IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
I.T.A. No.666 of 2008 (O&M)
Date of decision: 31.7.2009
Commissioner of Income Tax, Chandigarh-II.
-----Appellant.
Vs.
M/s Punjab Energy Development Agency.
-----Respondent
CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL
HON'BLE MRS. JUSTICE DAYA CHAUDHARY
Present:- Ms. Urvashi Dhugga, Advocate
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 to
raise three questions of law, but learned counsel for the revenue
presses only question No.3, which is as under:-
“3. Whether on the facts and circumstances of the
case and in law, the Hon’ble ITAT was correct in
sending back the issue of taxability of interest income
back to the file of the Assessing Officer without
appreciating the fact that the assessee has failed to
I.T.A. No.666 of 2008 2prove that the interest was earned from a property
held under a trust or a legal obligation?”
I.T.A. No.666 of 2008 3
It is fairly stated that other questions relate to findings of fact and
are, thus, not substantial questions of law.
2. The assessee is a public sector undertaking and
received grants from Central and State Governments for its
various projects. On the grants of Governments received, it
earned interest income. It claimed deduction on the said income
under Section 11(1)(a) of the Act, which was not allowed by the
Assessing Officer. However, the CIT(A) upheld the claim of the
assessee. The Tribunal remanded the matter to examine
whether there was co-relation between schemes and the amounts
spent.
3. Learned counsel for the revenue submits that the
interest income was not derived from the property held under the
Trust for charitable religious purposes.
4. Though learned counsel refers to judgments in
Cambay Electric Supply Industrial Co. Ltd. v. Commissioner
of Income Tax, Gujarat II 113 ITR 84 (SC), Commissioner of
Income Tax v. Sterling Foods 237 ITR 579(SC), Hindustan
Lever Ltd. v. Commissioner of Income Tax 239 ITR 297(SC),
Commissioner of Income Tax v. Cement Distributors Limited
208 ITR 355 (Del), Commissioner of Income-Tax v. Pandian
Chemicals Ltd. 233 ITR 497 (Madras), Nanji Topanbhai and
Co. v. Asstt. Commissioner of Income Tax & others 243 ITR
192 (Ker.) and Commissioner of Income Tax v. K.K. Doshi
and Co. 245 ITR 849 (Bom.), her main reliance is on judgment of
I.T.A. No.666 of 2008 4
the Madras High Court in Pandian Chemicals Ltd. (supra),
which dealt with the expression income “derived” from the interest
for claiming benefit under Section 80 HH of the Act, which is
permissible in respect of income derived from new undertaking. It
was held that the interest income was not income derived from
new undertaking.
5. We are unable to hold that interest income “derived
from” amount of grants is not income “derived from” property held
in Trust for charitable purposes within the scope of the said
expression in Section 11(1)(a). None of the judgments relied
upon is in the contact of Section 11. Qualification for attracting
Section 11(1)(a) is that income should be derived from property
held in Trust for charitable purpose. The CIT(A) as well as the
Tribunal held that interest income from grants was fully covered
under Section 11(1)(a). In CIT v. Thanthi Trust (2001) 247 ITR
785 (SC), it was held that income from incidental business was
also 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. In
C.I.T. v. Pruthivi Trust (1980) 124 ITR 488 (Bom.), it was
observed:-
“In order to ascertain the scope and ambit of the
expression “income derived from property held under
trust” reference can be held to the decision of this
Court in J.K. Trust v. CIT [1955] 23 ITR 143. In this
case, the High Court has held that in order to claim
I.T.A. No.666 of 2008 5exemption it is not sufficient that the property is
indirectly responsible for the income. The income
must directly and substantially arise from the property
held under trust. For arriving at this conclusion this
Court referred to the decision of their Lordships of the
Privy Council in CIT v. Kamakhya Narayan Singh
[1948] 16 ITR 325 at p. 328, where the definition of
the 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 the
definition of the expression ‘derived’ given by the Privy
Council in Commissioner of Income-tax v. Kamakhya
Narayan Singh [1948] 16 ITR 325. It is true that their
Lordships were there considering the question of
agricultural income, but the interpretation placed upon
the expression ‘derived’ by their Lordships is not
without assistance for interpreting the same
expression in section 4(3)(i). The expression used in
this section is ‘any income derived from property held
under trust’, and to put upon it the interpretation put
by the Privy Council, the property must be the
effective source from which the income arises. It is
not sufficient that the property should be indirectly
responsible for the income. The income must directly
and substantially arise from the property held under
trust…..”
Even on above test, interest income will fall under Section 11(1)
(a).
7. The judgments relied upon relate to cases where
benefit is permissible on account of special nature of the income
and income derived from source other than the specified source
I.T.A. No.666 of 2008 6
does not quality for exemption. In case of income of charitable
institutions, the said consideration is not relevant. The scheme of
Section 11 is not to include income derived from the property of
the Trust in total income. This being the position, interest income
from property of the Trust clearly falls under Section 11 of the Act.
8. Same will be position with regard to income from sale
of solar cooker and other equipments developed by the Energy
Development Agency.
9. We, thus, do not find that any substantial question of
law arises for consideration.
10. The appeal is dismissed.
(ADARSH KUMAR GOEL)
JUDGE
July 31, 2009 ( DAYA CHAUDHARY )
ashwani JUDGE