Income Tax Appellate Tribunal - Chennai
Tamil Nadu Urban Finance And ... vs Department Of Income Tax on 26 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH, CHENNAI
BEFORE Dr. O.K. NARAYANAN, VICE-PRESIDENT, AND
SHRI VIKAS AWASTHY, JUDICIAL MEMBER
S. ITA No. Assessment Appellant Respondent
Year
No.
1. 5/Mds/2010 2005-06 M/s. Tamil Nadu Urban Assistant Commissioner
Finance & Infrastructure of Income Tax, Company
Development Corporation Ltd., Circle-III (1),
th
84, TTK Road, Alwarpet, New Block, 4 floor,
Chennai-600 018. 121, N.H.Road,
PAN:AAACT1259R Chennai-600 034.
2. 6/Mds/2010 2006-07 M/s. Tamil Nadu Urban Finance & Assistant Commissioner of
Infrastructure Development Income Tax, Company
Corporation Ltd., Circle-III (1), Chennai.
Chennai.
3. 79/Mds/2010 2005-06 Assistant Commissioner of M/s. Tamil Nadu Urban
Income Tax, Company Circle-III Finance & Infrastructure
(1), Chennai Development Corporation
Ltd., Chennai.
4. 80/Mds/2010 2006-07 Assistant Commissioner of M/s. Tamil Nadu Urban
Income Tax, Company Circle-III Finance & Infrastructure
(1), Chennai Development Corporation
Ltd., Chennai.
5. 700/Mds/2011 2003-04 Assistant Commissioner of M/s. Tamil Nadu Urban
Income Tax, Company Circle-III Finance & Infrastructure
(1), Chennai Development Corporation
Ltd., Chennai.
6. 701/Mds/2011 2007-08 Assistant Commissioner of M/s. Tamil Nadu Urban
Income Tax, Company Circle-III Finance & Infrastructure
(1), Chennai Development Corporation
Ltd., Chennai.
7. 603/Mds/2011 2007-08 M/s. Tamil Nadu Urban Finance & Assistant Commissioner of
Infrastructure Development Income Tax, Company
Corporation Ltd., Chennai. Circle-III (1), Chennai
Assessee by : Mr. G.Basker, Advocate
Revenue by : Mr. Anirudh Rai, CIT DR
Date of Hearing : 26th July, 2012
Date of Pronouncement : 11th September, 2012
ORDER
PER VIKAS AWASTHY, JUDICIAL MEMBER:
The present set of appeals have been filed by the Department as well as assessee impugning the orders of CIT(A)-III, Chennai.
2 ITA Nos.5, 6, 79 & 80/Mds/2010
ITA Nos.700, 701 & 603/Mds/2011
2. ITA No.700/Mds/2011 has been filed by the Department assailing the order of the CIT(A) dated 4.1.2011 relevant to the assessment year 2003-04. ITA Nos.79/Mds/2010 & 5/Mds/2010 have been filed by the Department and assessee respectively assailing the order of the CIT(A) dated 30.10.2009 relevant to the assessment year 2005-06. ITA Nos.80/Mds/2010 and 6/Mds/2010 have been filed by the Department and assessee respectively impugning the order of the CIT(A) dated 30.10.2009 relevant to the assessment year 2006-07. ITA Nos. 701/Mds/2011 & 603/Mds/2011 have been filed by the Department and the assessee respectively relevant to the assessment year 2007- 08 impugning the order of the CIT(A) dated 5.1.2011. Since all the appeals involve similar questions, they have been taken up together and decided by this single order on merits.
