ORDER
D.K. Srivastava, A.M.
1. The appeal filed by the assessee is directed against the order of the Commissioner (Appeals). The appeal relates to assessment year 1997-98. The assessee-company, upon incorporation on 3rd September, 1987, took over various nuclear power projects including existing power stations located at different places across the country from the department of Atomic Energy, Government of India. The assessee-company is a public sector undertaking wholly owned by the Government of India in the department of Atomic Energy. The assessee has obtained approval of the COD to pursue the present litigation before this Tribunal.
2. First four grounds of appeal taken by the assessee are inter-linked and read as under :
1. The learned Commissioner (Appeals) erred in confirming the inclusion in the income of an amount of Rs. 3,000.26 lakhs being Renovation & Modernisation levy-collected by the appellant. The learned Commissioner (Appeals) erred in holding that this was a case of application of receipts and not that of diversion of income at source.
2. Without prejudice to Ground No. 1 above, the learned Commissioner (Appeals) erred in holdingthat the amount collected towards Renovation & Modernisation levy was not in the nature of a capital receipt exempt from tax.
3. The learned Commissioner (Appeals) erred in confirming the inclusion in the income of an amount of Rs. 1,800.15 lakhs being Research & Development levy collected by the appellant. The learned Commissioner (Appeals) erred in holding that this was a case of application of receipts and not that of diversion of income at source.
4. Without prejudice to Ground No. 3 above, the learned Commissioner (Appeals) erred in holding that a portion of the amount collected towards Research & Development levy was not in the nature of a capital receipt exempt from tax.
3. Briefly stated, the facts of the case are that the assessee-company filed Aits return of income for the assessment year under appeal, i.e., assessment year 1997-98 on 1st December, 1997 declaring income at Rs. 17,141.19lakhs before set off of losses and NIL total income after set off of unabsorbed business loss and unabsorbed depreciation of earlier years. The income declared by the assessee has, however, been assessed by the assessing officer under Section 143(3) on 24-3-2000 at Rs. 25,353.45lakhs before set off of unabsorbed business loss and unabsorbed depreciation of earlier years and at NIL total income after setting off the unabsorbed business loss and unabsorbed depreciation of earlier years. Major addition made by the assessing officer is on account of treatment of (i) Renovation and Modernisation Levy (Rs. 3,000.26 lakhs); and (it) Research and Development Levy (Rs. 1,800.15 lakhs) collected by the assessee, as taxable revenue receipts.
4. As stated earlier, the assessee-company is engaged in the business of generation of electricity through various nuclear power plants located all cover the country. In exercise of the powers conferred by Section 22(l)(b) of the Atomic Energy Act, 1962, the Central Government in consultation with the Central Electricity Authority issued a Notification dated 11th July, 1996 (published in the Gazette of India – Extraordinary – Part II –Section 3(ii) on 17th July, 1996) fixing the norms in accordance with which the tariff for sale of electricity was to be determined by the assessee. By paras 1.16 and 1.17 of the said Notification, the Central Government further authorized the assessee-company to (i) include a Research and Development (R & D) Levy of 3 paise/kwh in the tariff to cover the expenditure on R & D activities; and (it) further include a Renovation & Modernisation (R & M) Levy of 5 paise/kwh in the tariff to cover the equity portion of the expenditure on renovation and modernization activities. The assessee collected the aforesaid levies from its customers but excluded them from sales and credited them to respective reserve accounts. On being asked to clarify as to why the said levies were reduced from sales and consequentially from the profits, the assessee explained before the assessing officer that they were collected on behalf of the Government and hence did not form part of the income in the hands of the assessee. The assessee further claimed that the levies so collected stood diverted at source by an overriding title and therefore could not be considered as income in its hands following the decisions in CIT v. Sitaldas Tirathdas ; CIT v. Travancore Sugars & Chemicals Ltd. (1973) 88 ITR 1 (SC); Somaiya Orgeno Chemicals Ltd. v. CIT (1995)216 ITR 2911 (Bom.), CIT v. Salem Co-op. Sugar Mills Ltd. (1998) 229 ITR 2852 (Mad.); and, Dalmia Cement Ltd. v. CIT (1999) 237 ITR 6173 (SC). Without prejudice to the aforesaid submissions, the assessee also claimed before the assessing officer that a portion of the aforesaid levies were to be utilized for the purposes of the capital expenditure and hence they were in the nature of capital receipts not liable to income-tax. In support of its case, the assessee filed a copy of the letter dated 15-3-2000 issued by the department of Atomic Energy before the assessing officer which stated that the aforesaid levies collected by the assessee would not form part of the general sales income of the assessee and also that they were to be kept separately and distinct from the funds of the assessee. The assessing officer, however, did not accept the aforesaid submissions and treated the levies so collected as income of the assessee and thus brought the same to the charge of income-tax. Rejecting the plea of the assessee that the impugned receipts collected by the assessee stood diverted at source by an overriding title, he held that the aforesaid levies were collected by the assessee in the normal course of its business and the mere fact that they were subsequently transferred to certain reserves could not form a sound basis for their exclusion from the income of the assessee. In support of his action, the assessing officer has relied upon the decision in Vellore Electric Corporation Ltd. v. CIT .
