IN HIGH COURT OF JUDICATURE AT MADRAS DATE: 27.04.2015 CORAM HONOURABLE MR. JUSTICE R.SUDHAKAR AND HONOURABLE MS. JUSTICE K.B.K.VASUKI T.C.A. NO. 543 OF 2007 M/s.Indian Power Projects Ltd. Suite D First Floor Sun Plaza Complex No.19, G.N.Chetty Road Chennai 600 006.Appellant -Vs- Deputy Commissioner of Income Tax Company Circle I(2) Chennai.Respondent Appeal filed under Section 260-A of Income Tax Act against order dated 7.7.05 passed by Income Tax Appellate Tribunal, Chennai 'A' Bench, Chennai, made in ITA No.1463/Mds/2000. For Appellant: Mr. S.Sridhar For Respondents: Mr. T.R.Senthilkumar JUDGMENT (DELIVERED BY R.SUDHAKAR,J.) Aggrieved by order of Tribunal in allowing appeal filed by Revenue, appellant/assessee is before this Court by filing 2 present appeal. This Court, vide order dated 11.6.07, while admitting appeal, framed following questions of law for consideration :-i) Whether Tribunal is justified in concluding that amount of Rs.12,50,000/= received towards cost of tender documents was correctly assessed by respondent under head "other sources" on facts and circumstances of case? ii) Whether Tribunal is correct in confirming assessment of said receipt under head "income from other sources" by respondent in light of decision of Supreme Court in case of Tuticorin Alkali Chemicals & Fertilizers Ltd., even though subsequent decision rendered by Supreme Court distinguishing above case was followed by first appellate authority in deleting said addition?" 2. case of appellant/assessee is that while it intended to produce power, floated global tender and towards sale of tender documents, during pre-commencement period, received sum of Rs.12,50,000/= as part of tendering process. According to Department, said amount was to be treated as revenue receipt, while on other hand, assessee contended that tender documents were supplied as part of pre-commencement of power project, which also includes consultancy charges and, therefore, it was capital expenditure. Department, in support of their stand, relied on decision of Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. -Vs-3 Commissioner of Income Tax (1997 (227) ITR 172 (SC)), on contrary assessee/appellant relied upon decision of Supreme Court in Commissioner of Income Tax - Vs - Bokaro Steel Ltd. (1999 (236) ITR 315 (SC)). case was adjudicated and assessment order was passed negativing stand of assessee/appellant. 3. assessee/appellant, aggrieved by said order, preferred appeal to CIT (Appeals), who after considering case, held in favour of assessee/appellant following decision of Supreme Court in Bokara Steel case (supra). Aggrieved by said order, Department preferred appeal before Tribunal. Tribunal, following decision of Supreme Court in Tuticorin Alkali Chemicals & Fertilizers case (supra), allowed appeal and held in favour of Department against which assessee/appellant is before this Court by filing present appeal. 4. Heard Mr.Sridhar, learned counsel appearing for appellant/assessee and Mr.T.R.Senthilkumar, learned standing counsel appearing for respondent/Department and perused materials placed in typed set of documents as also judgments relied on by learned counsel on either side which have been referred by authorities below in coming to their respective findings. 4 5. short issue that arise for consideration in this appeal is "Whether on admitted facts, receipt of amount on sale of tender documents should be treated as income from other sources or as capital receipt?". 6. For better appreciation of case on hand, reasoning of Tribunal, as found in para-3 of its order, is extracted hereinbelow :- "3. We have considered rival submissions made by both sides and perused materials available on record. It is admitted position that receipt by way of sale of tender documents is pre commencement receipt. There is no strong denial of above fact. When it is pre commencement receipt decision of Hon'ble Supreme Court in case of Tuticorin Alkali Chemicals & Fertilizers Ltd., cited supra, is directly on point at issue. decision of Hon'ble Supreme Court in case of Bokaro Steel Ltd., on which Commissioner (Appeals) relied on, is distinguishable as decision in case of Tuticorin Alkali Chemicals & Fertilizers Ltd., has directly dealt with pre commencement expense and receipts. We are of view that order of Assessing Officer bringing receipt as income from other sources is perfectly justified and deletion of same by Commissioner (Appeals) is not in accordance with law. We therefore set aside order of Commissioner (Appeals) and restore that of Assessing Officer." 7. in Tuticorin Alkali Chemicals & Fertilizers case (supra), issue 5 before Supreme Court was whether interest earned from borrowed capital, lying idle, should be treated as income from other sources or capital is in nature. In facts of said case, Supreme Court was of view that company had surplus funds in its hands and in order to earn income out of surplus funds, it invested amounts for purpose of earning interest and, therefore, held that it is revenue in nature and has to be taxed accordingly. relevant portion is extracted hereinbelow for better clarity:- "In case before us, company had surplus funds in its hands. In order to earn income out of surplus funds, it invested amount for purpose of earning interest. interest thus earned is clearly of revenue nature and will have to be taxed accordingly. accountants may have taken some other view but accountancy practice is not necessarily good law. In B. S. C. Footwear s case (1972 (83) ITR 269), House of Lords had no hesitation in holding that accounting practice for calculating its profit followed by assessee and accepted by Revenue for 30 years could not be treated as sanctioned by law and was not acceptable for purpose of computation of taxable income." 