN: AAACT7905Q
CO Nos.91 & 92/Del2014
(ITA Nos.3956 &6457/Del/2012)
Assessment Years : 2008-09 & 2009-10
THDC India Ltd., Vs. ACIT,
Bhagirathi Bhawan, Circle Haridwar,
Pragatipuram, D-29 & 30, Industrial Area,
Bye Pass Road, Haridwar.
Rishikesh.
PAN: AAACT7905Q
(Appellant) (Respondent)
Assessee By : None
Department By : Shri J.P. Chandrakar, Sr. DR
ITA No.3956 & 6457/Del/2012
CO Nos.91 & 92/Del/2014
Date of Hearing : 02.03.2015
Date of Pronouncement : 03.03.2015
ORDER
PER R.S. SYAL, AM:
These two appeals by the Revenue and equal number of cross
objections by the assessee relate to the AYs 2008-09 and 2009-10.
2. Since common issues are involved in these appeals, we are
proceeding to dispose them off by this consolidated order for the sake of
convenience.
Assessment Year 2008-09
3. The Revenue is aggrieved against the allowing of deduction u/s
80IA on the amount of `Excess provision written back' and `Late
payment charges'.
4. Briefly stated, the facts of the case are that the assessee is a joint
venture company of the Government of India and the Government of
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CO Nos.91 & 92/Del/2014
Uttar Pradesh. It is engaged in the business of generation of hydro-
electricity. Apart from the income from the direct generation of power,
the assessee also earned income classified as `Other incomes' detailed as
under :-
Income from bank deposit Rs. 14465893.10
Interest from employees Rs. 23555964.00
From others Rs. 2824.17
Machine hire charges Rs. 1298369.00
Rent receipts Rs. 2626552.96
Sundry receipts Rs. 6418412.34
Excess provision written back Rs. 11611006.22
Profit on sale of assets Rs. 1191502.46
Late payment surcharge Rs. 4451755.00
Total Rs.6,56,22,279.25
5. The AO observed that the assessee claimed deduction u/s 80IA on
all the above items of income except `Interest from bank' to the tune of
Rs.1,01,12,153/- and `Profit from sale of assets'. It was opined that the
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CO Nos.91 & 92/Del/2014
other items of income as listed in the above table were derived from
independent source of income and did not have any first degree nexus
with the generation of power. Relying on the judgment of the Hon'ble
Supreme Court in the case of Liberty India vs. CIT (2009) 317 ITR 218
(SC), he denied deduction u/s 80IA on the remaining items. The ld.
CIT(A) got convinced with the assessee's contention in respect of
`Excess provision written back' and `Late payment charges' for which
he ordered for the grant of deduction u/s 80IA. The Revenue is
aggrieved against such direction of the ld. CIT(A).
6. We have heard the ld. DR and perused the relevant material. There
is no appearance from the side of the assessee. Here, it is relevant to
mention that the appeal was preponed for today at the written request of
the assessee's counsel. Despite that, a request for adjournment has been
filed, which has been rejected by us. We are, therefore, going ahead with
the disposal of these appeals ex parte qua the assessee, on merits.
7. It is seen that the entire controversy lies in a narrow compass, as to
whether the above items of income qualify for deduction u/s 80-IA. At
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CO Nos.91 & 92/Del/2014
this juncture, it is relevant to set out sub-section (1) of section 80IA
which provides that : `Where the gross total income of an assessee
includes any profits and gains derived by an undertaking or an enterprise
from any business referred to in sub-section (4) (such business being
hereinafter referred to as the eligible business), there shall, in accordance
with and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction of an amount
equal to hundred per cent of the profits and gains derived from such
business for ten consecutive assessment years'. A perusal of the
mandate of sub-section (1) manifestly divulges that the deduction is
available at the rate of 100% of the profits and gains `derived from' the
eligible business. The expression `derived from' has received the
attention of the Hon'ble Apex Court in several cases. In Liberty India
(supra), the question was as to whether DEPB/duty drawback is eligible
for deduction u/s 80-IB. Repelling such contention raised on behalf of
the assessee, the Hon'ble Apex Court held that DEPB/duty drawback are
incentives which are not profits derived from the eligible business and
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CO Nos.91 & 92/Del/2014
therefore, fail to form part of net profits of the industrial undertaking for
the purposes of s. 80-IA or 80-IB. It was specifically held that : `It is
evident that s. 80-IB provides for allowing of deduction in respect of
profits and gains derived from the eligible business. The words "derived
from" are narrower in connotation as compared to the words
"attributable to". In other words, by using the expression "derived
from", Parliament intended to cover sources not beyond the first degree.
On analysis of ss. 80-IA and 80-IB it becomes clear that any industrial
undertaking, which becomes eligible on satisfying sub-s. (2), would be
entitled to deduction under sub-s. (1) only to the extent of profits derived
from such industrial undertaking'. In the case of Pandian Chemicals vs.
CIT (2003) 262 ITR 278 (SC), the issue was whether the Interest earned
by industrial undertaking on deposits with Electricity Board qualifies for
relief under s. 80HH. In this section also, the expression used is `derived
from'. Answering the question in favour of the Revenue, the Hon'ble
Summit Court held that : `The words 'derived from' in s. 80HH must be
understood as something which has direct or immediate nexus with the
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CO Nos.91 & 92/Del/2014
appellant's industrial undertaking. Although electricity may be required
for the purposes of the industrial undertaking, the deposit required for its
supply is a step removed from the business of the industrial undertaking.