5. The assessee carried the matter in appeal before the learned Commissioner (Appeals). The assessee, apart from filing copies of Notification dated 11-7-1996 and letter dated 15-3-2000 issued by the department of Atomic Energy as filed before the assessing officer, also filed before the learned Commissioner (Appeals) a copy of the Notification dated 28-7-2000 (“second Notification” in short) partially modifying the earlier Notification dated 11-7-1996 regarding the impugned levies. Before we proceed further, it may be useful to briefly refer to them in their chronological order. They are as under :
(i) It is by Notification dated 11-7-1996 issued by the Central Government that the assessee was authorized to collect both the levies from its customers. Para 1.16 of the said Notification provided :
A Research and Development (R & D) levy of 3 paise/kwh shall be included in the tariff for sale of electricity from all the atomic power stations to cover the expenditure on R & D activities”. Likewise Para1.17 of the said Notification provided: “A Renovation & Modernisation (R & M) levy of 5 paise/kwh shall be included in the tariff from sale of electricity from all the atomic power stations to cover the equity portion of the expenditure on renovation and modernization activities”. It is quite evident that the aforesaid Notification, in very clear and unambiguous terms, provided that both the aforesaid levies would be included in and thus would form part of the tariff raised and collected by the assessee from sale of electricity. It is equally evident that while R&D levy was to cover the expenditure on R & D activities of the assessee, the R & M levy was to cover the equity portion of the expenditure on renovation and modernization activities of the assessee. Both the levies were to be collected and retained by the assessee. As mentioned earlier, the Notification authorizing the assessee to collect the aforesaid levies was issued on 11th July, 1996 and hence would be relevant for the assessment year under appeal, i.e., assessment year 1997-98.
(ii) In the letter dated 15-3-2000 issued by the department of Atomic Energy, a reference was made to the said Notification laying down the norms for fixing the tariff for Nuclear Power Stations. The letter further states: “This is to reiterate that the amount collected as Decommissioning levy, Research & Development levy and Renovation and Modernisation levy is not to be construed as part of the general sales income of Nuclear Power Corporation of India Ltd. The amount collected as the abovementioned levies should be kept separately, distinct from the funds of NPCIL and shall be used for the specific purposes for which the levies are collected”. It is evident on bare perusal of the aforesaid letter that it was issued after the expiry of the year under appeal. It is equally clear that the levies collected by the assessee were to be retained and utilized by the assessee for specified purposes. The restriction placed by the said letter was with regard to the utilization or application of the levies collected.
(iii) The Government of India (department of Atomic Energy) issued another Notification dated 28-7-2000 (“second Notification” in short) partially modifying the earlier Notification dated 11-7-1996 regarding the impugned levies. It is specifically made retrospectively effective from 17-7-1996, i.e., the date on which first Notification dated 11-7-1996 was published in the Gazette of India- Extraordinary-Part II-Section 3(ii). Paras 1.16 and 1.17 in the Notification dated 11-7-1996 have been substituted by new Paras as notified in the second Notification. Substituting Paras providing for the treatment to be given to both the levies are substantially different from the one in the substituted Paras as in the first Notification and hence they need to be briefly commented upon here.
