Income Tax Appellate Tribunal - Chandigarh
M/S H.P. Electricity Regulatory ... vs Addl. Cit, Shimla on 8 February, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए ", च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'A' , CHANDIGARH
ी संजय गग , याय क सद य एवं ीमती अ नपण
ू ा ग'ु ता, लेखा सद य
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.42/Chd/2015
नधा रण वष / Assessment Year : 2011-12
आयकर अपील सं./ ITA Nos.161 to 163/Chd/2017
नधा रण वष / Assessment Year : 2008-09 to 2010-11
H.P. Electricity Regulatory बनाम The Addl.CIT,
Commission, Keonthal Shimla Range,
Commerciall Complex, Khalini, Shimla.
Shimla.
थायी लेखा सं./PAN NO.AAAJH0378N
नधा रती क ओर से/Assessee by : Shri Vishal Mohan, Adv.
राज व क ओर से/ Revenue by : S/Shri Ashish Gupta, CIT DR
Ankur Alya, Sr.DR
सन
ु वाई क तार!ख/Date of Hearing : 13.11.2018
उदघोषणा क तार!ख/Date of Pronouncement: 08.02.2019
आदे श/ORDER
PER BENCH:
The present app eal s rel ate to the same assessee. The appeal i n I TA N o.42/Chd/2015 i s agai nst the or der of the Commi ssi oner of I ncome Ta x ( A ppeal s) , Shi ml a ( i n short 'CI T( A) ' dated 29.10.2014,rel ati ng to assessment year 2011- 12, whereas the appeal s i n I TA Nos.161 to 163/Chd/2017 are agai nst the consol i dated order of the Commissi oner of I ncome Ta x ( Appeal s) , Shi ml a dated 22.11.2016, rel ati ng to assessment years 2011-12,2008 to 2010-11 re specti ve l y, 2 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 passed u/s 250( 6) of the I ncome Ta x At, 1961 ( hereinafter referred to as 'Act') .
2. It was common ground that the issue involved in all the appeals was identical. They were all therefore taken up together for hearing and are being disposed off by this common ,consolidated order.
We shall take up the appeal filed by the assessee pertaining to assessment year 2011-12 in ITA No.42/Chd/2015 and shall be dealing with the facts in the said appeal. Our decision rendered therein will apply mutatis mutandis to other appeals of the assessee.
3. At the outset i t was poi nted out that the sol i tar y i ssue i nvol ved in al l the appeal s r el ated to ta xabi l i t y of the surpl us generated by the assessee commi ssi on duri ng the course of carr yi ng out i ts acti vi ti es. Taki ng up through the facts of the case as narrated i n th e orders of the a uthori ti es bel o w, i t was poi nted out that th e assessee comm i ssi on had been set up by the Government of Hi machal Pradesh under the El ectri ci t y Regul ator y Co mmi ssi on Act, 1998 vi de Noti fi cati on No.MPP-A( 7) /-1) 2000 dated 31.12.2000 and the acti vi ti es undertaken by i t rel ated to determi nati on of tari ff for el ectri ci t y, regul ati on of po wer purchase and its di stri buti on and promoti on of c ompeti ti on, effi ci enc y and economy i n the a cti vi ti es of the el ectri ci t y i ndustr y . I t was poi nted out that duri ng the i mp ugned assessme nt year i .e. 2011-12, the as sessee had sho wn e xcess of i n come over 3 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 e xpendi ture of Rs.2,10,50,524/- and had cl ai med ent i re amount e xempt on the basi s of that the Central El ectri ci t y Regul ator y Commi ssi on ( i n short referred to as CERC) and other state el ectri ci t y regul ator y commi ssi ons were e xempt. Further the assessee submi tted Noti fi cati on No.49/13 dated 3.7.2013 i ssued by the CBD T, Department of Revenue, Mi ni str y of Fi nance whi ch e xempted the i ncome of the assessee commi ssi on. The A.O. noted that the noti ficati on e xempti ng the assessee's i ncome from ta x was appli cabl e for fi nanci al year 2012-13 to 2016-17 and di d not appl y for the i mpugned year i .e. fi nanci al year 2010-11 rel evant to assessment year 2011-12. Thi s was confronted to the assessee who contended that si nce i t i s a regul atory body and i ts functi ons are compl etel y non commerci al i n nature, on the basi s of whi ch i t was not i fi ed as e xempt f rom ta x by CBD T vi de the aforesai d noti fi cati on, therefore the i ncome for the i mpugned year was al so c l ai med as e xempt. The A.O . was not sati sfi ed wi th the repl y o f the assessee st ati ng that the assessee was speci fi cal l y noti fi ed as e xempt u/s 10( 46) of the Act onl y w.e.f. subsequent assessment years. Accordi ngl y, he treated the surp l us of the i ncom e over the e xpendi ture for the i mpugne d year, amou nti ng to Rs.2,10,50,524/-, as ta xabl e an d added the sa me to the i ncome of the assessee.
