- (1.) Civil Appeal Nos. 2544-45 of 1988 pertain to assessment year 1972-73 while Civil Appeal Nos. 642-48 of 1989 pertain to assessment years 1965-66 to 1971-72. The Income-tax Appellate Tribunal had referred the following questions to the High Court for determination under Section 256(1) of the Income-tax Act, 1961:- At the instance of the Revenue: "Assessment year 1965-66: Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the hire charges of Rs. 56 received by the assesee-company for letting out the plant and machinery to the contractors were not taxable Assessment year 1966-67: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the hire charges of Rs. 7,224 received by the assessee-company for letting out of the plant and machinery to the contractors were not taxable (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the royalty of Rs. 8,530/- received from the contractor was not taxable as it was of capital nature and not revenue Assessment year 1967-68: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the hire charges of Rs. 12,195 received by the assessee-company for letting out of the plant and machinery to the contractors were not taxable (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the royalty of Rs. 1,22,902 received from the contractors was not taxable as it was capital in nature and not revenue Assessment year 1968-69: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the hire charges of Rs. 17,913 received by the assessee-company for letting out of the plant and machinery to the contractors were not taxable (2) Whether, on the facts and in the circumstances of the case the Tribunal was justified in holding that the royalty of Rs. 65,799 received from the contractor was not taxable as it was of capital nature and not revenue Assessment year 1969-70: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the hire charges amounting to Rs. 46,342 received by the assessee-company for letting out of the plant and machinery to the contractors were not taxable (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the royalty of Rs. 25,928 received from the contractors was not taxable as it was of capital nature and not revenue Assessment year 1970-71: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the interest received by the assessee-company on the amount of Rs. 7,50,502 advanced to the contractors was not taxable (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the hire charges of Rs. 182 received by the assessee-company for letting out the plant and machinery to the contractors were not taxable (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the royalty of Rs. 13,052 received from contractors is not taxable as it is of capital nature and not revenue (4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding miscellaneous of Rs. 49 as not taxable Assessment year 1971-72: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the interest received by the assessee-company on the amount of Rs. 14,98,993 advanced to the contractor was not taxable (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the hire charges of Rs. 3,68,442 received by the assessee-company for letting out the plant and machinery to the contractors were not taxable (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justi-fied in holding that the royalty of Rs. 6,504 received from the contractors is not taxable as it is capital in nature and not revenue (4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the interest received amounting to Rs. 7,39,332 by the assessee-company on the amount advanced to M/s. Hindustan Steel Ltd. is not taxable - For the assessment year 1972-73 a consolidated reference was made at the instance of the revenue as well as the assessee and the following questions were referred:- "(1) Whether on the facts and in the circumstances of the case, the receipts arising from the letting out of the quarters to the outsiders, such as employees of the contractors engaged in the construction of the plant can be treated as the income of the assessee and/or, in any event, should be adjusted against the cost of construction so as to reduce such cost (2) Whether on the facts and in the circumstances of the case, the receipts from the letting out of the properties to outsiders, such as the employees of the contractors engaged in the construction of the plant are to be assessed as income from property under Section 22 of the Income-tax Act, 1961, or the said income should be assessed under Section 23 of the Income-tax Act, 1961, as business income or in any event, under Section 56 of the Income-tax Act, 1961, as income from other sources (3) Whether on the facts and in the circumstances of the case, the receipts arising from the letting out of the quarters to the outsiders, such as employees of the contractors engaged in the construction of the plant can be treated as the income of the assessee and/or, in any event, should be adjusted against the cost of construction so as to reduce such cost (4) Whether on the facts and in the circumstances of the case, the interest received from the bank on short-term deposits is liable to be assessed as the income of the assessee or such interest should reduce the cost of construction of the assessee and, therefore, would not constitute the income of the assessee -
(2.) The assessee is a corporation wholly owned by the Government of India. It was assessed in the status of a company. The assessee-company, M/s. Bokaro Steel Ltd., was incorporated in January 1964. Its object was to construct and own an integral iron and steel works. During the assessment years under consideration, the work of construction of the company's factory and installation of the plant was in the process of completion. The company had not started any business during the assessment years in question. (1) During this period the company had given to the contractors quarters for the residence of the staff and workers employed by the contractors who had been engaged by the assessee-respondent for carrying out the work of construction. The assessee charged the contractors for the use of the quarters so given to the contractors for the residence of his workmen who were engaged in the construction activity of the assessee's plant. (2) Secondly, during the assessment years in question the assessee had entered into supplementary agreements with its contractors under which the assessee had made certain advances to the contractors to enable them to execute the large scale construction work smoothly. The assessee had agreed to advance these advances to the contractors on payment of interest. The contractors thus did not have to raise funds from outside agencies. For the assessee-company, this arrangement primarily meant payment in advance of the amounts of the contractors' bills for which the assessee-company had charged interest. This interest was later adjusted against the dues of the contractors. (3) For the purpose of the construction work the assessee had given on hire certain plant and machinery to the contractors. Against the letting of plant and machinery the assessee received from the contractors income in the form of hire charges. It was not the business of the assessee-company to let out plant and machinery to others. The assessee-company permitted its use only to its own contractors for the construction work done by the contractors for the assessee-company. The Tribunal has found that the assessee-company charged hire charges for such use of plant and machinery in order to cover the maintenance and wear and tear of the plant and machinery belonging to the assessee. (4) The assessee-company allowed the contractors to use the stones lying on the assessee's land for construction work. The stones lying on the assessee's company's land were the capital assets of the assessee-company. The assessee charged the contractor a certain amount by way of royalty for excavation and use of these stones for construction work. (5) The assessee had, during the assessment year 1971-72 shown in its accounts as income from interest a certain sum said to have been accrued to the assessee from M/s. Hindustan Steel Limited for eight locomotives supplied by the assessee-company to M/s. Hindustan Steel Limited. The assessee-company, however, reversed this entry in the next year because eight new locomotives were supplied by M/s. Hindustan Steel Limited to the assessee and no interest income actually accrued to the assessee.
(3.) We have to consider whether the amounts received by the assessee under these five heads can be treated as income of the assessee for the relevant assessment years. The Tribunal has held that all these amounts (under items 1 to 4) received by the assessee have gone to reduce the cost of construction. These are in the nature of capital receipts which can be set off against the capital expenditure incurred by the assessee during the relevant assessment years. This view has been upheld by the High Court and hence the department has come by way of the present appeals.;