TMI Blog2014 (3) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... income, the same must be brought to tax under the residual head, even if the company has not commenced its business, on the basis of Tuticorin (1997 (7) TMI 4 - SUPREME Court). Tribunal placed undue emphasis on the source of the funds instead of focussing its attention to the utilisation of the fund – whether they were invested in activities which are inextricably linked with the construction of the project. In fact, the assessee in the present case had invested the funds under the PMSV operated by the banks for an assured return. The interest income cannot, therefore, be permitted to be adjusted against the capital work in progress or the pre-operative expenses. - Decided in favor of revenue. - ITA 572/2013 - - - Dated:- 5-3-2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unsuccessful. In the further appeal before the Tribunal, the Tribunal held in its impugned order that the case of the assessee is covered by the ruling of the Supreme Court in the case of CIT vs. Bokaro Steel Ltd., (1999) 236 ITR 315 (SC) and, therefore, the interest cannot be separately brought to tax, but has to be adjusted against the pre-operative expenses relating to the project. 3. Aggrieved by the aforesaid order of the Tribunal passed on 01.03.2013, the revenue is in appeal under Section 260A of the Income Tax Act, 1961. 4. We are of the view that the revenue has to succeed. The assessee was incorporated as a company on 27.03.1989 with the object of manufacturing human vaccines based on the technology developed by Pasteur Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re inextricably linked with the instillation of the project and thus the case attracted the ratio of Bokaro (supra). It was further held that the interest cannot be separately assessed under the residual head, but was to be adjusted against the capital work in progress. 5. We are afraid that the Tribunal fell into error in holding that the facts of the case attracted the principle laid down in Bokaro (supra) merely because the funds invested were not borrowed funds but were provided by the promoters. The source of the funds is not in our opinion relevant. This was recognized in Tuticorin (supra) itself and we quote the relevant observation: - In other words, if the capital of a company is fruitfully utilised instead of keeping it idl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging to the assessee were let out to the contractors for rent so that the labourers employed by the contractors can be housed there. The income under the 5 heads were found by the Court to be inextricably linked to the project under construction. On these facts it was held in Bokaro (supra) that the interest income cannot be separately assessed under the residual head, but should be treated as capital receipt, to be reduced from the construction cost or the capital work in progress. 7. The facts of the present case are not on all fours with those in Bokaro (supra). Herein the investment of the funds has nothing to do and was not inextricably linked with the construction of the project. It was an investment under the portfolio management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inked with the construction of the project. In fact, the assessee in the present case had invested the funds under the PMSV operated by the banks for an assured return. That has nothing to do with the project and there is no inextricably link between the investment and the project. The interest income cannot, therefore, be permitted to be adjusted against the capital work in progress or the pre-operative expenses. Both the assessing officer and the CIT (Appeals) were right in bringing the interest to tax under the head income from other sources . 8. In view of the above discussion, the Court is of the opinion that the question of law has to be answered in favour of the revenue and against the assessee. The appeal is accordingly allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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