4. The matter was carri ed i n appeal before the Ld.CI T( A) where the assessee contended that the recei pt i n i ts hands was not i n the nature of i ncome but was i n the nature of 4 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 capi tal recei pt kept i n a noti fi ed fund and al so since i t was not engaged i n a ny busi ness acti vi t y and further since CERC carr yi ng out i denti cal acti vi ti es was e xempt from the pa yment of ta x and the assessee al so had been noti fi ed by the CBD T for e xempti on from tax, therefore, the i ncome for the i mpugned year was not to be subjected to ta x. The Ld.CI T( A) was not convi nced wi th the contenti on of the assessee stati ng that the CERC h ad been speci fi ca l ly noti fi ed as e xempt from ta x u/s 10( 23BBG) of the Act and the assessee coul d n ot get any benefi t of the same. F urther the assessee had be en noti fi ed as e xempt for speci f i ed peri od whi ch di d not i ncl ude the i mpugned assessment year and there was no provi si on by whi ch the noti fi cati on granti ng e xempti on from ta x coul d be gi ven a retrospect i ve effect. Accordi ngl y, the assessee's appeal was di smi ssed by the Ld.CI T( A) .
5. Aggri eved by the same, the assessee has come up i n appeal before us rai si ng fol l o wi ng grounds:
(1) That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals), Shimla is against law and facts on the file in as much she was not justified in arbitrarily upholding the action of the Ld. Assessing Officer in treating the entire surplus of Rs. 2,10,50,5247- as taxable income.
(2) That she was not justified to uphold the action of the Ld. Assessing Office without appreciating the fact that the entire surplus was transferred to the capital / corpus fund.
(3) That the appellant craves leave to add or amend ground of the appeal on or before the disposal of the same.
6. Duri ng the course of heari ng before us the Ld. counsel for assessee rei te rated the content i ons made before the l o wer 5 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 authori ti es. Bri efl y put, the contenti on rai sed by the assessee were that;
1) Al l i ncomes and e xpendi tures to be i ncurred by the assessee were speci fi ed in the rul es noti f yi ng the creati on of fund for the assessee commi ssi on, to whi ch al l i ncomes was t o be credi ted and al l e xpendi ture made therefrom. That the surpl us was to be credi ted to the corpus fund and no real i ncome accrued to the assessee. That o n the cl osure of the fund, as pe r the rul es noti fi ed for creati on of the fund, the enti re amount was to be gi ven back to the Government and, therefore, i ncome earned was not that of assessee commi ssi on but bel onged al wa ys to the Government. Rel i ance was pl aced on the deci si on of the I TAT Chandi garh Bench i n the case of H.P. Exci se & Ta xati on Techni cal Servi c es Agenc y Vs. DCI T i n I TA Nos.436 to 441/Chd/2017 dated 30.11.2017. Further a copy of th e order of the Hon'bl e Juri sdi cti onal Hi gh Court i .e. Hi machal Pradesh Hi gh Court affi rmi ng the order of the I . T.A. T. i n the aforesai d case dated 7.12.2018 was al so pl aced before us.
2) That there was d i versi on of i ncome to the state by overri di ng ti tl e and hence no real i ncome accrued to the assessee. Rel i ance was pl aced on the fol l o wi ng case l a ws:
1) Somai ya Organo Chemi cal s Ltd.vs CI T 216
I TR 291( Bom) 6 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11
2) Ra jkot Di stri ct Gopal akCo-op Mi l k Producers Uni on Ltd. vs CI T 204 I TR 590( Guj)
3) That the vi tal consti tuent of the i ncome was grants recei ved from Government whi ch coul d not be stated to be revenue i n nature. Rel i ance was pl aced on the fol l o wi ng case l a ws i n thi s regard:
1) CI T vs Handi crafts & Handl oom Export Corp.
of I ndi a 360 I TR 130 ( Del )
2) Lachi t Fi l ms vs CI T 195 I TR 402 ( Gauhati )
4) That the assessee's i ncome was noti fi ed e xempt by the CBD T vi de i ts Noti fi cati on No.49/2013 dated 3.7.2013 cl earl y sho wi ng the i ntenti on of the Legi sl ature.
5) That CERC, whi ch carri ed out i denti cal regul atory acti vi ti es as the assessee and had an i denti cal fund created for the sai d purpose, was e xempt u/s 10( 23BBG) of t he Act. It was contended tha t the assessees case was paramateri a wi th CERC, therefore, and appl yi ng the pri nci pl e of equi t y, the i ncome of the assessee was al so to be treated as e xempt.
7. The Ld. DR, on t he other hand, r el i ed upon the or der of the l o wer authori ti es.
8. We have heard ri val contenti ons and perused the orders of the authori ti es bel o w. The i ssue before us relates to the ta xabi l i t y of the surpl us generated by the assesse e whi ch i s a commi ssi on set up for regul ating el ectri ci t y rel ated to the 7 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 acti vi ti es for the state of Hi ma chal Pradesh. O ne of The contenti on rai sed by the Ld.Counsel for the assessee for cl ai mi ng i ts i ncome as e xempt from ta xati on, i s that i t has been formed by an Act of the Government for carr yi ng out acti vi ti es speci fi ed by the government and for whi ch purpose a fund has been created by the go vernment to whi c h i ncomes of the nature speci fi ed by the government are credited and even the e xpendi ture to be met out of the same are speci fi ed by the governme nt and further a ny surpl us remai ni ng on the cl osure of the fund is gi ven back to the government. Therefore the assessee commi ssi on has no rol e in determi ni ng the nature of the acti vi ti es to be carri ed out by i t, the source of i ts i ncome or purpose for whi ch the i ncome i s to be spent and i s acti ng onl y i n a fi duci ar y capaci t y for carr yi ng out the functi on of the government an d, thus, i t cannot be sai d that the commi ssi on had earned any income so as to make i t l i abl e to pa y i ncome ta x thereon.
