By TIOL News Service

NEW DELHI, JAN 21, 2019: THE ISSUE BEFORE THE BENCH IS - Whether deduction can be allowed on interest paid by Govt agency operating nuclear power plant, upon decommissioning reserves collected by it, if such reserve amount is used for business purposes. YES IS THE VERDICT.

Facts of the case

THE assessee-company is engaged in the generation of nuclear power in India as well as in establishing nuclear power plants. For the relevant AY, the assessee claimed deduction of about Rs 3.31 crores. This had been claimed on account of 12% interest which it was liable to pay to the Government, upon de-commissioning reserves collected from customers. On assessment, the AO denied the same. On appeal, the CIT(A) sustained such findings. Later, the Tribunal allowed the assessee's appeal, noting the background under which the latter collected decommissioning charges & the Government's directive for paying interest on decommissioning reserves. It noted that the funds did not belong to the assessee & were used for business purposes. Also the interest was paid at the instance of the Government. Hence the same did not qualify as notional interest, the Tribunal held.

On appeal, the High Court held that,

++ the assessee was under directives of the Government of India to collect and create decommissioning reserves which would be utilized for decommissioning of the plant at the end of its useful life. In the meantime, the amount so collected from the customers would be in the possession of the assessee and would be utilized for the purpose of its business. The Government of India, therefore, required the assessee to account for the interest which was also specified at 12% per annum on said funds. The interest expenditure was claimed by the assessee by way of deduction. This interest expenditure was clearly business expenditure. The situation is akin to the assessee borrowing from the market, utilizing such borrowed funds for the purpose of business and paying interest to the creditors. No question of law arises.

(See 2019-TIOL-154-HC-DEL-IT)