Income Tax Appellate Tribunal - Kolkata
Bharat Hydro Power Corporation, ... vs Department Of Income Tax on 5 March, 2012
आयकर अपीलीय अधीकरण, Ûयायपीठ - "सी ", कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "C", KOLKATA
(सम¢)Before ौी महावीर िसंह, Ûयायीक सदःय, एवं/and
Shri Mahavir Singh, Judicial
Member.
ौी सी.
सी.डȣ.
डȣ.राव, लेखा सदःय
Shri C.D.Rao, Accountant Member
सàपǒƣ अपील संÉया /
ITA No.60/Kol/2010
िनधॉरण वषॅ/Assessment Year : 2004-05
-वनाम-
(अपीलाथȸ/APPELLANT ) - (ू×यथȸ/RESPONDENT)
D.C.I.T., Central Circle-XXVIII, Kolkata. Versus- M/s.Bharat Hydro Power
. Corporation, Kolkata
(PAN: AACCB 4575 C )
आयकर अपील संÉया /
ITA Nos.162&163/Kol/2010
िनधॉरण वषॅ/Assessment Years : 2003-04 &
2004-05
-वनाम-
(अपीलाथȸ/APPELLANT ) - (ू×यथȸ/RESPONDENT)
M/s.Bharat Hydro Power Corporation Ltd., Versus- D.C.I.T., Central Circle-
Kolkata . XXVIII, Kolkata.
अपीलाथȸ कȧ ओर से/ For the Department: Shri Debasish Roy
ू×यथȸ कȧ ओर से/For the Assessee : Shri S.K.Tulsiyan
सुनवाई कȧ तारȣख/Date of Hearing : 05.03.2012.
घोषणा कȧ तारȣख/Date of Pronouncement : 04.04.2012.
आदे श/ORDER
(सी.
सी.डȣ.
डȣ.राव)
राव), लेखा सदःय
Per Shri C.D.Rao, AM
The above three appeals one filed by the Revenue and the other two filed by the assessee are against orders dated 29.10.2009 of the CIT(A)-Central-I, Kolkata pertaining to A.Yrs. 2003-04 and 2004-05 respectively.
2 ITA No.60/Kol/2010 (A.Yr.2004-05)(by the Revenue):2. In this appeal the Revenue has taken the following ground :-
1. For that on the facts and circumstances of the case the ld. CIT(A)-Central-I, Kolkata had erred in considering the receipt from Assam State Electricity Board for Rs.6 crore as compensation/part of the compensation.
2. Even, if the receipt would be considered as Compensator then also the Ld, CIT(A).
Central-I. Kolkata had erred in not considering the said compensation received as per specific section 28(2)(d). which constitutes "Profits and Gains of business'. No case is made out by the Ld. CIT(A) that the assessee does not come within this definition. Hence, terming as capital Gains is without basis. Section 45(5) is in relation to a "capital asset" whereas Section 28(2)(d) is in relation to "business". Apparently, section 45(5) is in relation to capital asset, and the takeover of a business as is clear from facts of this case is in relation to different as sorts of assets including debt.
3. For that on the facts and circumstances of the case the Ld. CIT(A), Central-I, Kolkata had erred in not considering the section 5, where income accruing also has to be assessed and accordingly the income accruing u/s 28(2)(d) of Rs,30,38,71474/- is to be assessed.
4. The Department craves leave to amend, modify, revise and is adduced additional grounds of appeal at the time of hearing.
ITA No.163/Kol/2010 (A.Yr.2004-05)(by the assessee):"1. That on the facts and circumstances of the case, the Ld. CIT(A) erred in confirming action of the Assessing Officer in reopening the assessment under section 147 of the Income Tax Act, 1961.
2. That on the facts and circumstances of the case, the Ld. C)T(A) erred in directing the A.O. to compute income from capital gains in the hands of the assessee on account of the compensation of Rs.30,38,71,474/- awarded to the assessee during the year by the Hon'ble Guwahati High Court.
3. That on the facts and circumstances of the case, the Ld. CIT(A) erred in directing the A.O. to compute capital gains on the compensation awarded to the assessee without considering the fact that the said compensation has been challenged before the Hon'ble Supreme Court and has therefore, not become final.