For the purpose of deal i ng wi th thi s contenti on of the assessee, i t i s e ssenti al to fi rst del ve i nto the b ackground and the manner i n whi ch the assessee commi ssi on was set up. For the sai d purpose i t i s necessar y to refer to the rel evant secti ons of the El ectrici t y Act, 2003 and the noti fi cati ons i ssued by the state government ,to whi ch our attenti on was dra wn duri ng the course of heari ng before us.
A copy of the Bare Act rel ati ng to The El ectri ci t y Act, 2003 was pl aced before us by th e Ld. counsel for assessee. On goi ng throug h the same we fi nd that as per th e statement 8 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 of objects and re ason for the i ntr oducti on of El ect ri ci t y Act, 2003, was to overcome the shortcomi ngs i n the e xi sti ng Act governi ng the su ppl y of el ectri ci t y i n I ni da. I t notes that the el ectri ci t y suppl y i ndustr y i n I ndi a was earl i er governed by three enactments. The fi rst enactment was the I ndi an El ectri ci t y Act, 1910 whi ch created a basi c frame work for el ectri c suppl y i n I ndi a envi saging gro wth of the el ectri ci t y i ndustri es through pri vate l i cencees. Th ere after the El ectri ci t y ( Suppl y Act) , 1948 came i nto force, mandati ng the creati on of a St ate El ectri ci t y Board whi ch was gi ven the responsi bi l i t y for arrangi ng the suppl y of the electri ci t y i n the State, so as to ensure el ectri fi cati on of al l areas and not l i mi ted to ci ti es onl y. Ho wever, over a peri od of ti me the performance of the sai d state el ectri ci t y board deteri orated speci al l y on account of vari ous factors and whi ch incl uded that the y were unabl e to tak e deci si on on tari ff in a professi onal and i ndependent manner and cross subsi dy had reached unsustai nabl e l evel s. To address thi s i ssue and for di stanci ng government from determi nati on of tari ff, the El ectri ci t y Regul ator y Commi ssi on Act, 1998 wa s enacted creati ng the Central El ectri ci t y Regul ator y Commi ssi on and whi ch had the enabl i ng provi si on through whi ch the State Government coul d create a State El ectri ci t y Regul ator y Commi ssi on. Th ereafter, wi th the pol i c y of encouragi ng pri vate sector pa rti ci pati on i n ge nerati on, transmissi on and di stri buti on and wi th the ob jecti ve of di stanci ng the regul ator y responsi bi l i ti es from the government to the Regul ator y Commi ssi on, and to address the need for 9 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 harmoni zi ng and rati onal i si ng the provi si on of I ndian El ectri ci t y Act, 1948 and the El ectri ci t y Regul atory Commi ssi on Act, 1998, a ne w self contai ned l egi sl ature, i .e the El ectri ci t y Act, 2003 was enacted.
9. Havi ng deal t w i th the backgr ound l eadi ng to the l egi sl ati on of the El ectri ci t y Act,2 003, we shal l no w di scuss the rel evant provi si ons of the Act whi ch deal wi th the creati on of the Regul ator y Commi ssi ons and i ts po wers and duti es.
10. Part X of the sai d Act deal s wi th Regul ator y Commi ssi ons, wi th secti on 76 to 81 deal i ng wi th c onsti tuti on of the Central Commi ssi on and i ts rel ated matters, bei ng appoi ntment of Members, fu ncti on of the Central Commi ssi on, setti ng up of advi sor y commi ttee and i ts objects. Thereaft er Secti on 82 i n the sai d Chapter deal s wi th consti tuti on of State Commi ssi on and reads as under:
"82. Constitution of State Commission.-
1. Every State Government shall, within six months from the appointed date, by notification, constitute for the purposes of this Act, a Commission for the State to be known as the (name of the State) Electricity Regulatory Commission:
Provided that the State Electricity Regulatory Commission, established by a State Government under section 17 of the Electricity Regulatory Commissions Act, 1998 and the enactments specified in the Schedule, and functioning as such immediately before the appointed date, shall be the State Commission for the purposes of this Act and the Chairperson, Members, Secretary, and officers and other employees thereof shall continue to hold office, on the same terms and conditions on which they were appointed under those Acts:
Provided further that the Chairperson and other Members of the State Commission appointed, before the commencement of this Act, under the Electricity Regulatory Commissions Act, 1998 or under the enactments specified in the Schedule, may, on the recommendations of the Selection Committee 10 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 constituted under sub-section (1) of section 85, be allowed to opt for the terms and conditions under this Act by the concerned State Government.
2. The State Commission shall be a body corporate by the name aforesaid, having perpetual succession and a common seal, with power to acquire, hold and dispose of property, both movable and immovable, and to contract and shall, by the said name, sue or be sued.
3. The head office of the State Commission shall be at such place as the State Government may, by notification, specify.
4. The State Commission shall consist of not more tan three Members, including the Chairperson.
5. The Chairperson and Members of the State Commission shall be appointed by the State Government on the recommendation of a Selection Committee referred to in section 85."