8. In case of Bokara Steel (supra), Supreme Court found that activities of assessee was in connection with three receipts, viz., rent charged by assessee to its contractors for housing workers and staff employed by contractor for construction work of assessee 6 including certain amenities granted to staff by assessee; hire charges for plant and machinery which was given to contractors by assessee for use in construction work of assessee and finally interest from advance made to contractors by assessee for purpose of facilitating work of construction of its plant undertaken by assessee. activities of assessee in connection with all these three receipts were directly connected with or incidental to work of construction of its plant undertaken by assessee. advances which assessee made to contractors to facilitate construction activity of putting together very large project was as much to ensure that work of contractors proceeded without any financial hitch as to help contractors. arrangements which were made between assessee- company and contractors pertaining to these three receipts were arrangements which were intrinsically connected with construction of its steel plant. receipts had been adjusted against charges payable to contractors and had gone to reduce cost of construction. While considering this issue, Supreme Court had occasion to take into consideration judgment of Delhi High Court in case of ACIT - Vs - Indian Drugs & Pharmaceuticals (1983 (141) ITR 134 (Del.)) and endorsed view of Delhi High Court and, finally it was held that receipts were capital receipts and not income of assessee from any independent source. relevant portion of decision of Supreme 7 Court is extracted hereinbelow for better appreciation :- "In case of Addl. CIT v. Indian Drugs and Pharmaceuticals Ltd. (1983 (141) ITR 134), Delhi High Court considered case where work of construction of factory of assessee was in progress and production had not commenced. Receipts from sale of tender forms and supply of water and electricity to contractors engaged in construction as also receipts on account of sale of stones, boulders, grass and trees were held to be receipts not from independent sources but were considered as inextricably linked with process of setting up of business. These were directly related to capital structure of business and were held to be capital in nature. We agree with this view taken by Delhi High Court." 9. reading of order of CIT (Appeals) as also Tribunal would reveal that CIT (Appeals) has relied on decision of Supreme Court in Bokaro Steel case (supra), more particularly, para-6, which has been extracted above, to come to conclusion that in case on hand, receipt by way of sale of tender documents, even at pre- commencement stage is inextricably linked to process of setting up of business and, is therefore, capital in nature. Similar was view of Delhi High Court in case of Indian Drugs & Pharmaceuticals (supra), which view has been endorsed by Supreme Court. 10. However, reading of order of Tribunal would reveal that 8 there can be no iota of doubt that Tribunal failed to appreciate finding of Delhi High Court, in similar set of facts, which was ultimately endorsed by Supreme Court that receipts which are inextricably linked to process of setting up of business could not be construed in any other manner other than in nature of capital receipt. 11. Tribunal fell in error in merely stating that decision in Bokaro Steel case (supra) is distinguishable from Tuticorin Alkali Chemicals & Fertilizers case (supra), without even understanding scope of decision in Bokaro Steel case (supra). admitted fact in this case is that amount received by appellant/assessee in sale of tender documents at pre-commencement stage is in relation to establishment of unit and, therefore, it could be clearly stated that it is intrinsically connected with purpose of setting up of unit. This Court is in agreement with view expressed by Supreme Court in Bokaro Steel case (supra), which has affirmed view of Delhi High Court in Indian Drugs & Pharmaceuticals case (supra) and is of considered view that said decision is squarely applicable to facts of present case. Accordingly, first substantial question of law is answered in favour of appellant/assessee and against respondent/Revenue. 9 12. In view of answer to first question of law, second question of law becomes academic and does not require any consideration at hands of this Court and, therefore, same is not dealt with. 13. In result, appeal is allowed setting aside order of Tribunal dated 7.7.05 made in ITA No.1463/Mds/2000. However, in circumstances of case, there shall be no order as to costs. (R.S.J.) (K.B.K.V.J.) 27.04.2015 Index: Yes/No Internet: Yes/No GLN 10 To 1. Deputy Commissioner of Income Tax Company Circle I (2) Chennai. 2. Income Tax Appellate Tribunal Chennai 'A' Bench Chennai. 11 R.SUDHAKAR,J. AND K.B.K.VASUKI,J. GLN T.C.A.NO. 543 OF 2007 27.04.2015. M/s.Indian Power Projects Ltd. v. Deputy Commissioner of Income-tax Company Circle-I(2), Chennai