(iv) Para 1.16 dealing with R & M Levy, as modified by second Notification with retrospective effect from 17-7-1996, provides that (1) a Research and Development Levy of 3 paise/kwh shall be recovered in the tariff from sale of electricity from all the atomic power stations and that the said levy is being collected by the Government of India in order to cover its equity portion of the capital expenditure on Research and Development activities related to engineering and design of Atomic Power Stations; (2) said levy shall not form part of tariff or sales income of the assessee and further that fixation of Research and Development Levy and its revision from time to time shall not constitute revision of tariff; (3) the receipts of R & M Levy shall be credited at the end of the year to a separate Fund designated as “NPCIL – Research and Development Fund”; (4) the said Fund shall be utilized by the assessee for the purpose of meeting capital and revenue expenditure on Research and Development and for no other purpose; (5) any proposal for utilisation of the Fund for research and development works (both capital as well as revenue) shall be included in the respective budgets and specific approval of the Board of the assessee-company should be obtained; (6) the assessee shall furnish an annual return to the department of Atomic Energy providing the information relating to the amount credited during the year to the R & D Fund and the item-wise utilization out of the said Fund for meeting capital and revenue expenditure on R&D; (7) the assessee shall invest the balance amount in the said Fund in specified forms of investments; (8) income from investments so made shall also be credited to the said Fund and that any amount remaining un-invested shall be deemed to earn rupees equivalent of a 12 per cent return per annum; (9) the Board of the assessee-company shall formulate guidelines fixing investment criteria in line with the Government of India guidelines for investment of surplus funds of PSUs; and (10) the said Fund will be a capital reserve and will not be distributable as dividend. Substituting Para 1.17 contains the parameters for R & M Levy, which are similar to those for R&D Levy and hence they are not being specifically dealt with.
6. In support of its case that the impugned levies stood diverted at source by an overriding title before they could reach the assessee as its income, the assessee submitted, inter alia, before the Commissioner (Appeals) that the R & M levy (i) was collected together with the tariff for the sale of electricity to cover the equity portion of the expenditure on renovation and modernization activities; (ii) was collected on behalf of the Government and therefore the amount so collected belonged to the Government and not to the assessee with the result that it could not be treated as income in its hands; (iii) received by the assessee stood diverted at source by overriding title and therefore it did not reach the hands of the assessee as its income; (iv) collections were required to be transferred to a reserve irrespective of the profits made or losses suffered by the assessee and hence it was a case of diversion of income by overriding title and not a case of appropriation of profits as in Vellore Electric Corpn’s case (supra); and (v) collections were required to be utilized under the directions of the Government of India and were not at all available to the assessee for any other purpose including the recoupment of losses. Similar arguments were advanced for non-taxability of collections of R & D levy. Without prejudice to the aforesaid submissions, the assessee also contended before the learned Commissioner (Appeals) that the impugned receipts were meant for meeting capital expenses and hence they were in the nature of capital receipts not liable to tax. The assessee relied upon the decisions in Hoshiarpur Electric Supply Co. v. CIT and Sadichha Chitra v. CIT . Learned Commissioner (Appeals) took note of the factual matrix of the case and, in particular, to the admitted fact that the (i) assessee had collected the impugned levies along with normal tariff from its clients, namely, State Electricity Boards, etc. in the course of its business operations, i.e., the supply of electricity/power; and (it) said receipts, after they had reached the assessee, were subsequently applied and used for the intended purposes. The learned Commissioner (Appeals), however, rejected the submission of the assessee that the impugned receipts were not taxable as they stood diverted at source by an overriding title. He held that it was a case of application of income after the levies had accrued to the assessee and reached his hands. As regards the alternative plea of the assessee that the levies were in the nature of capital receipts and hence not taxable, the learned Commissioner (Appeals) held that subsequent destination or application of income after it has reached/accrued to the assessee would not change the character of receipts.