11. For the purpose of the present appeal , the other rel evant secti ons of the El ectri ci ty Act, 2003 rel ati ng to the functi ons of the State Commi ssi on as l ai d do wn i n secti on 86 of the Act reads as under:
"86. Functions of State Commission.-
1. The State Commission shall discharge the following functions, namely:--
a. determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State:
Provided that where open access has been permitted to a category of consumers under section 42, the State Commission shall determine only the wheeling charges and surcharge thereon, if any, for the said category of consumers;
b. regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State;
c. facilitate intra-State transmission and wheeling of electricity;
d. issue licences to persons seeking to act as transmission licensees, distribution licensees and electricity traders with respect to their operations within the State;11 ITA No.42/Chd/2015
A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 e. promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee;
f. adjudicate upon the disputes between the licensees and generating companies and to refer any dispute for arbitration;
g. levy fee for the purposes of this Act;
h. specify State Grid Code consistent with the Grid Code specified under clause (h) of sub-section (1) of section 79;
i. specify or enforce standards with respect to quality, continuity and reliability of service by licensees;
j. fix the trading margin in the intra-State trading of electricity, if considered, necessary;
k. discharge such other functions as may be assigned to it under this Act.
2. The State Commission shall advise the State Government on all or any of the following matters, namely:--
i. promotion of competition, efficiency and economy in activities of the electricity industry;
ii. promotion of investment in electricity industry;
iii. reorganisation and restructuring of electricity industry in the State;
iv. matters concerning generation, transmission, distribution and trading of electricity or any other matter referred to the State Commission by that Government:
3. The State Commission shall ensure transparency while exercising its powers and discharging its functions.
4. In discharge of its functions, the State Commission shall be guided by the National Electricity Policy, National Electricity Plan and tariff policy published under section 3."
12. Further secti on 103 of the Act deal s wi th the establ i shment of a fund by the State Government and reads as under:
"103. Establishment of Fund by State Government.-12 ITA No.42/Chd/2015
A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11
1. There shall be constituted a Fund to be called the State Electricity Regulatory Commission Fund and there shall be credited thereto--
a. any grants and loans made to the State Commission by the State Government under section 102;
b. all fees received by the State Commission under this Act;
c. all sums received by the State Commission from such other sources as may be decided upon by the State Government.
2. The Fund shall be applied for meeting--
a. the salary, allowances and other remuneration of Chairperson, Members, Secretary, officers and other employees of the State Commission;
b. the expenses of the State Commission in discharge of its functions under section 86;
c. the expenses on objects and for purposes authorised by this Act.
3. The State Government may, in consultation with the Comptroller and Auditor- General of India, prescribe the manner of applying the Fund for meeting the expenses specified in clause (b) or clause (c) of sub-section (2).
13. Goi ng for ward from here we note that the assessee State commi ssi on was establ i she d on 30 t h Decem ber 2000,by a noti fi cati on i ssued by the Governor of Hi machal Pradesh, i n e xerci se of the po wers vested i n hi m u/s 17( 1) of the El ectri ci t y Regul ator y Commi ssi on Act,1998.Copy of the same was pl ace d before us at Paper Book pa ge no.1-4. Thereafter anoth er Noti fi cati on dated 14.6.2001 was i ssued by the Government of Hi machal Pradesh outl i ni ng the functi ons to be di scharged by the commi ssi on as under:
NOT IF ICAT ION " In con tinu ation of th is De p ar tme n t No tif ic ation of even nu mber f t 30 t h Dec. , 200 0, the Governor , H i mach al Pr ades h, is pl e ased to order th at the H i mach al Pr adesh El ec tr ic i ty Regul ator y Co mmis s ion sh al l d isch arge the f ol l o win g f unctions as prov ided un der sec tion 22( I) of the S tate El ec tr ic i ty Regul ator y Co mmis s ion Ac t, v iz: -13 ITA No.42/Chd/2015
A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 ( a) T o deter mine th e tar if f f or el ec tr ic i ty wh o l es al e, bul k, gr id or re tail , as the c ase may be, in the manner prov i ded in Sec tion 29 of th e El ec tr ic i ty Reg ul ator y Co mmis s ion Ac t,
(b) T o deter mine th e tar if f payabl e f or the use of the tr ans mis s ion f ac il i ties in the man ner prov ided in Sec tion 29 of he above Ac t,
(c) To regul ate po we r purch as e and procure men t proc ess of the tr ans mis s ion u til i ties and d is tr ibu tion u til i tie s incl ud ing the pr i ce at wh ich the po we r sh al l be procure d f ro m the gen er ating co mp an ies, gene r ating s tations or f ro m o ther sources f or tr ans miss ion, s al e, d is tr ibu tion and suppl y in the S tate, ( d) T o pro mo te co mpe ti tion, ef f icien cy and econo my in the ac tiv i ties of the el ec tr ic i ty indus tr ies to ac h ieve the ob jec ts and pur poses of th is Ac t,
2. It is al so cl ar if ie d th at an y of th e o ther f unctions as in d ic ated under Sec tion 22( 2) of the af ores aid Ac t may be ordered to be d isch arged by the Co mmis s ion as dec ided b y the c o mpe ten t au thor i ty f ro m ti me to ti me . "
14. By Noti fi cati on dated 3.5.2007, the Government of Hi machal Pradesh by e xerci si ng po wers conferred by secti on 180 and secti on 103 to 106 of the El ectri ci t y Act,2003, noti fi ed rul es for the establ ishment of the assessee commi ssi on fund . The rel evant rul es bei ng Rul e No.2 deal i ng wi th the consti tuti on of the fund, Rul e No.3 deal i ng wi th the appl i cati on of the fund, Rul e No.4 deal i ng wi th the operati on of t he funds and R ul e No.8 deal i ng wi th the cl osure of the fund are reproduced as under:
"2. Constitution of Fund.
(1) The Government hereby constitutes a Fund to be called the Himachal Pradesh Electricity Regulatory Commission Fund.14 ITA No.42/Chd/2015
A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 (2) The Fund shall comprise of -
(i) All the grants and loans made to the Commission by the State Government under section 102 of the Act.