3. The brief facts of the case are that the assessee is a company registered under the provisions of the Companies Act, 1956. The State Government is holding 100% shares of the assessee company. The assessee company was incorporated to act as a nodal agency to receive funds from 3 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 Central Government as well as State Government and disburse the same for development projects initiated by the State Government /local bodies from time to time. The assessee earned interest on the funds so advanced for the projects. Apart from this, the assessee use to park excess funds in banks and earn interest on the said funds. The interest so earned by the assessee was again invested in various development projects as per the Govt. instructions. ITA No.700/Mds/2011:-
4. The assessee company filed its return of income for the assessment year 2003-04 on 18.11.2003 declaring Nil income. The case of the assessee was selected for scrutiny and assessment order under section 143(3) was passed on 21.10.2005 and total income was assessed at `30,57,00,884/-. Subsequently, the case of the assessee was reopened and notice under section 148 was issued to the assessee on 31.3.2008. The Assessing Officer vide assessment order dated 22.9.2009 passed under section 143(3) read with section 147 added the accrued interest of `1,52,71,188/- on the funds lent by the assessee on soft 4 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 terms to local bodies and Mega City/IDSMT Funds Programme. Thus, total amount assessed for the assessment year 2003-04 was ` 32,09,72,072/-.
5. Aggrieved against the assessment order dated 22.9.2009, the assessee preferred an appeal before the CIT(A) impugning the addition made by the Assessing Officer to the tune of ` 1,52,71,188/- on account of accrued interest from Integrated Development of Small and Medium Town (hereinafter referred to as "IDSMT"). The CIT(A) vide order dated 4.1.2011 allowed the appeal of the assessee and held as under:-
"6. I have carefully considered the facts of the case and the submission of the ld. AR. I have also perused the scheme for Integrated Development of Small and Medium Towers (IDSMT). I have also gone through the decisions relied on by the appellant. The MCP fund is being utilized in Chennai by the Corporation of Chennai whereas the IDSMT funds are used by the local bodies in the rest of the Sate of Tamilnadu. I have also gone through the guidelines of IDSMT funds in respect of the procedures, usage, the manner of sanction, disposal, the accumulation as revolving fund etc. and find that they are similar in nature to that of MCP fund. It is also seen that both the IDSMT as well as the MCP funds have been transferred to Government of Tamilnadu vide GO Ms No.49 issued by Municipal Administration and Water Supply (MA II) Department and hence these incomes are no 5 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 more in the books of the appellant. I have already decided that income of MCP fund is not taxable in appellant's own case for assessment years 2005-06 and 2006-07 in ITA No.452/07-08/A.III and 163/08-
09 /A.III dated 30.10.2009 respectively based on the decision of Hon'ble Karnataka High Court in the case of CIT & Another Vs. Karnataka Urban Infrastructure Development and Finance Corporation in (284 ITR 582 (Kar). The SLP filed by the Department against this order was dismissed by the Hon'ble Supreme Court. For the same reason, the interest on IDSMT fund will also have to be treated as non-taxable. Hence, I direct the Assessing Officer to delete the addition of interest on IDSMT. The appellant succeeds in this ground." Aggrieved against the order of the CIT(A), the Revenue has filed the present appeal before the Tribunal impugning the deletion of the additions made on account of interest from IDSMT to the tune of `1,52,71,188/-.
6. The D.R. defending the Department submitted that the assessee is following mercantile system of accounting. The assessee had made deposits of the funds received from State and Central Government and had earned interest thereon. But the interest so received by the assessee on the deposits has not been offered to tax. The D.R. submitted that similar controversy arose in the assessment year 2004-05 in the assessee's own case and the Tribunal had decided the same 6 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 against the assessee vide order dated 8.2.2008 in ITA No.352/Mds/2007. The assessee has shown interest income as business income and has thereafter claimed deduction under section 36(1)(viii) which is inadmissible under the law. The D.R. contended that the CIT(A) while deciding the issue in favour of the assessee has erred in relying on the judgment of the Hon'ble Karnataka High Court in the case of CIT Vs. Karnataka Urban Infrastructure Development & Finance Corporation reported as 284 ITR 582. The facts of the present case are different from the facts decided by the Hon'ble Karnataka High Court.