4. That the order of the Ld. A.O. and the CIT(A) should, accordingly, be set aside and your appellant be given such relief(s) as prayed for."ITA No.162/Kol/2010 (A.Yr.2003-04)(by the assessee):
"1. That on the facts and circumstances of the case, the Ld. CIT(A) erred in confirming action of the Assessing Officer in reopening the assessment under section 147 of the Income Tax Act, 1961.
2. That on the facts and circumstances of the case, the Ld. CIT(A) erred in confirming the disallowance of Rs.24,80,279/- without considering the fact that this issue was covered ii favour of the assessee by the decision of the Hon'ble ITAT in Assessment Years 1996-97 to 1998-99 in assessee's own case
3. That the orders of the Ld. A.O. and the CIT(A) should, accordingly, be set aside and your appellant be given such relief(s) as prayed for.
4. That further ground(s) of appeal may be submitted on or before the date of hearing.3
3. The brief facts involved in both the revenue's appeal as well as assessee's appeal are that the assessee had filed its return of income on 01.11.2004 declaring a loss of Rs.11757367/-. Assessment u/s 143(3) was completed on 20.03.2006 and the income was assessed at a loss of Rs.1,16,46,480/-. Subsequently it was observed that during the year Govt. of Assam had agreed to pay an amount of Rs.6 cr. Subsequently the sum was actually paid by the Govt.to the assessee. Such amount was not reflected in the income of the assessee. Therefore after duly recording the reasons notice u/s 148 was issued and served upon the assessee. Assessee vide its letter dated 16th April 2008 submitted that return originally filed may be treated as return of income in response to notice u/s 148. Accordingly notices were issued and served upon the assessee for re-assessment. The Assessing officer after perusing the submission of assessee observed that the assessee has received the claim from the Government of Assam to the tune of Rs.6 crores in partial settlement of the claim of the assets acquired by the Govt. of Asssam. Such income has accrued to the assessee which has not been disclosed for the purpose of Income tax. Accordingly AO has brought this amount to tax.
3.1. On appeal the ld. CIT(A) deleted the same by observing as under :-
"6. I have carefully considered the facts of the case and submission of the L.d A.r. There is no dispute that the under construction power project of the assessee company was taken back by the Assam state electricity Board through acquisition order issued by the Government of Assam . The net worth of the undertaking (Assets -- Liabilities) was Rs. 25,22,41,699/. Where as against this final compensation of Rs, 30,38,71,474/ has been awarded to the assessee against the takeover of the under construction power project by the Assam state electricity Board and out of the same Rs.six crore has already been received in this accounting year. Hence as per provision of Chapter IV of the Income tax Act the difference the amount received and the net worth of the under taking, ie. Rs.5,16,29,775/ is liable for Capital Gain Further since the compensation /part of the compensation has been received has been received first time in this financial year , the Capital gain on the acquisition of the power project shall be chargeable as income under the head "Capital Gains" in the A.Y 2004 - 05. Moreover, since the undertaking was held by the assessee company for more than thirty six months the Capital Gain arising from the transfer shall be deemed Long Term Capital Gain . The appellant will get necessary relief accordingly."
3.2. Aggrieved by this now the revenue as well as assessee is in appeal before us by taking the above grounds.
44. At the time of hearing before us, the ld. Counsel appearing on behalf of assessee submitted the written submissions which are as under :-
"The background facts are that a Power project known as the Karbi Langpi (Lower Barapani) Hydoelectric Project ("the project) was established by the State Government in the year 1979 but could not be completed due to paucity of funds. It was decided in 1993 to invite private participation to complete the project and a Memorandum of Understanding dated 25.03.1993 was signed between the State, the Assam State Electricity Board ("the Board") and Subhash Projects and Marketing Limited, who jointly undertook the project by forming a Public Limited Company, Bharat Hydro Power Corporation Ltd. The company agreed to pay the expenditure incurred till date by the Board on the project as a consideration for the taking over the project.
