Case Note & Summary
The Revenue filed two appeals under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT) dated 11.4.2014. The appeals related to assessment years 2003-04 and 2004-05. The respondent assessee, Karnataka Power Corporation Ltd (KPCL), a public sector undertaking owned by the Government of Karnataka, was engaged in power generation. It was formed after the corporatisation of the erstwhile Karnataka Electricity Board (KEB) vide Government Order dated 30.3.2000. Upon corporatisation, KEB ceased to exist and its assets and liabilities vested with the State Government. By a subsequent order dated 31.3.2001, certain assets of KEB were transferred to KPCL, but the Exchange Risk Administration Fund (ERAF) was not mentioned and thus remained with the Government. For assessment year 2003-04, KPCL received Rs.23 crores from ERAF. The Assessing Officer, in his order dated 28.3.2006, treated this amount as income of the assessee on the ground that when KEB had invested in ERAF, it was treated as an expenditure. The Appellate Commissioner, by order dated 30.8.2012, set aside the addition, holding that the amount was not transferred to the assessee and could not be treated as income. The Revenue appealed to the ITAT, which dismissed the appeal on 11.4.2014, holding that treating the amount as income would be inconsistent with the facts, as the amount was treated as an advance or liability and later converted into Government equity by Government Order dated 15.3.2011. The High Court, after hearing the parties, found no substantial question of law and dismissed the appeals, confirming the ITAT's order.
Headnote
A) Income Tax - Capital Receipt vs Revenue Receipt - Exchange Risk Administration Fund (ERAF) - Income Tax Act, 1961, Section 260A - The assessee, a public sector undertaking, received Rs.23 crores from ERAF which remained with the State Government after corporatisation of the erstwhile Karnataka Electricity Board. The Assessing Officer treated it as income, but the Appellate Commissioner and ITAT held it was not income as it was treated as an advance/liability and later converted into equity by Government Order dated 15.3.2011. The High Court upheld the ITAT's order, dismissing the Revenue's appeal. Held that the amount was not income of the assessee (Paras 1-4).
Issue of Consideration
Whether the amount of Rs.23 crores received by the assessee from the Exchange Risk Administration Fund (ERAF) can be treated as income of the assessee for the assessment years 2003-04 and 2004-05.
Final Decision
The High Court dismissed both appeals, finding no substantial question of law, and confirmed the ITAT order.
Law Points
- Receipt from Exchange Risk Administration Fund (ERAF) not taxable as income when treated as advance/liability and subsequently converted into equity by government order
- Income Tax Act
- 1961
- Section 260A
