TMI Blog2021 (11) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... t is held, in the facts and circumstances of the case, that the interest earned from STDRs made by the Appellant to enable to open LoC for procuring plant and machineries is incidental to such acquisition and should be treated as receipt of a capital nature and not taxed as income. - I.TA. No.8 of 2005 - - - Dated:- 17-11-2021 - CHIEF JUSTICE DR. S. MURALIDHAR AND A. K. MOHAPATRA Appellant Company : Mr. Amit Pattnaik, Mr. S.P. Sarangi, B.C. Mohanty, P.P. Mohanty, D.K. Das, A.K. Kanungo P.K. Dash, Advocates Respondents : Mr. T.K. Satapathy, Senior Standing Counsel Dr. S. Muralidhar, CJ. 1. The present appeal is directed against the order dated 3rd September, 2004 passed by the Income Tax Appellate Tribunal, Cuttack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 117. 6. The ITAT, by the impugned order dated 3rd September 2004, concurred with the AO and the CIT (A) that the interest earned on short term deposits could not be treated at par with the interest on deposits compulsorily required to be made in the process of implementation of the project. It was held that, the interest earned on the deposits not meant for opening any letter of credit for import of plant and machinery and which is out of surplus funds had to be treated a revenue. It was further noted that, this had been disallowed to be capitalized in the earlier AYs 1995-96 and 1997- 98 by the very same Bench of the ITAT. 7. This Court heard the submissions of Mr. Amit Pattnaik, learned counsel for the Appellant Assessee and Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from other sources . 11. The above submissions have been considered. The factual aspect of the case, as evident from the order of the AO itself is that, the aforementioned interest amount was earned on the temporary STDRs created to enable opening of LoCs for procuring plant and machinery for the project. It is not in dispute that the Appellant Assessee had been borrowing loans from financial institutions, the State Government and the MMTC and using the interest accrued on the STDRs for payments against the projects. While interest was being paid regularly to the above borrowing banks, the borrowed money was being kept in the STDR Banks. These facts have not been able to be disputed by the Department. 12. The Court is of the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts in the latter decision were that there the work of construction of the assessee company s factory and installation of the plant was in progress and during that period the Assessee had received, inter alia, from the contractors hire charges for plant and machinery and interest from the advance made to the contractors for the purpose of facilitating the work of construction. The Supreme Court upheld the view of the ITAT that the interest earned had gone towards reducing the cost of construction and was in the nature of capital receipt which could be set off against the capital expenditure incurred by the assesse during the relevant AYs. While interpreting the decision in Tuticorin Alkali Chemicals Fertilizers Ltd., Madras vs. Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of a capital nature and cannot be taxed as income. 16. Turning to the case of Commissioner of Income Tax v. Karnal Co-operative Sugar Mills Ltd.,(supra), the facts were that the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee s agreement with the supplier. 17. The Supreme Court concluded that the interest earned was not on any surplus share capital and that a deposit of the money towards directly linked with the purchase of plant and machinery . It was accordingly concluded that: Hence, any income earned on such depo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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