CIT v. Sasan Power Ltd. - Taxpublishers.in

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The Tax Publishers2013 TaxPub(DT) 1836 (Del-HC) : (2013) 052 (I) ITCL 0367 Income Tax Act, 1961 --Income --Capital or revenue receipt Interest paid and received on funds provided for project --Assessee received commitment advance from Power Procurement Utilities of the States concerned. These advances were transferred to PFC and PFC, had paid interest on the unutilized commitment advance as per the agreement between PFC and assessee. The said interest was credited to 'capital work in progress'. Assessee was also liable to pay interest to the Power Procurement Utilities on the commitment advance paid. This was shown as a reduction from interest income received from PFC credited to the capital work in progress, however, assessee had shown the interest received from PFC under section 57 as 'income from other sources'. It had not commenced business operation yet. Assessing officer viewed that interest paid was on capital account but the interest received was taxable under section 57, therefore, it cannot be set-off and allowed as a deduction under section 57(iii). On appeal, Commissioner (Appeals) examined the nature and character of the interest received from PFC and held that the interest income was capital in nature and not revenue and therefore, not taxable under section 57. Tribunal confirmed the order of Commissioner (Appeals) observing that the entire expenditure was capital in nature. *Held :* Both Commissioner (Appeals) and Tribunal were justified as interest received on unutilized commitment advances cannot be taxed as revenue income and interest paid on commitment advance was treated as a capital expense, further no question of law arose. Income Tax Act, 1961, Section 4 In the Delhi High Court Sanjiv Khanna & R.V. Easwar, J.J. CIT v. Sasan Power Ltd. ITA 10/2012 A.Y. 2007-08 6 January, 2012 *Decision:* Partly in assessees favour. Sanjiv Khanna &R.V. Easwar JUDGEMENT *Sanjiv Khanna, J.* The Revenue by present appeal under section 260A of the Income Tax Act (Act, for short) impugns the order dated 29-4-2011 passed by the Income Tax Appellate Tribunal (tribunal, for short) in ITA No.2819/2010. The appeal relates to assessment year 2007-08. 2. The respondent-assessee had filed its return of income on 30-10-2007 declaring nil income. By assessment order dated 30-10-2009, the assessing officer assessed income of Rs. 2,71,92,899 by disallowing interest expenses of Rs. 1,36,11,665 and Rs. 1,35,81,234 being document development expenses. 3. The respondent-assessee succeeded in the first appeal and the tribunal has affirmed the said decision and upheld the deletions made by the Commissioner (Appeals). 4. Revenue has filed the present appeal in respect of disallowance of interest expense of Rs. 1,36,11,665 . 5. The respondent-assessee was a wholly owned subsidiary of Power Finance Corporation (PFC) and was incorporated/created as a special purpose vehicle (SPV) for inviting bids for construction and building of an ultra mega power project at Sasan in Madhya Pradesh. The respondent-assessee as a SPV was subsequently transferred to the successful bidder. This was the sole purpose behind the activities which were undertaken in the year in question. It is obvious that with these objects and purpose the attempt and desire was to have a neutral or a nil balance sheet. It may be noted here that PFC is a public sector corporation. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 1836 (Del-HC) : (2013) 052 (I) ITCL 0367

Income Tax Act, 1961

--Income --Capital or revenue receipt Interest paid and received on funds provided for project --Assessee received commitment advance from Power Procurement Utilities of the States concerned. These advances were transferred to PFC and PFC, had paid interest on the unutilized commitment advance as per the agreement between PFC and assessee. The said interest was credited to 'capital work in progress'. Assessee was also liable to pay interest to the Power Procurement Utilities on the commitment advance paid. This was shown as a reduction from interest income received from PFC credited to the capital work in progress, however, assessee had shown the interest received from PFC under section 57 as 'income from other sources'. It had not commenced business operation yet. Assessing officer viewed that interest paid was on capital account but the interest received was taxable under section 57, therefore, it cannot be set-off and allowed as a deduction under section 57(iii). On appeal, Commissioner (Appeals) examined the nature and character of the interest received from PFC and held that the interest income was capital in nature and not revenue and therefore, not taxable under section 57. Tribunal confirmed the order of Commissioner (Appeals) observing that the entire expenditure was capital in nature. Held : Both Commissioner (Appeals) and Tribunal were justified as interest received on unutilized commitment advances cannot be taxed as revenue income and interest paid on commitment advance was treated as a capital expense, further no question of law arose.

Income Tax Act, 1961, Section 4

In the Delhi High Court

Sanjiv Khanna & R.V. Easwar, J.J.

CIT v. Sasan Power Ltd.

ITA 10/2012

A.Y. 2007-08

6 January, 2012

Decision: Partly in assessees favour.

Sanjiv Khanna &R.V. Easwar

JUDGEMENT

Sanjiv Khanna, J.

The Revenue by present appeal under section 260A of the Income Tax Act (Act, for short) impugns the order dated 29-4-2011 passed by the Income Tax Appellate Tribunal (tribunal, for short) in ITA No.2819/2010.

The appeal relates to assessment year 2007-08.

2. The respondent-assessee had filed its return of income on 30-10-2007 declaring nil income. By assessment order dated 30-10-2009, the assessing officer assessed income of Rs. 2,71,92,899 by disallowing interest expenses of Rs. 1,36,11,665 and Rs. 1,35,81,234 being document development expenses.

3. The respondent-assessee succeeded in the first appeal and the tribunal has affirmed the said decision and upheld the deletions made by the Commissioner (Appeals).

4. Revenue has filed the present appeal in respect of disallowance of interest expense of Rs. 1,36,11,665 .

5. The respondent-assessee was a wholly owned subsidiary of Power Finance Corporation (PFC) and was incorporated/created as a special purpose vehicle (SPV) for inviting bids for construction and building of an ultra mega power project at Sasan in Madhya Pradesh. The respondent-assessee as a SPV was subsequently transferred to the successful bidder. This was the sole purpose behind the activities which were undertaken in the year in question. It is obvious that with these objects and purpose the attempt and desire was to have a neutral or a nil balance sheet. It may be noted here that PFC is a public sector corporation.