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2023 (12) TMI 715 - DELHI HIGH COURTNature of receipt - “capital receipt” or “income from other sources - Investment made in fixed deposits, out of the funds received for setting up a power transmission system in the state of Himachal Pradesh - whether the interest earned on the fixed deposit is dependent on whether the invested funds were inextricably linked with setting up of the power transmission system? - AO concluded interest earned on funds invested in the fixed deposit was taxable under the head “income from other sources” - HELD THAT:- Sub-clause (ii) of Clause 15.2 indicates that the title documents and other documentary evidence establishing ownership of the permitted investments made using the sub-accounts regulated by the TRA were to be held in custody for the benefit of the borrower/lender. Similarly, sub-clause (iii) of Clause 15.2 broadly casts an obligation that the maturity value of the permitted investments is related to the payment or transfer obligations under the TRA. In this regard, what is underscored in the said sub-clause is that the permitted investments had to be readily marketable. Clause 15.3 obliges the respondent/assessee to ensure that the money which was realized through investments shall be immediately credited to the relevant account by the account bank or invested in another permitted investment, in accordance with the lender/borrower’s instruction. It is in the same vein that Clause 15.6 of the TRA provided that any interest or other income paid qua permitted investments would have to be paid to the relevant account as determined by the facility agent, which broadly meant that it would enure to the benefit of the borrowers/lenders. A holistic reading of the aforementioned Clauses would show that there was indeed an inextricable link between the investment of the surplus funds and the setting up of the power transmission system. Therefore, clearly, the interest earned thereon could only be categorized as “capital receipt.”
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