7. Aggrieved by the order of learned Commissioner (Appeals), the assessee is now in appeal before this Tribunal. In support of appeal, the learned counsel for the assessee invited our attention to the factual aspects of the case and, in particular, to the stipulations contained in the letters and Notifications issued by the department of Atomic Energy, which have already been referred to earlier in this order. He invited our attention to the observation made by the assessing officer at page 6 of the assessment order which reads: “To this extent, the contention of the assessee is accepted that there is diversion of title” and submitted that the assessing officer after having accepted that there was diversion of title ought to have excused the impugned levies from taxation. Reiterating the arguments taken by the assessee before the assessing officer and the learned first appellate authority, he further submitted that the assessee collected the impugned levies for and on behalf of the Central Government as its agent and hence they could not be taxed in the hands of the assessee. His next submission was that the levies collected stood diverted at source by overriding title and hence they were not taxable in the hands of the assessee. His alternative submission was that the impugned receipts were in the nature of capital receipts not liable to tax.
8. In support of his submissions, the learned counsel for the assessee has referred to the following judgments :
(i) Sadichha Chitra’s case (supra)
(ii) Salem Co.-op. Sugar Mills Ltd.’s case (supra)
(iii) CIT v. New Horizon Sugar Milk (P) Ltd. affirmed by the Supreme Court in CIT v. New Horizon Sugar Mills (P) Ltd. .
(iv) M.K. Bros. (P) Ltd. v. CIT .
(v) Addl. CIT v. Rani Pritam Kunwar .
(vi) Vellore Electric Corpn. Ltd.’s case (supra).
(vii) Dalmia Cement Ltd.’s case (supra)
(viii) Vibhuti Glass Works v. CIT .
(ix) Sitaldas Tirathdas’ case (supra).
9. He has, in particular, emphasized that the factual matrix and decisions in Salem Co-operative Sugar Mills Ltd’s case (supra) and New Horizon Sugar Mills (P) Ltd.’s case (supra) – affirmed by the Hon’ble Supreme Court in New Horizon Sugar Mills (P) Ltd.’s case (supra) in which the amounts set apart as required by the Molasses Control order towards Molasses Storage Reserve Fund have been held to be not includible in the total income, were similar to the factual matrix of the present case and hence the issue was covered in favour of the assessee by the said decisions.
10. Per contra, the learned departmental Representative supported the orders passed by the assessing officer and the learned Commissioner (Appeals). At the time of hearing, he filed his written submissions, which are quite comprehensive. He has invited our attention to certain undisputed facts having material bearing on the case: one, the impugned levies were collected by the assessee in the ordinary course of its business of power generation and distribution on the basis of power consumed by its customers; and two, the impugned levies collected by the assessee were neither required to be parted with nor were actually parted with in favour of any third party or the Government. They were rather used by the assessee to meet its expenditure. According to him, the reserves were created out of the revenue receipts collected through the impugned levies for meeting its expenditure. He has also referred to the judgment of the Hon’bie Supreme Court in Chowringhee Sales Bureau (P) Ltd. v. CIT (1973) 87 ITR 512 for the proposition that if the amount (sales tax in that case) is received by the assessee in his character as a trader, the amount would form part of his trading or business receipt and that it is the true nature and quality of receipt and not the head under which it is entered in the account books as would prove decisive and further that if a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as trading receipts.
11. He further submitted that the mere fact that the levies were set apart as reserves would not distract the position that the receipts were generated in the ordinary course of the business of the assessee and were thus business receipts of revenue character. According to him, reserve is created out of the profits/surplus generated by the proprietor over and above the capital contributed by him and therefore the reserves represent the accretion to profit and therefore are in the nature of application of profit/income after they have accrued to the assessee and not diversion of income at source in favour of any third party.
12. In support of his submissions, he has relied upon the following decisions :
(i) Associated Power Co. Ltd. v. CIT .
(ii) Vellore Electric Corporation Ltd. v. CIT .
