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TMI Blog2010 (12) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... and pertains to Assessment year 2007-08. 2. The only issue arises for consideration is with regard to charging of tax on the interest received from fixed deposit. Shri Yogesh A. Thar, the learned representative for the assessee, submitted that the assessee company borrowed Rs. 289 crores for the purpose of setting up of its business. Out of the borrowed funds a portion of the amount which was not required immediately was deposited in fixed deposit (FD) with bank to earn interest. During the Assessment year under consideration the assessee has received Rs. 3.09 crores as interest. According to the learned representative for the assessee the interest received by the assessee on the FD made from the borrowed funds which were borrowed for the purpose of acquisition of land. Since the funds were not required immediately the same was deposited for earning interest income. Therefore, the learned representative for the assessee submitted that the interest paid on the borrowed funds has to be set off from the interest received on the fixed deposit. Alternatively the learned representative for the assessee submitted that only part of the borrowed fund was deposited in FD for earning intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case before this Tribunal, according to the learned representative for the assessee the assessee is specifically claiming interest u/s. 57 since the borrowed funds were invested in the FD. Therefore, this judgement of the Apex Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.(supra) is distinguishable on facts. 6. Referring to the decision of this Tribunal in Gautami Power Ltd. vs. ACIT in I.T.A. No. 2/Hyd/2006 dated 24.10.2008, the learned representative for the assessee submitted that the assessee borrowed funds for setting up of Special Economic Zone (SEZ) project. Out of the borrowed funds the funds were temporarily parked in FDs. Therefore, the borrowed fund and the interest on FD shall inextricably be linked with the setting up of the project. Therefore, the judgement of the Delhi High Court in Indian Oil Panipat Power Consortium Ltd. (supra) is applicable to the facts of this case. Therefore, the decision of the Tribunal in Gautami Power Ltd. may not of any help to the Revenue. Moreover, the decision of this Tribunal in Gautami Power Ltd. (supra) has not examined the question whether the interest expenses attributable to the borrowing directly used for temporary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this Bench of the Tribunal examined an identical situation and after referring to the judgement of the Apex Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) and the judgement of the Madras High Court in South India Shipping Corporation vs. CIT (1999) 240 ITR 24 found that interest income received by the assessee is assessable u/s. 56 of the Act. The facts in the present case would go even a step beyond the case of Gautami Power Ltd. (supra). According to the learned DR there is no nexus at all between the deposits made by the assessee and the business of the assessee, leave alone with process of setting up of the business. Therefore, according to the learned DR the CIT(A) has rightly rejected the claim of the assessee. 9. We have considered the rival submissions on either side and also perused the material available on record. Admittedly the assessee is in the process of setting up of multi product SEZ project. For the purpose of setting up of the project the assessee borrowed Rs. 289 crores from banks. A part of the amount which was not required immediately was invested in FD with bank. Apart from this the assessee has also received a sum of Rs. 10.52 crores as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re were conflicting judgements of the Madras High Court in CIT vs. Seshasayee Paper and Boards Ltd. (1985) 156 ITR 542 and A.P. High Court in CIT vs. Nagarjuna Steels Ltd. (1988) 171 ITR 63. Accordingly a reference was made to the Apex Court. The Apex Court after examining the facts of the case and the judgement of the Madras High Court in Seshasayee Paper and Boards Ltd. (supra) and Andhra Pradesh High Court in Nagarjuna Steels Ltd. (supra) confirmed the judgement of the Madras High Court. The Apex Court has specifically observed as follows at pages 180 and 181 of the Report: "It is true that the company will have to pay interest on the money borrowed by it. But that cannot be a ground for exemption of interest earned by the company by utilizing the borrowed funds as its income. It was rightly pointed out in the case of Kedar Narain Singh v. CIT [1938] 6 ITR 157 (All) that " anything which can properly be described as income is taxable under the Act unless expressly exempted ". The interest earned by the assessee is clearly its income and unless it can be shown that any provision like section 10 has exempted it from tax, it will be taxable. The fact that the source of income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, this judgement of the Apex Court may not be of any assistance to the Revenue. We are unable to accept the contention of the learned representative for the assessee. The Apex Court after referring to the judgement of the Orissa High Court in CIT vs. Electrochem Orissa Ltd. (1995) 211 ITR 552 and the judgement of the Madras High Court in Seshasayee Paper and Boards Ltd. (supra) disapproved the reading of the judgement of the Madras High Court in Seshasayee Paper and Boards Ltd. (supra) by the Orissa High Court. In fact, the Apex Court has observed as follows: "Our attention was drawn to two other decisions where the view of the Andhra Pradesh High Court was followed. In the case of CIT v. Electrochem Orissa Ltd. [1995] 211 ITR 552, the Orissa High Court preferred the view expressed by the High Court of Andhra Pradesh to the view expressed by the Madras High Court in Seshasayee Paper and Boards Ltd.'s case [1985] 156 ITR 542 on the ground that the Madras case was based on a finding of fact that there was no direct connection between the interest paid and the interest received. In our view, it will not be right to read the judgment in Seshasayee Paper and Boards Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Courts, it was found that the borrowing has not been exclusively and solely for the purpose of earning interest in which case alone it should be taken as income which should be deducted from the interest receipt. This judgement of the Madras High Court in Seshasayee Paper and Boards Ltd. (supra) was specifically taken note of by the Apex Court and it was observed that interest paid on borrowings for the purpose of purchase of plant and machinery could not be allowed or adjusted against the income u/s. 57(iii) of the Act. The Apex Court finally concluded that the view expressed by the Madras High Court in Seshasayee Paper and Boards Ltd. is correct and the views expressed in other cases are erroneous. From the above it is obvious that even though the Apex Court found that the assessee in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) has not specifically made any claim u/s. 57 of the Act for setting off of the interest received on the FD with interest payment on borrowed fund the Apex Court after referring to the judgement in the case of Seshasayee Paper and Boards Ltd. (supra) of the Madras High Court found that the claim of the assessee cannot be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) and the judgement of the Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), we are unable to uphold the contention of the assessee. 14. We have also carefully gone through the judgement of the Delhi High Court in Indian Oil Panipat Power Consortium Ltd. (supra). The Delhi High Court distinguished the judgement of Apex Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) on the ground that the funds in the form of share capital were infused for a specific purpose of acquiring land and development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as 'Income from other sources'. After referring to the judgement of Apex Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), the Delhi High Court found that the interest on surplus funds would have to be treated as 'Income from other sources'. We find that the Madras High Court on another occasion, in South India Shipping Corporation (supra), considered an identical situation and after referring to the Apex Court judgement in the case of Tuticorin Alkali Chemicals & Fertilizers L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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