TMI Blog2019 (3) TMI 1457X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Act as well as u/s 115JB of the Act. The appeal of the assessee is allowed. - ITA NOs. 2472, 2473 & 5752/MUM/2018 - - - Dated:- 20-3-2019 - Shri Rajesh Kumar, Hon'ble Accountantmember And Shri Ramlal Negi, Hon'ble Judicial Member For the Assessee : Shri J.P. Bairagra For the Department : Shri B. Srinivas ORDER PER RAJESH KUMAR (AM) The above titled appeals have been preferred by the assessee against the orders dated 20.02.2018, 20.02.2018 28.08.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2013 14, 2014-15 2015-16 respectively. The grounds raised by the assessee are as under: - AY 2013-14: 1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax - (Appeals) has erred in upholding that a sum of ₹ 44.45 Crores is not a capital receipt. In doing so, the CIT(A) has erred in upholding that the sum of ₹ 44.45 Crores is taxable, both for the purposes of normal computation as well as computing book profits U/S.115JB of the Income Tax Act. The receipt of ₹ 44.45 Crores being in the nature of a capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suing notice u/s 148 dated 19.8.2015 which was served upon the assessee on 26.8.2015. In compliance to the said notice, the assessee filed return of income on 23.9.2015 declaring income at Nil. The statutory notices were issued and duly served upon the assessee. The assessee, during the course of re-assessment proceedings, submitted before the AO that the interest received on FDR/ICDs with banks and NBFC being a capital receipt and is not liable to income tax both under the normal provisions of the act as well as under special provisions u/s 115JB of the Act for the reasons that the interest was received prior to the commencement of the port terminals which was delayed for the want of various permissions and clearances from the Govt. authorities. The assessee relied on the decision of Delhi High Court in the case of Indian Oil Panipat Power Consortium 315 ITR 255 (Delhi). The assessee also submitted before the AO that the said decision was followed in a numbers of decisions in various benches of the tribunals all over India. The assessee submitted that even if the interest was credited to the profit and loss account resulting into book profit during the year would not change the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lesser than the normal provisions of the Act. 7. Aggrieved assessee filed an appeal before the ld. CIT(A) challenging the order of the AO. Before the ld. CIT(A), the assessee made detailed arguments and submissions which are reproduced below: 1. The appellant is a company incorporated on 24th May, 2010, which is engaged in the business of developing operating multi-purpose terminal, logistics facility and ship repair facility in India. Its main object is to develop a multi-purpose port terminal at Karanja Creek, Chanje Village, Taluka Uran, District Raigad, Maharashtra, India. For the year under consideration, the assessee filed a NIL return of income. The computation of income is enclosed at Pages 1 to 27 of the compilation. The audit report in Form 29B is enclosed at Pages 28 to 36of the compilation. The audited Balance Sheet is enclosed at Pages 37 to 58of the compilation. 2. The assessed income by the Assessing Officer (AO) was ₹ 44.45 Crores. Since the tax on normal computation was higher than the tax on book profits, the assessee was assessed on normal income. Aggrieved by the assessment order, the assessee is in appeal before your Honour by taking the underm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infrastructure Private Limited ( KIPL ) and its affiliates a group outside the SKIL Group. Petitioners main object was to develop a multi-purpose port terminal at Karanja Creek, Chanje Village, Taluka Uran, District Raigad, Maharashlra, India, for which the timeline is mentioned herein further, 4.3 On 31st August, 2009 a Lease Deed was executed between KIPL and the Maharashtra Maritime Board ( MMB ) for development of Multipurpose Terminal Facility at Karanja creek, a high growth industrial zone, in close proximity to JNPT, India's largest container handling port in Maharashtra. The said Lease Deed was executed for a period of 30 years for development of multipurpose port terminal facility on BOOT (Built, Own, Operate Transfer) basis. 4.4. On 29th June, 2010, the assessee made an application to the of Environment and Forest ( MoEF ) for Environment and CRZ clearance. On 28th September, 2010, a Deed of confirmation executed between the Petitioner, KIPL and the MMB, 4.5. Meanwhile the SK1L Group on 24* August, 2010 incorporated a new holding company SKIL Ports Logistics Limited (Guernsey) ( SKIL Guernsey ), to develop, own and operate port and logistics facilities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Reference' were issued by the Ministry of Environment and Forest ( MoEF ). The Maharashtra Coastal Zone Management Authority ( MCZMA ) clearance was received on 15th May, 2012. On 3rd August, 2012, the 'Consent to Establish' was received from Maharashtra Pollution Control Board ( MPCB ). Subsequently, on 30th October, 2012 in the Public Hearing conducted under the Chairmanship of Collector of Raigad District, the Project received unanimous support from locals. 4.10 On 21st December, 2012, the Project was listed for Final Environment and CRZ clearance in the agenda of 119th Meeting of the Export Appraisal Committee of Ministry of Environment and Forest ( MoEF ), Government of India. On 21st August, 2013, the Final Environment CRZ clearance received. This clearance is vital for commencement of onsite works. Non-receipt of this permission would lead to cancellation of the Project. The copy of the Final Environment and CRZ clearance received by the Petitioner for commencement of the Project is enclosed at Pages 145 to 152 of the compilation. 