(iii) CIT v. Sijua (Jharriah) Electric Supply Co. .
(iv) Chowringhee Sales Bureau’s case (supra)
13. The learned departmental Representative submitted that looking to the facts of the present case, the decision in Associated Power Co. (P) Ltd.’s case (supra) was squarely applicable for the reason that money collected as part of sale proceeds had never changed hands and was always available with the assessee for use and to meet its expenditure and therefore it was a case of application of income and not of diversion of income in favour of any third party.
14. We have heard the parties and considered their rival submissions including the authorities referred to by them. Following facts emerge on perusal of each Notification:
A. Facts emerging on perusal of the first Notification:
(1) Both the levies authorized by the Government were to be included in the tariff fixed by the assessee from its customersand were therefore collected as part of the overall tariff.
(2) The assessee was not required to part with the levies so collected in favour of the Government. In fact, the levies, after their collection, were to be retained by the assessee.
(3) Both the levies were intended to generate financial resources to enable the assessee to use and apply them for meeting its expenditure on notified activities.
(4) None of the levies collected by the assessee was intended to be passed over or was actually passed over to the Government. Both the levies were collected and retained by the assessee. What the Notification provided was the manner in which the levies would be used by the assessee.
B. Facts emerging on perusal of the second Notification:
(1) Under the second Notification, both the levies authorized by the Government were to be recovered in the tariff fixed by the assessee from its customers. In the earlier Notification, what was provided was that they would be included in the tariff.
(2) In the second Notification also, the assessee was not required to part with the levies so collected in favour of the Government. In fact, the levies, after their collection, were to be retained by the assessee.
(3) The second Notification did not alter the fact that both the levies were intended to generate financial resources to enable the assessee to use and apply them for meeting its expenditure.
(4) Second Notification also did not alter the position that none of the levies collected by the assessee would be passed over or was actually passed over to the Government. Both the levies were collected and retained by the assessee for its use. What the second Notification provided was the manner in which the levies would be used by the assessee for its own purposes.
(5) Second Notification specifically provided that both the levies would not form part of the tariff or sales income in the hands of the assessee. In other words, a distinction was created between the tariff forming part of sales income and the levies, which were declared to be not forming part of the tariff or sales income of the assessee. The fact however remains that the levies were required to be collected along with tariff though under a separate head. Notwithstanding the stipulation in the second Notification that the levies would not form part of sales income of the assessee, the assessee was to retain the levies collected and use the same for the purposes of meeting its own capital and revenue expenditure on notified activities.
15. On the factual matrix of the case, the assessee has all along been claiming that the income by way of levies stood diverted at source by an overriding title in favour of the Government and hence was not taxable. The assessing officer and the learned first appellate authority have however rejected the aforesaid submission. Both of them have held that it is a case of application of income and not of diversion of income at source. It is the correctness of the aforesaid finding, which is the subject-matter of the present appeal. Sometimes, a portion of the income arising out of the corpus held by the assessee is consumed at the source itself for the purpose of meeting some recurring or non-recurring expenditure arising out of an obligation imposed on the assessee by contract or by statute or by the law of the land. In such cases, a question arises whether such portion of the income so consumed or expended is to be treated as income assessable to tax in the hands of the assessee. The answer is that if the income before it reaches the hands of the assessee is diverted away by superior title so that the assessee, when he receives the income, has to pass it on to a third party, the portion passed on, or is liable to be passed on, is not the income of the assessee but of the person to whom it is passed on or is liable to be passed on. In cases of diversion of income, it is the existence of superior title which not only deprives the assessee of his title to the income but also requires him to part with the same in favour of a A third party as the assessee in receipt of the income would be receiving it both on behalf of himself and the third party by virtue of the overriding title and not exclusively for himself. In cases of diversion of income, the income does not accrue to the assessee at all; it, in fact, accrues to the third party in that the destination of income is not towards the assessee in whose hands the money is placed but towards a third party in whose favour and for whose benefit the title is created. Resultantly, the assessee, after the income stands diverted at source by a superior title to a third party, would no longer be concerned with that income.
