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2017 (10) TMI 1595 - ITAT MUMBAIIncome from other sources or capital receipt - interest income - interest received on Fixed Deposits from the capital work-in-progress and being interest received against margin money - Allowance of relatable interest expenditure incurred on interest income u/s. 57(iii) - Assessee before us filed complete details of interest received and interest paid including the banks from which loans have been taken by the assessee and the FDRs made by it - HELD THAT:- We find that this issue has been considered by Hon’ble Supreme Court in the case of CIT vs. Karnal Co-operative Sugar Mills Ltd [1999 (4) TMI 7 - SC ORDER] as clearly laid down the principal that the deposit of money which are directly linked with the purchase of plant and machinery, any income earned on such deposit which was incidental to the acquisition of asset for the setting up of plant and machinery, the consequential interest was capital receipt which would go to reduce the cost of asset. Similar view was taken by the Supreme Court in the case of Bongaigaon Refinery & Petrochemicals Ltd [2001 (7) TMI 4 - SUPREME COURT] Respectfully following the judgment of Hon’ble Supreme Court, we also direct the Assessing Officer to find out from the details whether this interest earned was out of the borrowed funds, which was directly linked to the purchase of plant and machinery, in that eventuality, the Assessing Officer will treat the interest as capital receipt. In case the interest is relatable to surplus funds, out of share capital and reserve & surplus, interest will be treated as ‘Income from other sources’. As regards to deductibility of interest expenditure, in case the AO treat this interest receipt as income from other sources, the same shall be considered by Ld. AO as per law. We direct the Assessing Officer accordingly.
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