7. On the other hand, Shri G.Basker, counsel appearing on behalf of the assessee submitted that the assessee is only a trustee of the funds received from the Central & State Governments for various development and infrastructure projects. Planned funds are received both from State and Central Government. The assessee only acts as a nodal agency for receiving funds and disbursing the same as per the instructions of the Government. Appropriation of the funds is made by the Government and not by the assessee. 7 ITA Nos.5, 6, 79 & 80/Mds/2010
ITA Nos.700, 701 & 603/Mds/2011 Therefore, the assessee has no control over the use of funds. In order to support his contentions, the counsel for the assessee referred to the letter dated 10th November, 1997 which is at page 42 to 44 of the paper book. The said letter has been issued by the Ministry of Urban Affairs & Employment, Department of Urban Development for the release of Central Govt. share of funds for the scheme (Infrastructural Development in Mega Cities) during the year 1997-98. The counsel for the assessee further submitted that the accounts of the assessee are audited by the Office of the Comptroller & Auditor General of India. All funds received are distinguishable and are maintained in separate accounts. The counsel further contended that the decision of the Tribunal in ITA No.352/Mds/2007 relevant to the assessment year 2004- 05 was on different issue and the controversy in the present case is not identical to the one already decided by the Tribunal in the aforementioned appeal. The counsel for the assessee strongly supported the order passed by the CIT(A) and submitted that the case of the assessee is squarely covered by the Division Bench of the Hon'ble Karnataka High 8 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 Court in the case of CIT Vs. Karnataka Urban Infrastructure Development & Finance Corporation(supra).
8. We have heard the submissions made by both the parties and have examined the orders passed by the lower authorities. It is an admitted fact that the assessee is a State Government Undertaking and is only acting as nodal agency for receiving funds from Central as well as State Governments and the disbursement of the funds for the development and the infrastructure projects is as per the directions of the Government from time to time. The controversy involved in the present appeal is with regard to accrued interest on the funds advanced to the local bodies /IDSMT funds programme. The Hon'ble Karnataka High Court in CIT Vs. Karnataka Urban Infrastructure Development & Finance Corporation (supra) has held as under:-
"4. The material on record shows that the very purpose of constitution of the assessee was to act as a nodal agency for implementation of mega-city scheme worked out by the Planning Commission. Both the Central and the State Governments are expected to provide requisite finances for implementation of the said project. The funds from the Central and State Governments will flow directly to the specialised institutions/nodal agencies as 9 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 grant and the nodal agency will constitute a revolving fund with the help of Central and State shares out of which finance could be provided to various agencies such as water, sewerage boards, municipal corporations, etc. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and, therefore, the assessee is a nodal agency formed/created by the Government of Karnataka as per the guidelines; there is no profit motive as the entire fund entrusted and the interest accrued therefrom on deposits in bank though in the name of the assessee has to be applied only for the purpose of welfare of the nation/States as provided in the guidelines; the whole Of the fund belongs to the State Exchequer and the assessee has to channelise them to the objects of centrally sponsored scheme of infrastructural development for mega-city of Bangalore. Funds of one wing of the Government is distributed to the other wing of the Government for public purpose as per the guidelines issued. The monies so received, till it is utilised, is parked in a bank. The finding recorded by the Tribunal clearly shows that the entire money in question is received for implementation of the scheme which is for a public purpose and the said scheme is implemented as per the guidelines of the Central Government and, therefore, the assessee is only acting as a nodal agency of Central Government for implementation of these projects. It is not the case of the Revenue that the assessee was carrying on any business or activities of its own while implementing the scheme in question. The unutilised money, during which the project could not be fully implemented, is deposited in a bank to earn interest. That interest earned is also again utilised for the implementation of the mega-city scheme which is also permitted under the scheme. Therefore, in computing the total income of the assessee for any previous year the interest accrued 10 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 on bank deposits cannot be treated as an income of the assessee as the interest is earned out of the money given by the Government of India for the purpose of implementation of mega-city scheme.
5. Therefore, we do not find any error in the conclusion reached by the Tribunal that there was no income earned by way of interest by the assessee and setting aside the order of AO which is affirmed by the first appellate authority. The finding given by the Tribunal is purely a question of fact. We do not find any substantial question of law involved in this appeal and therefore, this appeal is liable to be dismissed at the stage of admission itself."