16. In Sitaldas Tirathdas’ case (supra), a part of income from property paid as maintenance allowance to the dependants under a decree of the court, without the maintenance allowance being charged upon the property yielding income, was held to be a case of application of income. In Sijua (Jharriah) Electric Supply Co. Ltd.’s case (supra) the Hon’ble High Court has considered the judgment in Sitaldas Tirathdas’ case (supra) and held as under :
The concept of real income or diversion of income by an overriding title was explained by Hidayatullah, J. in the case of Sitaldas Tirathdas (supra) at pages 374-375 :
In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the D decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Whereby the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one’s own income, which has been received and is since applied. The first is case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable.
If this test is applied, it will be seen that there has been no diversion of income by an overriding title at all. The amount appropriated to the contingencies reserve was collected by the assessee as its revenue from sale of electricity. The amount remained at the disposal of the assessee and for the benefit of the assessee. It could be used only for a few specified purposes but the purposes for which the fund could be used were all business purposes of the assessee-company. Payment of compensation to workers, replacement of plant and machinery or other expenditure envisaged in para V, which we have set out earlier, are all normal business expenditure of a company. This is not a case of diversion of income before it reaches the assessee, but only a case of setting apart of a portion of the assessee’s income under compulsion of law for the use and benefit of the assessee although the mode and the objects of the expenditure are statutorily restricted.
17. In Vibhuti Glass Works ‘case (supra) referred to by the learned Commissioner (Appeals)in his order, the assessee was under a financial crisis. In a package offinancial assistance, the Industrial Finance Corporation agreed to grantloan of Rs. 20 lakhs to the assessee provided the State Government guaranteed the repayment and also allowed the Industrial Finance Corporation to have first charge under the mortgage deeds. The State Government agreed to do so provided the assessee transferred its business to the State Government to manage and run the same. Under the Agreement, the State Government was entitled to 50 per cent of the profits. The assessee contended that the profits earned from the glass factory was not assessable in its hands but in the hands of the Government which was running and managing the said business. It was alternatively contended that only 50 per cent of the profits could be assessed in the hands of the assessee. Rejecting both the aforesaid submissions, the Hon’ble Supreme Court has held that income earned from that business accrued to the assessee directly which was merely applied by the State Government to discharge the obligations of the assessee.
18. On perusal of catena of decisions on the subject, it transpires that, inorder to constitute diversion of income at source by overriding title following facts must be established:
(i) There must be income arising out of the corpus held by the assessee;
(ii) A portion of the income so generated must be charged to the source itself by an overriding title in favour of a third party or, in other words, the obligation must attach to the source of income in that the income itself should not accrue to the receiver and not to the receiver of the income to apply it in a particular manner;
(iii) The income so charged must be passed on or is required to be passed or, in other words, is required to be diverted in favour of a third party before it reaches the assessee; and
(iv) The assessee, after the income stands diverted at source by a superior title, is no longer concerned with that income or, in other words, the assessee must be completely divested of any kind of dominion over the income.
19. Applying the aforesaid tests to the facts of the case before us, it is seen that the assessee was entitled to collect and recover the levies from its customers during the course of its business. The income by way of levies thus accrued to the assessee in its own right. The levies so collected were not only retained by the assessee but were also available to it for use and application for meeting its own expenses. The Notifications issued by the Government simply enabled the assessee to raise the resources for meeting its own expenses. They gave the authority to the assessee to collect the levies, which it had no authority to collect in the absence of the A aforesaid Notifications. The levies were neither required to be diverted at source nor were actually diverted at source in favour of any third party. Second Notification issued by the Government simply regulated the application and utilization of funds. The fact that the reserve was created in terms of the Notification issued by the department of Atomic Energy is not really of any consequence. If an assessee sets apart a sum of money every year to a reserve, it cannot be said that the sum so set apart has been diverted at source by an overriding title. Similarly, if a sum is set apart under compulsion of a Notification issued by the Government, diversion of income at source by an overriding title does not take place. Both the levies collected and the reserve created belonged to the assessee-com-pany; the assessee-company had title to the fund, dominion over the fund and also the use of the fund. In these circumstances, it cannot be said that there has been any diversion of income at source by an overriding title from the assessee-company or that the amount that has been appropriated to the fund does not form part of the real income of the assessee. On the facts of the case, we are in agreement with the well-reasoned order of the learned Commissioner (Appeals) that it is a case of application of income and not of diversion of income at source. We therefore endorse his order.