(ii) All fees and fines received by the Commission under the Act.
(iii) All other sums received by the Commission from other sources.
(3) Application of Fund The fund shall be applied for meeting the following expenses which interalia include:-
(c) The salary allowances and other remuneration of Chairperson, Members, Secretary, Officers and other employees of the Commission. The Commission will meet expenditure for only those posts as are approved by the Government of Himachal Pradesh under Section 91(3) of the Electricity Act,2003.
(d) Honorarium for the members of Advisory Committee constituted by the Commission.
(e) Conveyance charges including of hiring of vehicles.
(f) Administrative and general expenses.
(g) Repairs and maintenance expenses of office premises which include the provision and maintenance of a principal office for the Commission and such other offices with the cost of appliances and fittings and insurances;
(h) Consultancy expenditure for technical studies, sample and modal studies and financial analysis etc.
(i) Miscellaneous and other expenses;
(j) Legal expenses which included the payment of fees to the counsels engaged by the Commission;
(k) Loans and advances to th staff as per the norms of H.P.Government;
(l) Contribution to the staff welfare measures such as health insurance;
(m) And family benefit funds;
(n) Statutory deposits;
(o) Purchase of assets and other capital items etc.;
(p) Fees for the audit of the accounts of the Commission;15 ITA No.42/Chd/2015
A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11
(q) Stationery, printing and all office and advertising expenses;
(r) The expenses of the Commission in discharge of its ___ under section 86 of the Act, such as
(v) Expenses in connection with tariff determination
(vi) Expenses in connection with grant of licenses;
(vii) Expenses in connection with adjudication of disputes;
(viii) Expenses in specifying different regulation and publishing the same in the manner specified in the rules
(ix) Expenses in connection with regulation of power purchase procurement process;
(s) The expenses on objects and for purpose authorized by the
(t) After the financial year end the Commission shall submit audited annual accounts to the government.
Operation of the fund (8) The fund shall be operated by the Commission or its _____ designated officer by the Commission (9) The Commission shall make available the specimen signature the authorized signatories to the nominated bank. Information and for operation of the HPERC fund Account;
(10) The grants or loan allocated by the Government under the provisions shall be arranged to be drawn and deposited Fund by the Drawing and Disbursing Officer; (11) The Commission shall meet expenses required in connection the discharge of its function under section 86 and also for objects and the purpose authorized by the Act.
(12) All funds received shall be paid into the Commission's account the bank/banks and shall not be withdrawn except on presentation cheque signed by the officers as authorized by the Commission;
(13) The designated Officer shall be responsible for monitoring the proper transactions of receipts and payments on behalf of the Commission;
(14) The designated officer shall also be responsible to ensure that the amount of cheques/ demand drafts deposited in the accr3edited banks have been timely credited in the account of the Commission and also 16 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 reconcile the receipts and payments account every quarter with them.
8. Closure of Fund:
(3) The fund shall remain operational as long as the provisions of the Act remain in force;
(4) The unspent balance under the Fund or when the Fund is not required shall be remitted into the Government Account with months from the date of closure of the Fund."
15. On goi ng throu gh al l the abo ve, we fi nd tha t the assessee commi ssi on was form ed under the El ectri cit y Regul ator y Commi ssi ons Act,1998. The pri mar y purpose of enacti ng the sa me was to di l ute the rol e of the government on matters rel ati ng to the regul a ti on of el ectri ci ty, si nce i t was found defi ci ent to take deci si ons on tari ffs in a professi onal and i ndependent manner. Subsequentl y El ectri ci t y Act, 2003, was l e gi sl ated to har moni ze the provi si ons of the El ectri ci t y Regul ator y C ommi ssi ons Act,1998 and th e earl i er El ectri ci t y Acts of 191 0 & 1948. Secti on 82 of th e El ectri ci t y Ac t,2003 speci fi cal ly granted conti nui t y to state commi ssi ons formed under the Electri ci t y Regul ator y Commi ssi ons Act,1998 by i ts fi rst provi so reproduced above. Sub secti on ( 2) to secti on 82 cl early defi ned the cons ti tuti on of the s tate commi ssi ons ,as body corporates wi th the name of the speci fi ed State El ectri ci t y Regul ator y Commi ssi on, havi ng perpetual successi on and common seal , wi th po wer of acq ui re, hol d and d i spose off propert y both th e movabl e and i mmovabl e and t o contract and sue or be su ed i n the sai d n ame. The Act ma ndated the setti ng up of a State Regul ator y Commi ssi on to deal wi th the matters rel ati ng to the State Gov ernment for dete rmi nati on 17 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 of tari ff, regul at i on of transmi s si on of el ectri ci ty , i ssue l i cences and s uch other functi ons at state l ev el . The Act al so speci fi ed the creati on of a Fund for the purpose of fundi ng the acti vi ti es to be carri ed out by these commi ssi ons, under secti on 103 of the Act. As per the sai d secti on the fu nd was to be c redi ted wi th co ntri buti ons made by wa y of grants and l oans by the State Co mmi ssi on and al so wi th al l fees and such o ther recei pts ear ned by the commi ssi on. The Act al so speci fi ed the purpose for whi ch the funds were to be uti l i zed/rel eased. The rul es noti fi ed for the creati on of the funds, speci f yi ng the source of i ncome or the credi ts i n the sai d fund we have noted , were si mi l ar to that stated i n the El ectri ci t y Act,2003 as bei ng sourced from l oans and grants by the State Government and i ncome earned by the commi ssi on and to be used/e xpended for carr yi ng out i ts speci fi ed acti vi ti es.