9. On the other hand, the D.R. has placed reliance on the order of the Tribunal in assessee's own case relevant to the assessment year 2004-05 in ITA No.352/Mds/2007 decided on 8.2.2008. In the aforementioned case, the issue involved was with regard to claim of the assessee to treat its entire income as expenditure under section 10(23G) of the Income Tax Act and has also claimed deduction under section 36(1)(viii) of the Act to the extent of 40% of the business income without approval from CBDT. We are of the considered opinion that the controversy involved in the present case is different from the one which has been decided by the Tribunal in ITA No.352/Mds/2007 relevant to the assessment year 2004-05. However, the present case of 11 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 the assessee is squarely covered by the Division Bench judgement of the Hon'ble Karnataka High Court, wherein it has been held that since interest earned is again utilized for implementation of the mega-city Scheme, the same cannot be treated as income of the assessee. The interest is earned out of the money given by the Government of India for the purpose of implementation of mega-city Scheme.
10. We, therefore, uphold the findings of the CIT(A) and dismiss the appeal of the Revenue being devoid of merits. ITA No.5 & 6/Mds/2010 ( Assessee - A.Y. 2005-06 & 2006-07) & ITA Nos. 79 & 80/Mds/2010 (Revenue - A.Y. 2005-06 & 2006-07):
11. Since the issues involved in the above appeals are common, they are taken up together for disposal. The Revenue in its appeal nos.79 & 80/Mds/2010 has impugned the order of the CIT(A) dated 30.10.2009 primarily on the ground that the CIT(A) has deleted the interest income assessed by the Assessing Officer in respect of interest earned by the assessee on Mega-City Project. The other grounds taken by the Revenue in the above two appeals are in support of the main ground. The aforesaid issue has 12 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 already been dealt with in detail in ITA No.700/Mds/2011 (Revenue appeal) relevant to the assessment year 2003-04 hereinabove. The only difference in the present case is that in the assessment year 2003-04 the assessee had advanced funds for Integrated Development of Small and Medium Towns Scheme whereas in the assessment year 2005-06 & 2006-07 the funds have been advanced by the assessee for Mega-City Project. The nature of activity and purpose for advance are same in both the cases. Therefore, for the reasons recorded by us in ITA No.700/Mds/2011, both the appeals of the Revenue i.e. 79 & 80/Mds/2010 are dismissed.
12. The assessee on the other hand, in ITA Nos. 5 & 6/Mds/2011 has impugned the order of the CIT(A) on two grounds:-
i) The CIT(A) had disallowed the claim of the assessee under section 10(23G) of the Act; &
ii) The CIT(A) had disallowed a portion of deduction claimed under section 36(1)(viii) on interest in respect of short term deposits which had been fully allowed in the past.13 ITA Nos.5, 6, 79 & 80/Mds/2010
ITA Nos.700, 701 & 603/Mds/2011
13. The D.R. submitted that the issue with regard to the claim of the assessee under section 10(23G) has already been decided by the Tribunal against the assessee in assessee's own case relevant to the assessment year 2003- 04 in ITA No.1667/Mds/2004 vide order dated 20th July, 2007 as well as for assessment year 2004-05 in ITA No.352/Mds/2007 vide order dated 8.2.2008. Since the orders have not been challenged by the assessee in the higher forum, the same have attained finality. The counsel for the assessee could not place any document on record to controvert the submissions made by the D.R. It is evident from record that the assessee has not obtained approval from CBDT for the purpose of claiming exemption under section 10(23G). Therefore, this issue is decided against the assessee.
14. Similarly, with respect to second ground raised by the assessee regarding deduction under section 36(1)(viii) in respect of interest on short term deposits, the D.R. submitted that this issue has also been decided against the assessee by the Tribunal in the aforementioned appeals relevant to the 14 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 assessment years 2003-04 and 2004-05. The counsel for the assessee submitted that the assessee after receiving funds from the Central and State Governments use to park excess funds in the bank in short term deposits. The interest earned on the said deposits is again utilized for advancing funds under the various schemes as per the instructions of the Government from time to time. Therefore, the same should be considered at par with the accrued interest from Integrated Development of Small & Medium Town and Mega- city projects.
15. We do not agree with the contentions of the counsel for the assessee on this issue. The income earned from deposits with the bank etc. cannot be treated as income from business. The said interest income has to be treated as "Income from other sources". By no stretch of imagination the income earned from interest on short term deposits can be considered as part of business income, even if the same is utilized for advancing funds under the instructions from the Government . A plain reading of the provisions of section 36(1)(viii) shows that the deduction is available in computing 15 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 the income from business (under section 28) by the financial corporation including a public company and a Government company which is engaged in providing "long term finance"
for industrial or agricultural development or development of infrastructure facility in India.
The legislature in unequivocal words have stated that deduction under section 36 is available only in respect of income computed under the head "Profit and Gains of Business or Profession" under section 28. Interest from short term deposits are not taken into consideration in computing the income referred to in section 28. Rules of interpretation would come into play only if there is any doubt with regard to the express language used. Where the words are unequivocal there is no scope for imparting the rule of liberal interpretation. Our view on this issue is fortified by the judgement of the Hon'ble Supreme Court of India in Pandian Chemicals Ltd., Vs. CIT., reported as 262 ITR 278 (SC).
Therefore, interest income on short term deposits is not eligible for deduction under section 36(1)(viii) of the Act.
There is no force in the submissions of the counsel for the 16 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 assessee on this issue, resultantly this ground of appeal of the assessee is dismissed.
16. In the result, appeals of the assessee as well as Revenue relevant to the assessment years 2005-06 & 2006- 07 are dismissed being devoid of any merit.
ITA No.603/Mds/2011 (Assessee - A.Y. 2007-08) & ITA No.701/Mds/2011 (Revenue - A.Y. 2007-08):
17. The assessee has impugned the order of the CIT(A) dated 5.1.2011on the ground that deduction under section 36(1)(viii) on interest in respect of short term deposits have been denied by the CIT(A). This issue has already been dealt with in detail by us in the above appeals i.e. ITA Nos. 5 & 6/Mds/2010 filed by the assessee. Therefore, following our own findings in the aforesaid appeals, we dismiss the appeal of the assessee in ITA No.603/Mds/2011 relevant to the assessment year 2007-08 as well.
18. The Revenue has filed an appeal i.e. ITA No.701/Mds/2011 relevant to the assessment year 2007-08 17 ITA Nos.5, 6, 79 & 80/Mds/2010 ITA Nos.700, 701 & 603/Mds/2011 raising as many as six grounds. Ground no.1 & 6 are general in nature and therefore the same are not taken up for adjudication. The counsel for the assessee has not pressed ground no.5, therefore, the same is dismissed as not pressed. Ground no.2 relates to disallowance made on account of prior period expenses. The counsel for the assessee has placed on record the order of Assessing Officer giving effect to the order of the CIT(A) vide order dated 5.9.2011 at page 73 of the paper book. Since consequential order has been passed, this ground of appeal of the Revenue has become infructuous.
19. As regards ground 3 & 4 are concerned, they are inter- related. The Revenue has assailed the order of the CIT(A) for deleting the additions made on account of accrued interest on IDSMT scheme as well as interest from Mega City Projects. This issue has already been dealt with in detail in ITA No.700/Mds/2011. No other ground is raised by the Revenue in the appeal. Therefore, the present appeal of the Revenue is dismissed.
18 ITA Nos.5, 6, 79 & 80/Mds/2010
ITA Nos.700, 701 & 603/Mds/2011
20. To sum up all the seven appeals filed by the assessee as well as Revenue are dismissed and the order of the CIT(A) is confirmed.
Order pronounced in the open court on Tuesday, the 11th day of September, 2012 at Chennai.
Sd/- Sd/-
(Dr. O.K.Narayanan) (Vikas Awasthy)
Vice President Judicial Member
Chennai,
Dated the 11th September, 2012.
somu
Copy to: (1) Appellant (4) CIT(A)
(2) Respondent (5) D.R.
(3) CIT (6) G.F.