2012 (10) TMI 524 - DELHI HIGH COURT

Interest earned on deposits and advances made for the new unit being established - Revenue OR Capital receipt - Held that:- As decided in INDIAN OIL PANIPAT POWER CONSORTIUM LIMITED, NEW DELHI Versus INCOME TAX OFFICER [2009 (2) TMI 32 - DELHI HIGH COURT] when the interest was received by the assessee towards interest paid for fixed deposits & when the borrowed funds could not be immediately put to use for the purpose for which they were taken, the receipt is “inextricably linked” to the setting up of the project, it would be capital receipt not liable to tax but ultimately be used to reduce the cost of the project.

The Tribunal and the lower authorities fell into error in holding that the interest earned on fixed deposit of amounts borrowed, which is the subject matter of the present appeal, would have to be treated as revenue receipt as the funds invested by the assessee company and the interest earned were inextricably linked with the setting up of the power plant. It may be added that the Tribunal has not found that the deposits made as margin monies were not limited to the construction activity connected to the expansion of the business by way of setting up of a new power generation plant - in favour of assessee.