4.11 In December, 2014 access was given to the bridge and road to site constructed by CIDCO. However, in January, 2015 pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 05, 2005 - 06 2006 - 07, decided on 09.09.2011, for AY 2007 08, 2008 - 09 2009 - 10 in ITA Nos. 503JP/5O4JP/505JP/$68JP/569JP 57OJP all of 2012 reported in 152 ITD 561 (Order dtd.27.01.2014). Thereafter, the assessee has relied on Bombay Tribunal decision rendered in the case of Shivalik Ventures Pvt. Ltd. -ITA No.: 2008/Mum/2012 for AY 2OO9 - 10, where identical views have been accepted by the Mumbai ITAT. We further seek to place reliance on the decision of the Lucknow Tribunal in the matter of L. H. Sugar Factory Ltd. - 417 418/LKW/2013 for AY 2008-09 2009-10 order dtd.09.02.2016, wherein, at Para 50, the ITAT held that capital receipts need to be excluded from the P L Account, while computing book profits u/s.115JB of the Income Tax Act Further in order dtd.06.06.2016, the Jurisdiction^ High Court in the matter of Goodwill Theatres Pvt. Ltd., ITA No.: 2356 of 2013, while dismissing the revenue's question of law as to whether mesne profits can be a part of book profit u/s.115JB held that mesne profits (amount received from a person in wrongful possession of property) is a capital receipt and not chargeable to tax either as income or as book profits u/s.115JB. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Theatres Pvt Ltd. ITA No.: 2356 of 2013 has categorically held a capital receipt is not chargeable to tax either as income or as book profits, Therefore, the A O's simplistic observation that appeal has been filed in the High Court will not holdgood water. 3. On identical facts for A. Y. 2011/12 and 12/13 the assessee on its own has offered these interest incomes to tax, as income from other sources. * The 264 petition filed by the assessee for both the years has still not been disposed off by the CIT and is still pending. 7. The Bombay High Court, which is the Jurisdictional High Court in the case o/ITO v. Siemens India Ltd, (1985J - 156 JTK 11, which are reproduced as under: So far as the legal position is concerned, the ITO would be bound by a decision of the Supreme Court as also by a decision of the High Court of the State within whose jurisdiction he is, irrespective of the pendency of any appeal or special leave application against that judgment. He would equally be bound by a decision of another High Court on the point because not to follow that decision would be to cause grave prejudice to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding those of Supreme Court and concluded that the lower authority is duty bound to follow the decision of the 1TAT, so long as the same is not suspended / reversed by Hon. High Court. 10. In the light of the submissions made above, we request your Honour to grant relief in the matter.... 8. The ld CIT(A) in the appellate proceedings upheld the order of the AO after taking into consideration the arguments and the submissions of the assessee by observing and holding as under: 6.3 The submissions of the learned counsel have been carefully considered.The learned counsel reiterated the submissions made before the assessingofficer, He had further placed reliance on the decision of the hon'ble apex courtin the case of CIT vs, Bokaro steel Ltd 236 ITR 315 wherein it was held that ifincome is earned, whether by way of interest or in any other manner on funds which are otherwise 'inextricably linked' to the setting up of the plant, suchincome is required to be capitalised to be set off against the operating expenses. The learned counsel further argued that the AO is bound by the decisions of high courts or ITAT and cannot take the plea that they are contested in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilisers Ltd vs. CIT(1997) 227 ITR 172. 6.6 Thus both the decisions are in harmony and equally disapprove the tax treatment of interest on fixed deposits canvassed by the appellant through which it seeks an undeserved tax benefit. Unlike the facts of the Bokaro steel case, the impugned receipts, in this case, bearing the nature of interest income on fixed deposits/ have not arisen due to interplay between the assessee, the contractors and the construction activity. 6.7 The appellant also placed reliance on the case of Indian oil Panipat power consortium Ltd vs, ITO (2009) 315 ITR 255 wherein the hon'ble Delhi High Court held that the funds could not be immediately utilized by the appellant owing to the legal entanglements with respect to the title of the land which the state government was to acquire for the assessee. In the interregnum the funds were parked as interest-bearing fixed deposits in a bank. No such issue is involved in the instant appeal and hence the reliance of the assessee on this judgement is misplaced. 6.8 On the contrary the judgement in the case of Tuticorin alkali chemicals and fertilizers Ltd (supra) is squarely applicable to the facts of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose 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 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 utilising borrowed capital. 5. The interest earned by the assessee was clearly its income and unless it could be shown that any provision like section 10 exempted it from tax, it will be taxable. The fact that the source of income was borrowed money did not detract anything from the revenue character of the receipt. 6. Further, any argument based on accountancy practice has little merit if such practice cannot be justified by any provision of the statute or is contrary to it. 7. The company was at liberty to use the interest income as it liked. It was under no obligation to utilise this interest income to reduce its liability to pay interest to its creditors. It could re-invest the interest income in land or shares, it could purchase securities, it could by house property, it could also set up another line of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the construction period is to be considered as 'income from other sources'. 