TMI Blog2012 (9) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Per Joginder Singh , Judicial Member The assessee is aggrieved by the impugned order dated 3rd October, 2011 passed by the learned first appellate authority, Bhopal, on the ground that on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the addition of ₹ 31,39,70,137/- to the total income on account of interest earned on FDRs made out of zero coupon convertible bonds and further erred in not placing reliance on the decision of Hon ble Madras High Court in the case of CIT vs. VGR Foundations (2008) 298 ITR 132 (Mad.) 2. During hearing, the ld. Counsel for the assessee, Shri Arun Mehrotra, advanced his arguments which are identical to the ground raised. On the other hand, the learned CIT DR, Shri Keshav Saxena, strongly defended the impugned order by submitting that the interest income, so earned, is income from other sources and not the business income. The ld. CIT/DR also preferred written submissions in which certain judicial pronouncements have been relied upon. 3. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the learned Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertinent to mention here that even the Tribunal held such income as income from other sources (interest received from fixed deposits). While coming to this conclusion, the Hon ble High Court followed the decision from Hon ble Apex Court like CIT vs. Bokaro Steel Limited; 236 ITR 315 (SC) and CIT vs. Karnataka Power Corporation; 247 ITR 268 (SC) along with other decisions like Tuticorin Alkali Chemicals Fertilizers Limited; 227 ITR 172, Karnal Cooperative Sugar Mills Limited; 243 ITR 2 and Bongaigaon Refinery Petrochemicals Limited; 251 ITR 329 (SC). The Hon ble jurisdictional High Court in the case of Madhya Pradesh State Industries Corporation Limited vs. CIT (69 ITR 824) wherein the share monies received by the company, not being immediately required, were deposited in call deposits in certain banks. The assessee received interest on such deposits. The Assessing Officer assessed such interest income as income from other sources which was affirmed by AAC and the Tribunal. On reference to the Hon ble High Court, it was held that deposit of share capital in a bank cannot be said to be an act of money lending and hence the interest income was assessable as income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. The company may keep the surplus funds in short term deposits in order to earn interest. Such interests will be chargeable under section 56. In other words, if the capital of a company is fruitfully utilized instead of being kept idle, the income thus generated will be of a revenue nature and not an accretion to capital. Whether the company raised the capital by issue of shares or debentures or by borrowing, will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be a capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilizing borrowed capital. It is true that the company will have to pay interest on the money borrowed by it. But that cannot be a ground for exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in the ordinary course of its business. The bare fact that the assessee deposited money in the bank was itself not sufficient to show that the deposit was made with a view to carrying out the business in the sense of earning profit by investment, therefore, such interest income, earned by the assessee, was not the business income of the assessee but is assessable as income from other sources. Our view is supported by the decision from Hon ble Kerala High Court in GTN Textiles Limited (supra) wherein during the previous year, relevant to the assessment 1993-94, the assessee made public issue of shares for raising capital. The expenditure incurred for raising capital was claimed as deduction. The assessee made short term deposit of share application money/share allotment money and earned interest therefrom. Of this, a part was assessed as income from other sources and balance was allowed as deduction because the Assessing Officer accepted this as expenditure incurred in relation to shares allotted to the assessee by the subsidiary company. The disallowance towards expenditure claimed for raising share capital was confirmed by the Tribunal. Since the assessee was not engaged in fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up its plant in terms of the agreement with the supplier. It was on this money, so deposited, the interest was earned, therefore, this is not a case where any surplus share capital money or loan amount which was lying idle was deposited in the bank for the purpose of earning interest. The deposit of money in that case was directly linked with the purchase of plant and machinery, hence, income so earned from such deposits was incidental to the acquisition of asset for setting up of plant and machinery, therefore, the Hon ble Supreme Court held the same to be capital receipt which would go to reduce the cost of asset. The Hon ble Apex Court affirmed the decision of the Hon ble Punjab Haryana High Court in the same case (233 ITR 531) (P H). So far as the contention of the ld. Counsel for the assessee that the ld. first appellate authority erred in not placing reliance upon the latest decision of Hon ble High Court in VGR Foundation (298 ITR 132) (Mad) is concerned, we have gone through the same and find that while coming to that conclusion, the Hon ble HighCourt relied upon the decision in the case of CIT vs. Bokaro Steel Limited; 236 ITR 315 wherein the facts were that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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