Unfortunately the project could not be completed by the Company within the time stipulated under the MOU and The Bharat Hydro Power Corporation Limited (acquisition and Transfer of Undertaking) Act, 1997 was therefore passed to enable the State to take over the project. The Act provides for vesting of the project in the State with effect from the appointed day viz., 30.11.1996. The compensation for takeover as determined by the Commission constituted under the Act was Rs. 30,86,89,180/-. This was reduced by the Gauhati High court to Rs. 30,38,71,474/-. The Gauhati High Court further asked the Board to deposit a sum of Rs. 6 crores. The said sum was withdrawn by the assessee.
Now the CIT(A) in his order computed the capital gains u/s 48 by reducing the net worth of assets transferred (Rs. 25,22, 41,699/-) from the consideration awarded by the Gauhati High Court i.e Rs. 30,38,71,474/-
With regard to the above it is submitted by the CIT(A) erred in computing the capital gains by considering the compensation awarded by the High Court because the said order of the High Court has been stayed by the Supreme Court and hence the said order is no longer in operation.
Attention in this regard is invited to the order of the Supreme Court (copy enclosed) dated 21.4.2005 which reads:
'Operation of the impugned order is stayed subject to deposit of another sum of Rs. 9 crores by the appellants within six weeks, failing which the stay shall stand vacated automatically"
The further interim payment of Rs. 9 crores was duly made by the Assam State Electricity Board (ASEB) and hence the stay order of the Supreme Court still continues. The order clearly says that the entire order of Gauhati High Court awarding compensation of Rs. 30,38,71,474/- is stayed.
Now, since the order of the High Court is stayed by the Apex Court, the same no longer operates and thus the amount of compensation is clearly at an inchoate stage and the interim payment made by the Board is subject to disposal of appeal by the Supreme Court. In fact the Supreme Court in its stay order has specifically stated that in case the appeals succeed the respondents (the assessee) would be liable for reistitution of the amount paid to the respondents at the same rate of interest as the appellant (Board) are liable to pay. Thus from the said fact it is clear that the assessee has no legally enforceable right in respect of such interim payment made by the Board.
The Hon'ble Supreme Court in case of Commissioner of Income-tax v. Hindustan Housing and Land Development Trust Ltd.[161 ITR 524] authoritatively held that although the award was made by the arbitrator on July 29, 1955, enhancing the 5 amount of compensation payable to the respondent, the entire amount was in dispute in appeal filed by the State Government. And the dispute was regarded by the court as real and substantial because the respondent was not permitted to withdraw the amount deposited by the State Government without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal were allowed in its entirety, the right to payment of enhanced compensation would have fallen altogether. The extra amount of compensation of Rs. 7,24,914 was not income arising or accruing to the respondent during the previous year relevant to the assessment year 1956-57. By the Court: "There is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payee is left to be determined in accordance with settled or accepted principles."
From the above it is clear that when an amount of compensation (enhanced or otherwise) is disputed before any Court the same is not assessable to tax till such dispute attains finality. The assessee might receive such compensation vide an interim order of the Court (subject to furnishing of securities) but the same shall not be taxable under the Act till a final order is passed by the Court. The rationale behind the non taxability of the disputed compensation as explained by the apex court is that the assessee does not have any legally enforceable right in respect of such compensation and if the appeal is allowed in its entirety then the compensation will not accrue to the assessee at all and any amount withdrawn by the assessee will have to be returned. Therefore, the taxability arises only when the assessee receives the compensation vide a final order of the Court. The same was clarified by the Punjab & Haryana High Court in case of Commissioner of Income- tax v. Hardwari Lal, HUF [312 ITR 151]--whereby the Court held that "This court has followed the said view of the apex court while interpreting the provisions of section 45(5) (b) after insertion of clause (c) to section 45(5) and sub-section (16) of section 155 of the Act as inserted by the Finance Act, 2003, with effect from April 1, 2004, and has held that the provisions of section 45(5)(b) will be attracted only when the assessee receives enhanced compensation in pursuance of a final order of the court or the Tribunal or other authority increasing the compensation. ". [The Supreme Court has dismissed the special leave petition filed by the Department against this decision-Ed.] Therefore, from the above it is clear that any disputed compensation can be brought to tax only when the assessee achieves a legally enforceable right in respect of the same vide the final order of the Court. Now, since in the given case the compensation to be awarded is still at an inchoate stage and the assessee has no legally enforceable right in respect of the same the same cannot be brought to tax in the given AY.
