TMI Blog2015 (1) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... not correct - the question as to whether the income in the facts and circumstances of the present case could be taxed under the provisions of section 143(1)(a) of the Act holding it to be prima facie adjustable, is not correct - the question is a debatable one and it requires consideration in accordance to the provisions of section 143 – thus, the order of the Tribunal is set aside – Decided in favour of assessee. - IT APPEAL NO. 16 OF 2001 - - - Dated:- 19-9-2014 - RAJENDRA MENON AND A.K. SHARMA, JJ. For The Appellant : Sumit Nema and Mukesh Agarwal, For The Respondent : Sanjay Lal, Council ORDER Rajendra Menon, J. - This is assessee's appeal under the provisions of section 260-A of the Income Tax Act, 1961. 2. The appeal was admitted on 29.10.2001 for considering the following substantial question of law : Whether the income from interest could be taxed holding it to be covered from prima facie adjustment under section 143(1)(a) of the Act ? 3. The facts in brief necessary for disposal of this appeal goes to show that the assessee company is a joint venture undertaking formed by M/s Bharat Petroleum Corporation Limited and M/s Oman Oil Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 227 ITR 172 and a Division Bench judgment of this Court in the case of M.P. State Industries Corpn. Ltd. v. CIT [1968] 69 ITR 824 the assessment is unsustainable. Shri Nema argued that the income in question was received before commencement of production and was earned as interest due to compulsorily keeping of the funds in Bank as margin money against performance guarantee issued for securing the contract and merely because in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) by the Supreme Court and M.P. State Industries Corpn. Ltd. (supra) by the High Court, it is held that the interest income earned is taxable under other sources of income, the issue could not be decided under section 143(1)(a) of the Act and in doing so the Tribunal and appellate authority mis-directed itself. Taking us through the judgment of Supreme Court in the case of CIT v. Producin (P.) Ltd. [2010] 322 ITR 270 and judgment of Bombay High Court in the case of Shree Krishna Polyster Ltd. v. Dy. CIT [2005] 274 ITR 21, Shri Sumit Nema submitted that the question framed be answered in favour of the assessee and the entire assessment proceedings be quashed. 6. Learned counsel for appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered against the assessee and it has been held that such interest is liable for taxation as income from other sources, but the question framed in this appeal particularly with regard to the nature of dispute is not considered in the said case. 9. During the course of hearing Shri Sanjay Lal, learned counsel for respondent emphasized that the judgment relied upon by the assessee in the case of Karnal Co-operative Sugar Mills Ltd. (supra) is already considered by a coordinate Bench of this Court in I.T.A.No.238/2012 and therefore the contention of Shri Nema is not correct. We have gone through the order passed in I.T.A.No.238/2012 dated 29.4.2013 and we find that in the said case the questions of law framed are already quoted in the preceding paragraphs and we find that the nature of deposit for the years, which was subject matter of dispute in I.T.A.No.238/2012 are entirely different. In those cases the interest were earned on fixed deposit made out of borrowed funds which was akin to the interest earned in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra), whereas in the present case the interest is earned on deposit made for the purpose of getting performance gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settled by the Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) and also by the jurisdictional High Court in the case of M.P. State Industries Corpn. Ltd. (supra), the question whether the issue is contentious or debatable does not arise as the issue has been settled under the law and therefore could be proceeded under section 143(1)(a) of the Act. 12. That being the position we may proceed to examine the law laid down by the Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra). In the said case also the establishment of assessee had not commenced its business as is the factual position in the present case. The assessee in that case also made Short Term Deposit with the bank out of term loan secured from financial institutions and the interest earned by the assessee before commencement of business was assessed as income chargeable under the head income from other sources. In the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) such income was held to be income from other sources. 13. Similarly the Division Bench of Madhya Pradesh High Court in the case of M.P. State Industries Corpn. Ltd. (supra) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in the factual situation in the present case is in CIT v. Bokaro Steel Ltd. The appeal is dismissed. 16. In this case also the appellant has not earned interest on the money lying idle with him for running industry. On the contrary by virtue of terms and conditions of the contract petitioner was to submit a performance guarantee and for the same he had to deposit certain funds with the Bank as margin money and it is on this margin money the interest was earned. That being so there is difference in the source from which the interest was earned in the present case and application of the principles of law laid down in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra), becomes doubtful. 17. In the case of Bokaro Steel Ltd. (supra) the company which was a Government Company at the time of construction of its plant had advanced various amounts to its contractor and on the advance made to its contractor it received interest, rent from quarters given to the employees of the contractor and hire charges on certain plants and machinery. The interest earned on such advance were considered by the Supreme Court and it was found that these activities are intricately co ..... 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