|CORAM:||B. R. Baskaran (AM), Joginder Singh (JM)|
|CATCH WORDS:||derived from the undertaking|
|DATE:||October 28, 2015 (Date of pronouncement)|
|DATE:||November 5, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 80-IA: Interest on TDS refund, interest from lessees, interest on FDRs and Tender fees are all “derived” from the undertaking and are eligible for deduction. If items of income are not eligible, it should be netted off against expenditure and only balance can be disallowed|
(i) The TDS deduction from lease rental income was beyond the control of the assessee and also due to the delay in getting no-deduction certificate from the AO. In view of the same, the assessee was deprived of funds to the extent of TDS amount, which would have otherwise used for the purpose of business purposes including repayment of loan taken for construction of IT parks and SEZ. The Income tax department was required to pay interest only due to the delay in granting refund of TDS. In the case of Liberty India Ltd (supra), relied upon by the AO, the assessee therein received DEPB credits as per the scheme framed by the Government of India. Hence the Hon’ble Supreme Court held that the primary source of the DEPB receipt is the scheme framed by the Government. However, in the instant case, TDS deduction is integral part connected with the receipt of lease income and the same cannot be separted from the activity carried on by the assessee. Since the lease income is the primary source of the assessee and since the TDS has been deducted from the said primary source and since the assessee was deprived of a portion of lease rent for a temporary period for the reasons beyond the control of the assessee, there is some merit in the contention of the assessee that the interest on TDS refund should be equated with the interest on delayed payment of business receipts. In our view, the assessee has got strong case in the alternative contentions that interest received by it on the TDS refund should be netted off against the interest expenditure for the purpose of computing the profits and gains derived from the undertaking, in which case, the interest income need not be assessed separately and it would automatically get deduction u/s 80IA of the Act due to netting off. In view of the above, we uphold the decision taken by the CIT(A) on this issue.
(ii) As regards the interest received from the lessees for the delayed payment of lease rent, in view of the decision rendered by the Supreme Court in the case of Govinda Choudhary & Sons (supra) and the decision of Hon’ble jurisdictional Bombay High Court in the case of CIT Vs, Bhansali Engg. Polymers Ltd (2008)(306 ITR 194), we do not find any infirmity in the decision of CIT(A) in holding that interest so received partakes the character of lease rentals and hence eligible for deduction u/s 80IA of the Act.
(iii) As regards interest received on FDR, the assessee had received lease deposits from the lessees, which is required to be returned to them upon vacating the premises. Since the possibility of vacating the premises in the middle is always there, in which event the lease deposits are required to be refunded, the assessee was not in a position to use the entire lease deposits for business purposes including for repayment of loans taken by it. Hence, as a prudent business policy, the assessee was constrained to keep part of the lease deposits into the Fixed deposits maintained with banks. The said fixed deposits have earned interest income. Thus, we notice that the assessee was required to keep part of lease deposits amounts in fixed deposits out of business compulsion. Since the lease rental income is the primary source of the assessee, in our view, the keeping of fixed deposits shall form integral part of the business of operation of IT parks and SEZ. We also find merit in the alternative argument of the assessee that the interest income should be netted off against the interest expenditure, since the assessee was constrained to keep part of lease deposits into fixed deposits in view of the peculiar nature of activities of the assessee instead of using the same for business purposes including repayment of loan. In view of the above, we do not find any infirmity in the decision taken by the CIT(A) on this issue.
(iv) As regards Tender fees received by the assessee on sale of tender forms, the CIT(A) noticed that the assessee has availed the services of various sub-contractors for the purpose of carrying our various works in the IT parks and SEZ. In order to select the vendors (sub-contractors), the assessee has followed tender system and in that process, it has collected money on sale of tender forms. Hence, the CIT(A) has held that the activity of inviting tender is very much part of the development and operation of SEZ and accordingly held that the sale of tender forms shall be eligible for deduction u/s 80IA of the Act. Since the tenders have been invited in connection with the development and operation of IT parks and SEZ, we are of the view that the Ld CIT(A) was justified in holding that the tender fees are eligible for deduction u/s 80IA of the Act.
(v) There is also merit in the cross objection of the assessee that the corresponding expenditure relating to the items of receipts, which were not considered to be deductible u/s 80IA of the Act, should be deducted and the deduction should be denied only in respect of net receipts since the deduction u/s 80IA is allowed in respect of “Profits and gains”, which means only net income, i.e., Gross receipt less corresponding expenditure incurred to earn the said income. Accordingly, we direct the AO to exclude only the net receipts in respect of ineligible item of income.