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2020 (10) TMI 1091 - AT - Income TaxInterest earned from the unutilized capital subsidy and equity - Capital or revenue receipt - HELD THAT:- CIT(A) has followed the Tribunal’s order in assessee’s own case for AY 2009-10 & AY2010-11 while giving relief to the assessee by treating the interest earned from the unutilized capital subsidy and equity as capital receipt. Since there is no change in fact or law and we note that the interest from the unutilized capital subsidy and equity are ‘inextricably linked’ with the process of setting up of the project i.e. integrated petrochemicals complex at Pipalkota, District Dibrugarh, Assam and has only commenced/set up/operation in February, 2016 (AY 2016-17), by relying on the ratio of the decision of CIT Vs. Bokaro Steels Ltd. [1998 (12) TMI 4 - SUPREME COURT] and Karnataka Power Corporation [2000 (7) TMI 72 - SUPREME COURT] we are of the opinion that the Ld. CIT(A) rightly allowed the claim of assessee. Interest earned from the borrowed funds (short term temporary deposits) - claim of capitalizing interest received by assessee from short term deposit (herein after referred as ‘STD’) of unutilized borrowed funds - HELD THAT:- Utilization of the funds available with the assessee is strictly governed by the objects set up by the Articles of Association of company. A perusal of the object clause indicates that there is no scope for the assessee to utilize any funds available for any purpose other than that stated in the Articles of Association - interest earned on the deposits had to be mandatorily invested in the project/business of the assessee and in the facts as discussed we note that interest from borrowed funds temporarily deposited in banks [STD] is inextricably linked to the setting up of the plant. Hence, the interest from the borrowed funds has been rightly capitalized and set off against the pre-operative expenses and, therefore, we rely on the decision of the Hon’ble Supreme Court in Bokaro Steels Ltd. and Karnataka Power Corporation (supra), hold that the interest earned from the borrowed funds/STD which is inextricably linked to the setting up of the plant need to be treated as a capital receipt.
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