16. It is evi dent from the above that the as sessee commi ssi on was set up under an Act of the Government, as an i ndependent body, for t he purpose of regul ati ng El ectri ci t y rel ated matters at th e State l evel a nd for the purpose of achi evi ng i ts objecti ves i ts functi ons were cl earl y defi ned, as al so the source of i ts fundi ng for carrying out the sai d functi on an d the manner of e xpendi ng the f unds. The objecti ve for creati ng the commi ssi on was to distance the State from el ectri ci t y regul ati ng matters si nce i t was found unabl e to handl e the same i n a p rofessi onal manner and i ts consti tuti on al so bel i es thi s fact that i t was an in dependent 18 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 body from the state havi ng been formed as a disti nct and separate corpor ate enti t y enti tl ed to functi on i n i ts o wn ri ght. The obl i ga ti ons and duti es onl y i denti fi ed the broad parameters wi thi n whi ch i t wa s to functi on ,i n essence defi ni ng i ts rol e. Further bei ng an enti t y formed by l egi sl ati on, it was provi ded that funds requi red for i ts functi oni ng woul d be provi ded by the state and the commi ssi on was al so at l i berty to rai se l oans, besides col l ecti ng funds by wa y of fees and such other modes.
17. I n vi e w of the above undi sputed facts therefore, we have no hesi tation i n hol di ng th at the assessee commi ssi on was a "person" f or the purpose of i ncome ta x, l i able to be subjected to ta x and by no stretc h of l ogi c coul d be sai d to be the Government or i n any wa y acti ng on i ts behalf.
For the same reason we do not fi nd any meri t in the contenti on of the Ld.Counsel for the assessee that si nce the assessee commi s si on had no rol e i n the nature of acti vi ti es to be carri ed out by i t or i n the manner i n whi ch the fund was to be create d and mone y th erefrom e xpende d, no real i ncome was earned by the assessee. At the cost of repeti ti on i t i s stated that the facts cl earl y sho w that the assessee commi ssi on was an i ndependen t body and ev en if the sources of i ts fu nds was speci fi ed and al so the manner i n whi ch i t was to b e e xpended, the Act was onl y reg ulati ng the functi ons of the commi ssi on by doi ng so. The q uantum of fees to be col l ect ed for vari ous fu ncti ons carri ed out by the commi ssi on was l eft to i t and so al so sources of any other 19 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 i ncome, al so the quantum and manner of e xpendi ture to be i ncurred on vari ous acti vi ti es ca rri ed out by i t w as al so l eft to be deci ded by the assessee commi ssi on. Therefore, whatever was earned by i t by wa y of grants or fe es, was i ts i ncome and i t cannot be sai d that no real i ncome accrued to the assessee. Th e concept of real i ncome envi sage s that onl y i ncome whi ch actual l y accrues or ari ses to the assessee i s to be treated as i ts i ncome. The Ho n'bl e ape x court i n the case of CI T vs. Shoor ji Val l abhdas & Co. ( 1962) 46 I TR 144 ( SC) :
TC39R.737, has enunci ated the doctri ne of real i ncome i n these terms :
" Inco me- tax is a l evy on inco me . No doub t, the Inco me- tax Ac t takes in to accou n t t wo po in ts of ti me at wh ich th e l iab il i ty to tax is attr ac ted, v iz. , the accru al of the inco me or its rece ip t; bu t the subs tance of the matter is the inco me. If inco me does no t res ul t at al l , there c ann o t be a tax, even though in book- kee p ing, an en tr y is made abou t a ' hypo the tic al inc o me', wh ich doe s no t mater i al ise . Where inco me h as, in f ac t, bee n rece ived and i s subsequen tl y g iv en up in such c ir cu ms tances th at it re mains the inc o me of the rec ip i en t, even th ough g iven up, the tax may be p ay abl e. Where, ho wever, the inco me c an be s aid no t to h av e resul ted at al l , there is obv ious l y ne i ther accru al nor rece ip t o f inco me, even tho ugh an en tr y to th at ef f ect migh t, in cer tain c ircu ms tances, h av e been mad e in th e books of accoun t. "
18. The assessee co mmi ssi on bei ng an i ndependent body al l i ncomes accrued to i t and defi ni tel y not on behal f of the State. Thus even goi ng by the concept of real income ,the assessee cannot deri ve any benefi t from the same.
Al so the fact that the unspent bal ance of the fund was to be remi tted to the Government on cl osure of the fund as provi ded by Clause 8 of the Rul es noti fi ed for the 20 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 establ i shment of the fund, is of no assi stance to the assessee for showi ng that the fund i n effect di d not bel ong to the assessee and therefore al l i ncome credi ted to it was not i ts real i ncome but that of the state. I t i s to be noted that the ri ght of the state to the amount credi ted to the fund ari ses onl y on cl osure of the Fund, whi ch i s evi dent from a bare readi ng of cl ause 8 of the Rul es. Duri ng the peri od when the fund i s i n e xi stence, there i s no ri ght of the State to the unspent bal ance of the fund. Duri ng the entire peri od of the e xi stence of the Fund al l amounts recei ved by wa y of grants, l oans, fe es etc. i s to be credi ted to the fund, for uti l i zati on by t he commi ssi on for i ts stated purposes. Therefore i t wa s the assessee commi ssi on whi ch had al l ri ghts over the funds and i ts uti l i zati on duri ng the tenure of the fund, whi ch cements our fi ndi ng above that all credi ts to the fund of Revenue nature, were the i ncome of the assessee commi ssi on. We ma y add that the cl ause requi ri ng remi ssi on of unspent bal ance of the fund on cl osure i s l ogi cal enough consi deri ng the fact that the commi ssi on i s an i ndependent body corporate, promoted by the state and not any pri vate person and therefore in the si tuati on of its wi ndi ng up/cl osure of t he fund the un spent bal ance has to be l ogi cal l y enough remi tted to the promoters as i s done i n the case of any other body corporate or such other i ndependent enti t y.
