Commissioner Of Income Tax, Chandigarh-Ii v. M/S Punjab Energy Development Agency

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.666 of 2008 (O&M)Date of decision: 31.7.2009 Commissioner of Income Tax, Chandigarh-II. Vs. M/s Punjab Energy Development Agency. -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MRS. JUSTICE DAYA CHAUDHARY Present:-Ms. Urvashi Dhugga, Advocatefor the appellant.for the appellant. --- ADARSH KUMAR GOEL, J. 1. Delay in refiling is condoned. Heard on merits. 2. Revenue has preferred this appeal under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”), proposing toraise three questions of law, but learned counsel for the revenuepresses only question No.3, which is as under:- “3. Whether on the facts and circumstances of thecase and in law, the Hon’ble ITAT was correct insending back the issue of taxability of interest incomeback to the file of the Assessing Officer withoutappreciating the fact that the assessee has failed to prove that the interest was earned from a propertyheld under a trust or a legal obligation?” It is fairly stated that other questions relate to findings of fact andare, thus, not substantial questions of law. 2. The assessee is a public sector undertaking andreceived grants from Central and State Governments for itsvarious projects. On the grants of Governments received, itearned interest income. It claimed deduction on the said incomeunder Section 11(1)(a) of the Act, which was not allowed by theAssessing Officer. However, the CIT(A) upheld the claim of theassessee. The Tribunal remanded the matter to examinewhether there was co-relation between schemes and the amountsspent. 3. Learned counsel for the revenue submits that theinterest income was not derived from the property held under theTrust for charitable religious purposes. 4. Though learned counsel refers to judgments inCambay Electric Supply Industrial Co. Ltd.v. Commissionerof Income Tax, Gujarat II113 ITR 84 (SC),Commissioner ofIncome Taxv. Sterling Foods237 ITR 579(SC), HindustanLever Ltd.v. Commissioner of Income Tax239 ITR 297(SC),Commissioner of Income Tax v. Cement Distributors Limited208 ITR 355 (Del), Commissioner of Income-Tax v. PandianChemicals Ltd.233 ITR 497 (Madras), Nanji Topanbhai andCo.v. Asstt. Commissioner of Income Tax & others243 ITR192 (Ker.) and Commissioner of Income Tax v. K.K. Doshiand Co. 245 ITR 849 (Bom.), her main reliance is on judgment of the Madras High Court inPandian Chemicals Ltd.(supra),which dealt with the expression income “derived” from the interestfor claiming benefit under Section 80 HH of the Act, which ispermissible in respect of income derived from new undertaking. Itwas held that the interest income was not income derived fromnew undertaking. 5. We are unable to hold that interest income “derivedfrom” amount of grants is not income “derived from” property heldin Trust for charitable purposes within the scope of the saidexpression in Section 11(1)(a). None of the judgments reliedupon is in the contact of Section 11. Qualification for attractingSection 11(1)(a) is that income should be derived from propertyheld in Trust for charitable purpose. The CIT(A) as well as theTribunal held that interest income from grants was fully coveredunder Section 11(1)(a). InCITv. Thanthi Trust(2001) 247 ITR785 (SC), it was held that income from incidental business wasalso covered under Section 11(1)(a). 6. Even if test of income directly arising from property of Trust is applied, interest directly accrues on funds of the Trust. InC.I.T.v. Pruthivi Trust(1980) 124 ITR 488 (Bom.), it wasobserved:- “In order to ascertain the scope and ambit of theexpression “income derived from property held undertrust” reference can be held to the decision of thisCourt in J.K. Trust v. CIT [1955] 23 ITR 143. In thiscase, the High Court has held that in order to claim 6. Even if test of income directly arising from property of Trust is applied, interest directly accrues on funds of the Trust. InC.I.T.v. Pruthivi Trust(1980) 124 ITR 488 (Bom.), it wasobserved:- “In order to ascertain the scope and ambit of theexpression “income derived from property held undertrust” reference can be held to the decision of thisCourt in J.K. Trust v. CIT [1955] 23 ITR 143. In thiscase, the High Court has held that in order to claim exemption it is not sufficient that the property isindirectly responsible for the income. The incomemust directly and substantially arise from the propertyheld under trust. For arriving at this conclusion thisCourt referred to the decision of their Lordships of thePrivy Council in CIT v. Kamakhya Narayan Singh[1948] 16 ITR 325 at p. 328, where the definition ofthe expression has been given of the word “derived”.At page 151 (of 23 ITR) this Court pointed out:“Reference might also be usefully made to thedefinition of the expression ‘derived’ given by the PrivyCouncil in Commissioner of Income-tax v. KamakhyaNarayan Singh [1948] 16 ITR 325. It is true that theirLordships were there considering the question ofagricultural income, but the interpretation placed uponthe expression ‘derived’ by their Lordships is notwithout assistance for interpreting the sameexpression in section 4(3)(i). The expression used inthis section is ‘any income derived from property heldunder trust’, and to put upon it the interpretation putby the Privy Council, the property must be theeffective source from which the income arises. It isnot sufficient that the property should be indirectlyresponsible for the income. The income must directlyand substantially arise from the property held undertrust.....” Even on above test, interest income will fall under Section 11(1)(a). 7. The judgments relied upon relate to cases wherebenefit is permissible on account of special nature of the incomeand income derived from source other than the specified source does not quality for exemption. In case of income of charitableinstitutions, the said consideration is not relevant. The scheme ofSection 11 is not to include income derived from the property ofthe Trust in total income. This being the position, interest incomefrom property of the Trust clearly falls under Section 11 of the Act.8. Same will be position with regard to income from saleof solar cooker and other equipments developed by the EnergyDevelopment Agency. 9. We, thus, do not find that any substantial question oflaw arises for consideration. 10. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 31, 2009ashwani ( DAYA CHAUDHARY ) JUDGE