Case Law Details
Bihar Police Building Construction Corporation Pvt. Ltd Vs PCIT (Supreme Court of India)
The Supreme Court of India dismissed a Special Leave Petition filed by Bihar Police Building Construction Corporation Pvt. Ltd. against a Patna High Court judgment. The apex court cited a gross delay of 364 days in filing the petition and found the explanation for the delay unsatisfactory. Consequently, the petition was dismissed solely on the grounds of delay, without any consideration of the merits of the case.
The underlying issue stemmed from an assessment order under Section 143(3) of the Income Tax Act. The corporation had challenged the inclusion of interest income, earned from fixed deposits of unutilized government grants (intended for police building construction), in its total taxable income. The corporation argued that a government circular, stipulating a reduction in future grants by the amount of interest earned, effectively negated the taxability of this interest under Section 56 of the Income Tax Act.
The Patna High Court, in its judgment, upheld the assessment order. It distinguished the corporation’s case from precedents like Commissioner of Income Tax, Bihar – II, Patna v. Bokaro Steel Ltd, Bokaro and NTPC Sail Power Company Private Limited v. Commissioner of Income Tax. These cases involved interest earned on borrowed funds used for business purposes, where such interest was treated as a capital receipt. The High Court emphasized that the corporation’s construction activity was not business-related but a state function using government grants. The interest earned was not related to setting up a business or reducing construction costs, unlike the interest on borrowed funds in the cited cases.
The High Court held that the interest income constituted “income from other sources” under Section 56. It further clarified that the government circular, while governing the financial relationship between the government and the corporation, could not override the provisions of the Income Tax Act. While the corporation could request adjustments to future grants based on taxes paid, the circular itself did not exempt the interest income from taxation. The court’s decision rested on the distinction between interest earned on borrowed funds for business purposes and interest earned on unutilized government grants. The Supreme Court’s dismissal of the Special Leave Petition, due to the substantial delay, effectively upheld the High Court’s ruling.
Read HC Judgment: Interest on Govt. Grants Taxable as Income From Other Sources: Patna HC
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. There is a gross delay of 364 days in filing the Special Leave Petition which has not been satisfactorily explained by the petitioner.
2. The Special Leave Petition is, accordingly, dismissed on the ground of delay.
3. Pending applications, if any, also stand disposed of.
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