19. The Ld.Counsel for the assessee has rel i ed o n the deci si on of the I TA T Chan di garh bench i n the c ase of H.P. 21 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 Exci se & Ta xati o n Techni cal Servi ces Agenc y Vs. DCI T i n I TA Nos.436 to 441/Chd/2017 dated 30.11.2017 whi ch i t was poi nted out was uphel d by the Hon'bl e Juri sdi c ti onal Hi gh Court i .e. Hi mac hal Pradesh Hi gh Court vi de i ts o rder dated 7.12.2018 i n support of i ts con tenti on that wh ere mone y col l ected i s to be remi tted back t o the State gover nment, no real i ncome can be sai d to have accrued. We have gone through the sai d deci si ons and fi nd that the y do not appl y i n the facts of the present case, havi ng been render ed i n the backdrop of di fferent set of fact s. I n the facts of the sai d cases the assessee was col l ecti ng fees on sal e of VAT forms on behal f of the Government, and was requi red to remi t 20% of the same i mmedi atel y on col l ecti on, whi l e the bal ance 80% was al l o wed to be retai ned by it for meeti ng i ts e xpenses and th e surpl us remai ni ng thereafter had to be remi tted to the government. I t was i n thi s background that the Hon'bl e Hi g h Court sai d th at the assessee was onl y col l ecti ng fees o n behal f of the government an d no real i ncome accrued to i t. I t i s to be noted that i n that case the surpl us remai ni ng at al l poi nts of ti me was to be r emi tted to the government, thus sho wi ng ri ght of the government to the funds col l ected a t al l poi nts of ti me. I n the present case the ri ght of the go vernment to the surpl us accrue s onl y on cl osure of the fund and i s not at al l poi nts of ti me. Therefore the proposi ti on l ai d do wn i n the sai d case wi l l not appl y to the present case.
22 ITA No.42/Chd/2015
A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11
20. The rel i ance pl ac ed by the Ld.Co unsel for the ass essee on the deci si ons of the Hon'bl e Hi gh Courts i n the case of Somai ya Organo( supra) and Ra jkot Di stri ct Gopal ak Co- operati ve ( supra) i s al so of no a ssi stance to the assessee si nce i n the sai d cases there was ei ther di versi on of i ncome by statute or by overri di ng ti tl e, l eadi ng the courts to hold that no i ncome therefore accrued to the assessees. I n the present case, as we have noted above, the State has no overri di ng ti tl e over the i ncome of the assessee either by statue or other wi se and therefore the rati o l ai d down i n the sai d deci si ons wi l l not appl y i n the present case.
The ne xt content i on of the Ld.Counsel for the assessee was that i t was recei vi ng grants from the State Government for the purpose of whi ch i t was set up and, therefore, i t was a capi tal recei pt. We do not fi nd a ny meri t i n thi s contenti on of the Ld. Couns el for the assesse e al so. I t i s not the case of the Ld.Counsel f or the assessee that the grants have been recei ved for any capi tal purpose, nor that the grants were for some speci fi c acti vi t y to be c arri ed out by th e assessee commi ssi on. Cl earl y as i s emanating from the facts before us the grants were for assi sti ng the assessee commi ssi on, an i ndependent body , i n carr yi ng out i ts da y-to-da y acti vi ti es. Therefore, i t ca nnot be sai d th at the grants w ere ei ther capi tal recei pt or speci fi c purpose grants, not l i abl e to ta x. For the same reason the rel i ance pl aced by the Ld.Counsel for the assessee on the deci si on of the Hon'bl e Hi gh Courts i n the case of Handi crafts and Handl ooms e xport Corp. of 23 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 I ndi a Ltd.( supra) & Lachi t Fi l ms Ltd.( supra) is of no assi stance to the assessee si nce i n the facts of the sai d cases the grants were ei ther spe ci fi c purpose or were rants i n ai d, whi ch were therefore hel d not to be i n the nature of i ncome of the assessees.
21. Further the ver y fact that the legi sl ature speci fi cal l y provi ded u/s 10( 46) of the Act for "e xemption" of the i ncomes of the Commi ssi ons that too for a speci fi c peri od onl y, cements ou r above vi e w that the i ncome of th e assessee trust was other wi se l i abl e to ta x. Secti on 10( 46) is reproduced hereunder for cl ari t y:
"Incomes not included in total income.
10.In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included:
[(46) any specified income arising to a body or authority or Board or Trust or Commission (by whatever name called) [674a][or a class thereof]which--
(a) has been established or constituted by or under a Central, State or Provincial Act, or constituted by the Central Government or a State Government, with the object of regulating or administering any activity for the benefit of the general public;
(b) is not engaged in any commercial activity; and
(c) is notified by the Central Government in the Official Gazette for the purposes of this clause.