The derivation of profits on the deposit made with Electricity Board
cannot be said to flow directly from the industrial undertaking itself.
Where the words are unequivocal, there is no scope for importing any
rule of interpretation as submitted by the appellant'. It is discernible
from a survey of the above and several other decisions on the point that
the expression `derived from' is narrower in scope vis-à-vis the
expression `attributable to it.' An income to be `derived from' a
particular source, must have a direct and immediate nexus with such
source. In other words, such income must directly emanate from the
eligible undertaking and should not have an indirect nexus alone. If an
income is indirectly connected with the eligible undertaking, then that
income loses the direct nexus and hence cannot be considered as
`derived from' the eligible undertaking. With the above understanding
of the ambit of the expression `derived from,' we now move forward to
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CO Nos.91 & 92/Del/2014
determine as to whether the two items on which the ld. CIT(A) directed
to allow deduction can be construed as `derived from' the industrial
undertaking.
I. Excess provision written back:
8. This amount represented reversal of excess provision of salary made
in the past in respect of pay revision which was implemented during the
previous year under consideration. The claim of the assessee before the
ld. CIT(A) was that since the provision was found to be in excess, it was
written back in the accounts as `Income' during the previous year.
There is hardly any need to emphasize that salary paid by an undertaking
is part of expenditure otherwise deductible in computing the income
derived from the eligible undertaking. If in the preceding year, the
deduction was claimed for a higher sum, which reduced the eligible
profit with such higher amount of deduction and the actual expenditure
turned out to be less with the result that the excess provision gets written
back in the instant year, it cannot be characterized as anything other than
part and parcel of profit derived from eligible enterprise. In reality, the
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CO Nos.91 & 92/Del/2014
excess provision written back is not an income in itself, but, a reduced
amount of eligible deduction in the computation of profits derived from
eligible enterprise. We, therefore, approve the view taken by the ld.
CIT(A) on this issue.
II. Late payment charges:
9. The ld. CIT(A) has recorded that this receipt represented extra
payment received by the assessee from its customers on account of late
payment of their dues. The character of this receipt has not been
disputed by the ld. DR. In essence, the late payment charges are
nothing, but, part of sale consideration which cannot be viewed
differently. Once deduction is available on sale consideration, there can
be no reason to deny deduction on such late payment charges, which
are part and parcel of such sale consideration. We, therefore, uphold the
impugned order allowing deduction u/s 80IA on this amount.
10. In the Cross Objections, the assessee is aggrieved against not
allowing of deduction u/s 80IA on the remaining amounts.
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CO Nos.91 & 92/Del/2014
I. Interest on employees:
11. The first item is interest which was received against advances to
its employees for various purposes, such as, house building, purchase of
computer, etc. Even though the employees were engaged in power
generation, the fact remains that the interest received by the assessee on
loans advanced by the assessee to its employees cannot be characterized
as income `derived from' eligible undertaking. There is no direct nexus
of such interest income with the eligible undertaking inasmuch as the
immediate source of such income is not the eligible undertaking. Such
income may be attributable to the business of the eligible undertaking,
but, cannot be held as derived from the eligible undertaking. The view
taken by the ld. CIT(A) on this issue is upheld.
II. Machines hire charges:
12. The assessee received hire charges in respect of certain machines
which were given on hire to its contractors who were engaged in the
erection and construction of the power generation facility. We fail to
appreciate as to how such machine hire charges can be considered as
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CO Nos.91 & 92/Del/2014
derived from eligible undertaking. These do not have any direct nexus
with the eligible undertaking. The source of such income is hiring of
machines, which is step away from the eligible undertaking. The view
taken by the ld. CIT(A) on this score is upheld.
III. Rent Receipt:
13. The assessee received rent from its employees' quarters as well as
temporary sheds given to contractors at project sites. Even though such
income may be considered as attributable to the eligible undertaking,
but, it can by no stretch of imagination, be described as `derived from'
the eligible undertaking. We, therefore, approve the view taken by the
ld. CIT(A) on this issue.
IV. Sundry Receipts :
14. These amounts are in the nature of electricity charges, guest house
receipts, subsidized transport and miscellaneous receipts from the
employees and contractors. The reasons given by us hereinabove for not
allowing deduction in respect of the items mentioned above apply with
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CO Nos.91 & 92/Del/2014
full force in respect of such sundry receipts as well. These receipts
cannot be considered as `derived from' the eligible undertaking. We,
therefore, approve the view taken by the ld. CIT(A) on this score.
15. In the result, both the appeals are dismissed.
Assessment Year 2009-10
16. The ld. DR fairly submitted that the facts and circumstances of
both the appeals for this year are, mutatis mutandis, similar to those for
the AY 2008-09.
17. It can be seen from the Revenue's appeal that the dispute is against
the allowing of deduction by the ld. CIT(A) u/s 80IA on income from
`Excess provision written back' and `Late payment of surcharge.' Both
these items are similar to those which we discussed while disposing of
the appeal for the AY 2008-09. Following the decision taken
hereinabove, we uphold the impugned order on this issue.
18. In the Cross Objections filed by the assessee, the dispute is only
against not allowing deduction u/s 80IA in respect of the same items
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CO Nos.91 & 92/Del/2014
which were subject matter of the assessee's cross objections for the AY
2008-09. Following the view taken hereinabove, we uphold the
impugned order on this issue as well.
19. In the result, both the appeals are dismissed.
The order pronounced in the open court on 03.03.2015.
Sd/- Sd/-
[I.C. SUDHIR] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 03rd March, 2015.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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