Thus in the light of the above it is clear that the CIT(A) clearly erred in considering the compensation awarded by the CIT(A) in computing taxable gains. Hence it is prayed that order of the CIT(A) be annulled and the assessee be granted necessary relief.
5. On the other hand, the ld. DR appearing on behalf of the revenue though relied on the orders of AO could not contradict the written submissions filed by assessee.
66. After hearing the rival submissions and on careful perusal of materials available on record and keeping in view of the fact the ld. CIT(A) has allowed the appeal of assessee based on the ratio laid down byHon'ble Punjab and Haryana High Court in the case of Income-tax v. Hardwari Lal, HUF 312 ITR 151 and further keeping in view of the fact that any disputed compensation can be brought to tax only when the assessee achieves a legally enforceable right in respect of the same. In this case the assessee has not gained the legal enforce. Since in this case it is clear that when an amount of compensation (enhanced or otherwise) is disputed before any Court the same is not assessable to tax till such dispute attains finality. The assessee might receive such compensation vide an interim order of the Court (subject to furnishing of securities) but the same shall not be taxable under the Act till a final order is passed by the Court. Since the matter is pending before the Court we are of the view that the ld. CIT(A) is not justified in considering the compensation awarded by the lower authorities in computing the taxable gain. Therefore we set aside the orders of the revenue authorities on this issue and direct the AO to delete the addition of Rs.30,38,71,474/-
7. As regarding assessee's appeal for A.Yr. 2003-04 the ld. Counsel appearing on behalf of assessee has not pressed ground no.1. Therefore the same is dismissed as being not pressed.
8. As regarding ground No.2 raised by assessee the ld. Counsel for assessee submitted that it is fairly covered by ITAT order for Yrs.1996-97 to 1998-99 in assessee's own case. However, the ld. CIT(A) is not justified to restrict the expenditure as stated in the impugned order.. Therefore he requested to allow the claim of assessee in entirety.
9. On the other hand, the ld. DR relied on the orders of the revenue authorities.
10. After hearing the rival submissions and on careful perusal of materials available on record, however, the ld. CIT(A) has accepted that this issue is covered in favour of assessee in the earlier years he restricted the disallowance by observing as under :-
7"6................................................................................................... ....................................................................................... Whether any business was carried out or not is a question of fact and independent for each year, hence the finding given for 1998-99 will not support the case of the assessee. Moreover the expenditure is mainly on a/c of legal and professional expenses, traveling expenses etc which ahs to be incurred for specific purpose. However considering the fact that even if no business is carried out there are certain mandatory expenditure on account of statutory obligation has to be carried out the Company. Accordingly the A.O directed to allow the amount claimed under head Auditor remuneration of Rs.18,999/-, Bank Charges of Rs.5004/-, and 10% of the expenditure claimed under other heads. The appellant will get necessary relief accordingly."
10.1. However, in our considered opinion, the revenue has not doubted the genuineness of any expenditure nor the expenditure incurred by assessee is in excessive. Therefore we find no reason for ld. CIT(A) to deviate from orders of the Tribunal in assessee's own case for the earlier years. Therefore we set aside the order of ld CIT(A) and direct AO to allow the entire expenditure as claimed by assessee.
11. In the result ground no.2 raised by assessee is allowed.
12. Ground Nos.3 and 4 in assessee's appeal are general in nature and require no adjudication.
13. In the result the appeal of assessee is allowed and the appeal of revenue is dismissed.
Order pronounced in the court on 04.04.2012.
Sd/- Sd/-
महावीर िसंह, Ûयाियक सदःय सी.
सी.डȣ.
डȣ.राव,
राव, लेखा सदःय,
सदःय
Mahavir Singh, Judicial Member C.D.Rao, Accountant Member.
(तारȣख)
तारȣख)Date:04.04.2012.
R.G.(.P.S.)
8
आदे श कȧ ूितिलǒप अमेǒषतः-
Copy of the order forwarded to:
1. M/s.Bharat Hydro Power Corporation Ltd., 113, Park Street, Kolkata-
700016.
2 The D.C.I.T., Central Circle-XXVIII, Kolkata.
3. The CIT, 4. The CIT(A)-Central-I, Kolkata.
5. DR, Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, Deputy /Asst. Registrar, ITAT, Kolkata Benches