Explanation.--For the purposes of this clause, "specified income" means the income, of the nature and to the extent arising to a body or authority or Board or Trust or Commission (by whatever name called) referred to in this clause, which the Central Government may, by notification in the Official Gazette, specify in this behalf;]
22. The noti fi cati on speci fi cal l y e x empti ng the as sessee commi ssi on i s al so reproduced as under: 24 ITA No.42/Chd/2015
A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 " In exerc ise of th e po we rs conf erred by cl ause ( 40) of section 1 0 of the Inco me T ax Ac t, 1961 ( 4 3 of 1961) the Cen tr al Govern men t h ereby no tif ies f or the pur p oses of the s aid cl aus e, the H i mac h al Pr adesh El ec tr i c ity Regul ator y Co mmis s ion, a Co mmis s ion es tabl ished b y the C en tr al Govern men t of Hi mach al Pr adesh in res pec t of the f ol l o win g s pec if ied inco me ar is ing to th at Co mmis s ion , n amel y: -
( a) A moun t rece ived in the f or m of Govern men t gr an ts, ( b) A moun t rece ive d as l icence f ee f ro m l icensees in el ec tr ic i ty, ( c) A moun t rece ived as Cour t f ee or pe ti tu ion f ee, and ( d) In teres t e arned o n Govern men t gr an ts and f ee received.
2. T his no tif ic ation sh al l be dee med to h ave been appl ied f or the f in anc i al ye ar 20 12-13 and sh al l appl ic abl e f or th e f in anc i al ye ars 2013-14, 2014-
15, 2015-16 and 2016-17.
3. T he notif ic ation sh al l be ef f ectiv e sub jec t to the f ol l o wing con d itions, n ame l y: -
( a) the H i mac h al Pr adesh El ec tr ic i ty Regul ator y Co mmis s ion do es no t eng ag e in an y co mme rc i al ac tiv i ty.
(b) the ac tiv i ties an d the n ature of the s pec if ied inco me of Himac h al Pr ades h El ec tr ic i ty Regul ator y Co mmis s ion re main unch ange d throughou t the f in anc i al ye ar, and
(c) the H i mac h al Pr adesh El ec tr ic i ty Regul ator y Co mmis s ion f il es re turn of inco me in accord ance wi th the prov is ion of cl ause ( g ) of sub-sec tion ( 4C) of section 139 of the Inco me T ax Ac t, 1961.
It is evi dent from the above that the ass essee commi ssi on has been speci fi cal l y e xempted from ta x wi th effect from Fi nanci al Year 2012 -13 for a speci f i ed peri od upto F.Y 2016-17.Further the noti fi cati on speci fi es al so the i ncomes/amounts e xempt and i ncl udes that received by wa y 25 ITA No.42/Chd/2015 A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 of Government g rants. Whi ch me ans that these a mounts are other wi se ta xabl e.
23. No w comi ng to the ne xt argument of Ld.Counsel for the assessee that si nce Central Regul ator y El ectri ci t y Commi ssi on( i n short referred to as CREC) was carr ying out i denti cal functi ons and acti vi ti es whi ch was parametri a wi th the functi ons carri ed out by the assessee and si nce CREC was e xempt from ta x by vi rtue of secti on 10( 23BBG) of the Act ,appl yi ng the pri nci pl e of equit y the assessee al so shoul d be treated as e xempt from ta x. We are unabl e to agree wi th thi s contenti on of the assessee also. The e xempti o n provi ded under the I ncome Ta x Act have t o be read stri ctl y. Secti on 10( 23BBG) speci fi cal l y e xempts on l y CERC from ta x ati on and the State Commi ssi ons were spec i fi cal l y noti fi ed u/s 10( 46) of the Act. There fore, nothi ng mo re can be read i nto secti on 10( 23BBG) so as to e xtend the e xempti on to t he assessee commi ssi on al so.
24. As far as the assessee's contenti on that noti ficati on e xempti ng i t from ta xati on u/s 10( 46) of the Act from the Fi nanci al Year 2 012-13 to 2016- 17, be read retr ospecti vel y, We do not fi nd a ny meri t i n the s ame al so. The sa i d secti on states that enti ties woul d be notifi ed as e xempted from the pa yment of ta x f or a speci fi ed pe ri od. The e xempt i on bei ng peri od speci fi c, there is no scope for r eadi ng it retrospecti vel y. Therefore, thi s c ontenti on of the assessee i s al so di smi ssed.
26 ITA No.42/Chd/2015
A.Y.2011-12 ITA Nos.161 to 163/Chd/2017 A.Ys.2008-09 to 2010-11 In vi e w of the above, we uphol d the order of the Ld.CI T( A) in treati ng the enti re surpl us earned by the assessee as ta xabl e i n the i mpugned year. Accordi ngl y, the appeal of the assessee i s di smi ssed.
25. I n the resul t, the appeal of the assessee i s dismi ssed.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/ Sd/-
संजय गग अ नपण
ू ा ग'ु ता
(SANJAY GARG ) ANNAPURNA GUPTA)
याय क सद य/Judicial Member लेखा सद य/Accountant Member
+दनांक /Dated: 8th February, 2019
*रती*
आदे श क ' त(ल)प अ*े)षत/ Copy of the order forwarded to :
1. अपीलाथ+/ The Appellant
2. ',यथ+/ The Respondent
3. आयकर आयु-त/ CIT
4. आयकर आय-
ु त (अपील)/ The CIT(A)
5. )वभागीय ' त न0ध, आयकर अपील!य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar