Orissa High Court
Commissioner Of Income Tax vs Indian Charge Chrome Ltd. on 13 April, 2005
Equivalent citations: 2005(II)OLR159
Author: B.P. Das
Bench: B.P. Das
JUDGMENT B.P. Das, J.
1. Heard learned counsel for the Revenue as well as the assessee.
2. On an application made by the Revenue, the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack, (hereinafter 'Tribunal') has referred the following question of law arising out of the order of the Tribunal in I.T.A. No. 203 (CTK) of 1988 in respect of the assessment year 1985-86 for opinion of this Court :
"Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the receipt of Rs. 25,705/- on account of sale of tender papers would go to reduce the capital cost and therefore, the same was not assessable as 'Income from other Sources' in the hands of the assessee-company for the assessment year 1985-86 ?"
3. Brief facts : The assessee is a company engaged in manufacture and sale of charge-chrome, ferro-chrome etc. and during the assessment year 1985-86 when the company was still at the stage of construction and had not gone for commercial production, a 'nil' return was submitted. The Assessing Officer, however, found that the assessee had earned a sum of Rs. 25,705/- from sale of tender papers to contractors during the accounting year 1984-85. Since the income from sale of tender papers was derived before the commencement of the business, the Assessing Officer assessed it as income from other sources. The assessee appealed to the Commissioner of Income Tax (Appeals), Orissa, Cuttack, who held that the receipt from the sale of tender papers was closely linked with the execution of capital works and, therefore, the same could not be assessed as income of the assessee from an ancillary source. The appellate authority further observed that such receipt would obviously go to reduce the investment cost of the assessee. Against the aforesaid order of the appellate authority, the Revenue preferred an appeal before the Tribunal. The Tribunal ultimately confirmed the view of the Commissioner of Appeals. The reasoning of the Tribunal given in paragraph 3 of the impugned order is extracted hereunder :
" ...There is no doubt that selling of tender papers is connected with the capital work of the assessee-company. Moreover, the sale proceeds of the tender papers would reduce the capital cost and, therefore, it would be incorrect to assess the same as income from other sources in the hands of the assessee. The view taken by the CIT (Appeals) is correct and his order does not require any interference."
4. Being aggrieved by the aforesaid order of the Tribunal, the Revenue made an application for reference and the Tribunal has referred the question of law as indicated above for opinion of this Court.
5. In this regard we may refer to the decision of the Delhi High Court rendered in Addl. Commissioner of I.T., New Delhi v. Indian Drugs and Pharmaceuticals Ltd., . In the aforesaid case in identical circumstances whether the factory and building of the assessee was under construction and the plant and machinery was in the process of installation. It was held that the receipts from sale of tender papers and supply of water and electricity to the contractors engaged in the construction of assessee's factory building and erecting the machinery were of capital nature and, therefore, the said receipts were not income liable to tax, as the tender forms were supplied by the assessee to the contractors not in order to earn income nor was the sale of tender forms a source of income as understood commonly and the activity was a part and parcel of constructional activities of the assessee.
6. Following the aforesaid decision, we do not find any reason to disagree with the view taken by the Tribunal that the receipts in question did not constitute income liable to tax. We accordingly answer the question referred to us in affirmative and in favour of the assessee. The reference is accordingly dismissed.
A.K. Samantray, J.
7. I agree.