20. We have also considered the submission of the assessee that theassessing officer has himself accepted that there was diversion of title atpage 6 of the assessment order. We find that the assessing officer has made the aforesaid observation in the context of decommissioningcharges and not in the context of the impugned levies.
21. The alternative plea of the assessee that the impugned levies are in thenature of capital receipts has been dealt with by the learned Commissioner (Appeals) in Para15 of his order. In order to constitute capital receipt, the receipt should betraceable to loss of capital. The assessee has not collected the leviesagainst loss of capital. They were included and collected along with thetariff in the ordinary course of business. Once they have been so collected, their ultimate destination or application will not change their characterfrom being business receipts to capital receipts. In our view, the Commissioner (Appeals) hascorrectly held that the impugned receipts were not capital receipts. Weendorse his order.
22. We have considered all the submissions made including the judicialauthorities referred to by the parties though we have not individuallycommented upon them as the decision in the present case has turned essentially on facts.
23. In view of the foregoing, Ground Nos. 1 to 4 taken by the assessee are dismissed.
24. Ground No. 5 taken by the assessee reads as under :
5. The learned Commissioner (Appeals) erred in confirming the disallowance of Rs. 11.04 lakhs as prior period expenditure.
25. Briefly stated, the facts of the case relevant to the aforesaid ground are that the assessing officer noticed that the bills raised by TCS Ltd. were dated 12-2-1996, which were received by the assessee on 27-2-1996. On this factual matrix, the assessing officer held that the amount (Rs. 3,99,736) payable to TCS Ltd. were expenses of prior period and hence he disallowed the same. He also noted that prior period expenses relating to J.M Financial Services Ltd. (Rs. 7,05,813) were claimed by the assessee without providing any bill or voucher supporting that the expenses had crystallized during the year under consideration. He therefore disallowed both of them. On appeal, the learned Commissioner (Appeals) has confirmed the order of the assessing officer in this behalf.
26. We have heard the parties. The learned counsel for the assessee invited ourattention to the bills raised by Tata Consultancy Services placed at pp. 79-83 of the assessee’s paper book. All of them relate to financial year 1995-96. As far as the expenses relating to J.M. Financial & Investment Consultancy Services Ltd. are concerned, the assessee has not filed any copy of bills etc. The assessee claims deduction for both the expenses on the ground that the amount actually payable was determined during the previous year relevant to the assessment year under appeal and hence should be allowed as deduction. In our view, the learned Commissioner (Appeals) has correctly rejected the claim of the assessee. There is no evidence on record to suggest that both the expenses were incurred during the year under appeal and hence it is not possible to accept the request made by the assessee. Ground No. 5 is dismissed.
27. Ground Nos. 6 and 11 read as under :
6. The learned Commissioner (Appeals) erred in not deleting the disallowance of interest of Rs. 3,043 lakhs as prior period expense.
11. The learned Commissioner (Appeals) erred in not deciding the following ground of appeal :
6. The learned JCIT erred in disallowing an amount of Rs. 3,054.04 lakhs as prior period expenditure. The appellant submits that as the expenditure had crystallized during the previous year relevant to the assessment year 1997-98, the said expenditure was fully allowable as a deduction.
7. Without prejudice to Ground No. 6 above, the learned Joint Commissioner erred in not allowing deduction in respect of the expenditure treated as prior period in the years to which the same related to
28. At the time of hearing, the learned counsel for the assessee submitted thatboth the aforesaid issues were challenged before the Commissioner (Appeals) but he has not adjudicated upon them and hence they should be restored to his file for adjudication. Learned departmental Representative also agreed with the aforesaid submission. In this view of the matter, the issues raised in both the aforesaid grounds namely ground Nos. 6 and 11 are restored to the file of the Commissioner (Appeals) for adjudication in accordance with law after giving reasonable opportunity of hearing to both the parties. Ground Nos. 6 and 11 are treated as allowed for statistical purposes.
