The assessee is a corporation wholly owned by the Government of India. It was assessed in the status of a company. The assessee-company,\u00a0 Bokaro\u00a0 Steel Ltd., was incorporated in January 1964. Its object was to construct and own an integral iron and steel works. During the assessment years under consideration, the work\u00a0\u00a0 of construction of the company\u2019s factory and installation of the plant was in the process of completion. During the year, the assessee received certain amounts from the contractors for housing accommodation for construction workers, hire charges of plant\u00a0 and machinery, interest on advance, and royalty for excavation and use\u00a0\u00a0 of stone found on the assessee\u2019s land. The Tribunal held that, all of amounts received by the assessee would go to reduction of cost of construction.<\/p>\n
\u00a0<\/p>\n
Whether receipts from the Construction Company being intrinsically connected with construction of assessee\u2019s plant, will it be considered as a capital receipt and \u00a0not income of assessee from any independent source?<\/p>\n
\u00a0<\/p>\n
These are the rent charged by the assessee to its contractors for housing workers and staff employed by the contractor for the construction work of the assessee, including certain amenities granted to the staff by the assessee. Secondly, hire charges for plant and machinery which was given to the contractors by the assessee for using the construction work of the assessee, and thirdly, interest from advances made to the contractors by the assessee, for the purpose of facilitating\u00a0\u00a0 the work of construction. The activities of the assessee in connection with all these three receipts are directly connected with or\u00a0 are\u00a0 incidental to the\u00a0 work\u00a0 of construction of its plant undertaken by the assessee. Broadly speaking, these pertain to the arrangements made by the assessee with its contractors pertaining\u00a0\u00a0\u00a0 to the work of construction. To facilitate the work of the contractor, the assessee<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
permitted the contractor to use the premises of the assessee, for housing its staff and workers engaged in the construction activity of the assessee\u2019s plant. This was clearly to facilitate the work of construction. Had this facility not been provided\u00a0\u00a0 by the assessee, the contractors would have had to make their own arrangements, and this would have been reflected in the charges of the contractors for the construction work. Instead, the assessee has provided these facilities. The same\u00a0\u00a0\u00a0\u00a0 is true of the hire charges for plant and machinery which was given by the assessee to the contractors for the assessee\u2019s construction work. The receipts in\u00a0\u00a0 this connection also go to compensate the assessee for the wear and tear of the machinery. The advances which the assessee made to the contractors, to facilitate the construction activity of putting together a very large project, was as much to ensure that the work of the contractors proceeded without any financial hitches\u00a0\u00a0\u00a0 as to help the contractors.<\/p>\n
\u00a0<\/p>\n
The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts are arrangements which are intrinsically connected with the construction of its steel plant. The receipts have been adjusted against the charges payable to the contractors and have gone to reduce the cost of construction. They have, therefore, been rightly held as capital receipts and not income of the assessee from any independent source. (AY. 1965-66 to 1971-72) (CA No. 2544-45 of 1988 dt. 18-12-1988)<\/p>\n
Editorial: <\/em><\/strong>Also refer Challapalli Sugars <\/em><\/strong>Ltd. v. CIT [1975] 98 ITR 167 (SC) followed, CIT (Addl.) v. Indian Drugs and Pharmaceuticals Ltd. [1983] 141 ITR 134 (Delhi), <\/em><\/strong>Patna High Court in CIT v.\u00a0 Bokaro Steel Ltd. (No. 1) [1988] 170\u00a0\u00a0 ITR 522 <\/em><\/strong>and Bokaro Steel Ltd. v. CIT(No.2) [1988] 170 ITR 545 (Pat.) <\/em><\/strong>affirmed.<\/em><\/strong><\/p>\n Also refer Roads and Bridges Development Corporation v. ACIT (257 Taxman 392) (Kerala HC), CIT v. Karnal Co-operative Sugar Mills Ltd. [2000] 243 ITR 2\/[2001] 118 Taxman 489 (SC) <\/em><\/strong>which have given similar proposition.<\/p>\n \u201cThose who know how to think need no teachers.\u201d<\/em><\/p>\n – Mahatma Gandhi<\/p>\n","protected":false},"excerpt":{"rendered":" S. 4: Charge of income tax \u2013 Capital or revenue- Business income-Receipts from Construction company \u2013 Netting of receipts and payments- Receipts from the Construction Company being intrinsically connected with construction of assessee\u2019s plant, would be considered as a capital receipt and not income of assessee from any independent source-Amounts received by the assessee would go to reduction of cost of construction. [S, 28(i), 56, 145]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-13215","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-3r9","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13215","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=13215"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13215\/revisions"}],"predecessor-version":[{"id":13216,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13215\/revisions\/13216"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=13215"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=13215"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=13215"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}