TMI Blog2013 (1) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013 - Chandra Poojari (Accountant Member) And Asha Vijayaraghavan (Judicial Member) For the Appellant : K. C. Devdas For the Respondent : M. Jagadish Babu ORDER Asha Vijayaraghavan (Judicial Member) This appeal preferred by the assessee is directed against the order of CIT(A)-III, Hyderabad dated 25/11/2011 for the assessment year 2008-09. 2. The assessee is a company and it was implementing a multi product special economic zone. For the year under consideration, it had filed its return of income on 27/09/2008, showing income at NIL. After processing of the said return u/s 143(1) of the Act, the same was selected for scrutiny for scrutiny assessment. During the course of assessment proceedings, the Assessing Officer noticed that during the previous year the assessee had obtained large amount of secured loan of ₹ 375 crores, out of which it had invested an amount of ₹ 95.48 crores in fixed deposits in banks, from which it had earned interest of ₹ 6,09,35,544/- during the FY 2007-08. Since the assessee had not commenced business operation, the AO was of the view that the said amount of interest earned on that FDS in banks, is taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 501) (Delhi) and the decision of ITAT, Mumbai, in J.F. Laboratories Ltd., Vs. ITO, 96 ITD 448. 4. However AO did not accept the contentions of the Assessee and taxed the interest income of ₹ 6,09,35,544/- as income from other sources. On appeal the CIT(A) confirmed the action of the AO following the decision of the ITAT in Assessee s own case for the immediately preceding AY 2007-08 in ITA No 1218/H/2010 dated 29.12.2010. 5. Aggrieved the Assessee is in appeal before us. 6. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. The Assessee mainly relied on the two decisions of the Delhi High Court in the cases of Indian Oil Panipet Power Consortium Ltd 315 ITR 255 and NTPC SAIL Company P Ltd v CIT (2012-TIOL-652-HC-DEL-IT). In both the cases the Delhi high Court had held that as the funds infused by way of borrowing were inextricably linked with the setting up of the project following the decisions of the Apex Court in the cases of CIT v. Bokaro Steel (236 ITR 315), CIT vs. Karnataka Power Corporation, (247 I.T.R. 268) and Bongaigaon Refinery and Petro Chemical Co. Ltd. vs. CIT (251 I.T.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est earned from the bank would have a hue different than that of business and be brought to tax under the head Income from other sources . It is well settled that an income received by the assessee can be taxed under the head Income from other sources only if it does not fall under any other head of income as provided in section 14 of the Act. The head Income from other sources is a residuary head of income. See S. G. Mercantile Corporation P. Ltd. v. CIT [1972] 83 ITR 700 (SC) and CIT v. Govinda Choudhury and Sons [1993] 203 ITR 881 (SC). 9. Thus the Delhi High Court held that the funds in the form of loans were infused for a specific purpose of acquiring land and the 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. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against preoperative expenses. The Delhi High Court found that in the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 it was found by the authorities that the funds available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also the Court held that the interest receipts from FDs placed with borrowed funds, which were temporarily deposited, is inextricably linked to setting up of the project and hence will go to reduce the cost of the project. It held as under: 9. This Court, in Indian Oil Panipat Power Consortium Ltd Vs. ITO (2009) 315 ITR 255 (Del.) = (2009-TIOL-108-HC-DEL-IT) held that where interest on money received as share capital is temporarily placed in fixed deposit awaiting acquisition of land, a claim that such interest is a capital receipt entitled to be set off against pre-operative expenses, is admissible, as the funds received by the assessee company by the joint venture partners are inextricably linked with the setting up of the plant and such interest earned cannot be treated as income from other sources. The reasoning in Indian Oil is in line with Bokaro Steel Ltd. Similarly, the Supreme Court in CIT vs. Karnataka Power Corporation, 247 I.T.R. 268 (SC) and Bongaigaon v Refinery and Petro Chemical Co. Ltd. vs. Commissioner Income Tax 251 I.T.R. 329 (SC) held that such receipts are not income. 10. It is no doubt correct that the proviso to section 36(1)(iii) of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court and the judgment of the Apex Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra), in our opinion, the judgment of the Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra) may not be applicable to the facts of this case. Moreover, the contention of the assessee that only the prorata interest relatable to borrowed funds alone to be taxed has no merit at all in view of the judgment of the Apex Court in Tuticorin Alakli Chemicals Fertilizers Ltd. (supra). In view of the above discussion, we do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed. 15. In view of the decision of the ITAT in Assessee s own case for the earlier year, respectfully following the same, we hold that the interest income of ₹ 6,09,35,544/- earned during the year by the assessee, from the Fixed Deposits made out of borrowed funds was rightly taxed by the AO under the head Income from Other Sources . The ITAT in their decision for the earlier year, supra, has found that the interest payable on borrowed funds has no connection with the receipt of interest. Following the decision of the coordinate bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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