29. Ground No. 7 reads as under :
7. The learned Commissioner (Appeals) erred in confirming the disallowance of Rs. 12.29 lakhs being provision made for doubtful advances.
30. We have heard the parties. The learned Commissioner (Appeals) has dealt with the issue inParas 25-27 of his order as under :
25. The facts of the case, in respect of the above dispute, are that the assessing officer, in course of the assessment proceedings, found that the appellant company had debited a sum of Rs. 12.29 lakhs on account of provision for doubtful debts. It was submitted before the assessing officer that the appellant had given advances to canteen for various purposes. The assessing officer found that the appellant had not written off the bad debts in its books of account and as such, the case of the appellant was not covered within the ambit of Section 36( 1)(vii) read with Section 36(2) of the Act. The assessing officer accordingly disallowed the sum of Rs. 12.29 lakhs as referred to above.
26. Before me, the submissions made before the assessing officer have been reiterated and it has been urged that the disallowance of Rs. 12.29 lakhs merits deletion.
27. I have given a careful thought to the submissions made by the learned counsel vis-a-vis the assessing officer’s order. In my considered opinion, the appellant company does not satisfy the conditions as laid down in Section 36(l)(ii) read with Section 36(2) of the Act. As such, I am of the view that the assessing officer has rightly drawn adverse inference on this score. Accordingly, the disallowance of Rs. 12.29 lakhs is, hereby confirmed.
31. At the time of hearing, it was pointed out that the assessee provides canteen facilities to the employees out of commercial expediency for which advances are given to the canteens to meet their day-to-day expenditure. In the present case also advances were given to the canteens, which were not settled by the canteens for a considerable period of time and hence the assessee debited the advances so given, as their recoveries were doubtful. It is submitted by the learned counsel for the assessee that the amount given was not in the nature of debt but in the nature of advances to meet day-to-day expenses of the canteen. In our view, the submissions made by the assessee carry substantial weight. The assessee is a public sector undertaking having power stations in remote areas. The advances given to the canteens and their settlement are quite normal. The amount remaining unsettled does not mean that the canteens had not used or utilized them. Considering the totality of the facts and circumstances of the case we consider it appropriate to allow ground No. 7. We order accordingly.
32. Ground Nos. 8 and 9 read as under :
8. The learned Commissioner (Appeals) erred in confirming the disallowance of guest house expenditure of Rs. 18.35 lakhs.
9. Without prejudice to Ground No. 8 above, the learned Commissioner (Appeals) erred in not directing the JOT to allow depreciation allowance amounting to Rs. 1,14,482 in respect of Guest House buildings included in the guest house expenses of Rs. 18.35 lakhs.
33. We have heard the parties. The learned counsel for the assessee submitsthat the guest-houses are essentially in the nature of transit house for theemployees and hence should not be denied deduction in view of thedecision of Hon’ble Bombay High Court in Greaves Cotton & Co. Ltd. v. CIT . The learned Commissioner (Appeals) has not examined the case in theaforesaid prospective. The issue is therefore restored to his file for a freshdecision in accordance with law after giving reasonable opportunity ofhearing to the assessee. Ground Nos. 8 and 9 are treated as allowed forstatistical purposes.
34. Ground No. 10 reads as under :
10. The learned Commissioner (Appeals) erred in not specifically directing the Joint Commissioner to allow interest under Section 244A up to the date of adjustment of the refund.
35. We have heard the parties. We find that the learned Commissioner (Appeals) has restored theissue to the file of the assessing officer with a direction to do the needfulin accordance with law. Since the Commissioner (Appeals) himself has directed the assessing officer to decide the matter as per law, we see no valid reason tointerfere with his order. The assessee shall be free to make all the submissions before the assessing officer. Ground No. 10 is dismissed.
36. Appeal filed by the assessee is partly allowed.