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III. Direct Taxes Case Laws:
1. ITO
Vs. KSK Wind Energy Halagali Benchi Pvt. Ltd., I.T.A. No. 1098 to
1105/Hyd/2017, Date of Pronouncement: 30.11.2017, ITAT - Hyderabad
Issue:
Whether the interest income earned during the pre- commencement period treated as a capital receipt?
Held: Yes
Brief facts:
The assesseecompanies were incorporated with the object of generation
of electricity from nonconventionalsources.The assessee companies
werecontemplating installation of windmills in the state of Karnatakafor
generating the electricity. Return of income was filed which was
assessed u/s 143(3) of theAct.The Ld. AO observed that the assessee did
not commence commercialoperation of generating electricity and that
during the relevantassessment years, the assessee has received interest
income onthe fixed deposits with the banks and the same has been
claimedas capital receipt and adjusted against the expenditure
pendingallocation under the head capital work-in-progress. The
Ld.AOcompleted the assessmenton the basis ofcontention that interest
income is taxed under the head “income from other sources” as the same
is neither derived from the business of the assesseenor can it be
treated as capital work-in-progress.The hon’ble CIT (A)reversed the
order of Ld. AO.Being aggrieved, the department filed an appeal before
Hon’ble ITAT.
Held:
It was held that the interest income earned from the fixed deposits
ofthe equity fund is to be treated as capital receipt which goes
toreduce the project cost.The interest earned on funds primarily bought
forinfusion in the business could not be classified as “income fromother
sources”.For these reasons, the question is answered in favour
ofassessee and against the revenue.
Hence, the appeal was held in favour of theassessee and against therevenue.
Cases cited:
Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT[1997] 227 ITR 172 (SC)
CIT Vs Bokaro Steel Ltd (1999) 236 ITR315 (SC)
CIT Vs Karnal Co-operative Sugar Mills Ltd., (2000)243 ITR 2 (SC)
(Please click here for judgment)
2. The Wodehouse Gymkhana Ltd.Vs. ITO, I.T.A. No. 5795/Mum/2017, Date of Pronouncement: 30.01.2019, ITAT - Mumbai
Issue:
Whether Provisions of Sec 14A are applicable on exempt income earned on the basis of principle of mutuality?
Held: No
Brief facts:
The brief facts of the case are that the assessee filed its return of
income on 27.11.2014 declaring total income as Nil. The assessment was
selected for scrutiny under CASS. Notice u/s 143(2) & 142(1) of the
Income Tax Act’1961 were issued and served upon the assessee. The
assessee showed the limited dividend income of Rs.22,07,008/- as exempt
income. The Ld.AO by applying provisions of Section 14A r.w Rule 8D
assessed the expenditure earned to earn the exempt income of Rs.
2,51,638/- which was confirmed by Ld.CIT(A). Being aggrieved, the
assessee has filed an appeal before the Hon’ble ITAT.
Held
The Hon’ble ITAT held that limited dividend income was earned on the
basis of principle of mutuality. Further, income not relating to mutual
activity such as interest on bank deposits was shown as taxable income
for which no expenses were claimed by assessee. Therefore, provisions of
Section 14A read with Rule 8D are not applicable on income earned on
mutuality basis.
Therefore, the appeal was held in favour of assessee and against the revenue.
(Please click here for judgment)
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