6.10 The instant case is clearly covered by the decision of the jurisdictionalHigh Court in the case of Shree Krishna polyester Ltd supra, In the instant casealso the assessee has received the foreign direct investment by way of shareImplication money as per the assessee's own admission. This amount wasneither 'incidental' nor 'intrinsically connected' with the business activities of the assessee. In view of the binding judgements in the cases of Tuticorin alkali chemicals and fertilisers Ltd of the apex court and Shree Krishna polyester Ltd of the Bombay High Court supra the Interest income earned by the assessee on the ICDs and deposits made with NBFCs is to be treated as income from other sources and not a capital receipt. Moreover, the assessee itself had offered this as income from other sources in the preceding assessment years i.e. 2011- 12 and 2012-13. The assessee cannot suddenly change its stand on identical facts. The action of the AO in treating this income as income from other sources and holding it liable for tax both under the normal provisions of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to FDRs and ICDs with banks and NBFCs pending the clearances and other formalities. The said interest of ₹ 44,45,12,424/- was of capital nature as the it relates to the period prior to the commencement of the project and therefore not offered to tax. The ld AR argued that the interest income received by the assessee was earned out of the funds received as share capital raised on the London stock exchange by KTLCL specially for the purpose of development of port terminal and other facilities at Karanja Creek. The ld AR stated that receipt of interest was earned on the unutilized funds which are inextricably linked to the development of port terminal at Karanja Creek. In defense of his arguments the ld AR relied on the following decisions: a) CIT Vs Bokaro Steel Ltd 236 ITR 315(SC) b) Indian Panipat Powe Consortium Ltd Vs ITO 315 ITR 255 c) CIT Vs Karnal Coop. Sugar Mills Ltd. 243 ITR 2 (SC) d) PCIT Vs Facor Power Ltd 380 ITR 474 (Delhi) e) NTPC Sail Power Company (P) Ltd. CIT 210 Taxman 358 (Delhi) f) CIT Vs Sasan Power Ltd 205 Taxman 56 (Delhi) g) Adani Power Ltd. Vs ACIT 155 taxmann.com 239(Delhi) h) Solarfield Energy Two Pvt Ltd Vs ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EH appeals, the adjournment was denied on the ground that the assessee is developing a infrastructure project and the bank account of the assessee are lying attached by the revenue authorities thereby putting the assessee to irreparable loss. 13. The DR while opposing the arguments of the ld AR submitted that the order of ld CIT(A) has rightly upheld the order of AO by distinguishing the various case laws relied by the ld AR. The ld DR submitted that ld CIT(A) has passed a very speaking and reasoned order after distinguishing the various decisions as relied upon by the assessee. The DR argued that the interest received by the assessee on unutilized funds put into FDRs and ICDs is of revenue nature and therefore has rightly been brought to tax. The ld DR in defense of his contentions relied on a series of decisions namely: a) Tuticorin Alkali Chemicals Fertilisers Ltd Vs CIT (1997)93 Taxman 502 (SC) b) Shree Krishnan Polyster Ltd Vs DCIT (2005) 144 Taxman 41 (Bom) c) CIT Vs Rajasthan Land Development Corporation Ltd (1995)211 ITR 597 (Raj) d) Thermal Power Tech Corporation India Ltd. Vs DCIT 81 Taxmann.com 168 (Hyd) e) Emta Steel Energy Ltd Vs DCIT ITA No. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a does not apply to the income tax proceedings by relying the decision of Radha Soami Satsang Vs CIT 193 ITR 391. 16. We have heard the rival parties and carefully perused the materials placed before us including the case laws relied upon by both the parties. At the outset we would like to mention that these are the stay rejected appeals and posted for hearing on out of turn basis with first hearing on 18.12.2018 vide order of the tribunal dated 16.11.2018. We further note that the bank accounts of the assessee stood attached by the AO as informed during the hearing thereby affecting the development work of the terminal which is on the final stages of completion. Thereafter the case was adjourned to 3.1.2019. On 3.1.2019, the case again was adjourned at the request of the ld DR to 9.1.2019. On 9.1.2019 the case was substantially heard and adjourned at the request of the ld DR as he requested the bench that confirmation from the AO is still awaited on documents filed by the assessee in the paper books. According to the ld DR, AO report is required whether the documents filed in the paper books were before the him and adjourned to 17.1.2019 giving as last and final opportunity to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clearances from Govt. Authorities and due to local issues. We note that the delay in the construction of port terminal was purely due to the reasons of non-issue or delayed issuance of clearances and due to local protests by the public. This is also undisputed that these funds were received as share capital solely for the development of port terminal and other facilities at Karanja Creek and were raised on Landon stock exchange by holding company M/S SKIL Guernsey a Cyprus company which was formed for the specific purpose only. The port terminal in question is yet to be commenced as is apparent from various evidences in chronology placed on records as stated below: Sr.No . Contents / Brief Description Page Nos 1 Letter from MMB bearing ref. no. MMB/Planning-2/KIPL/921, dtd.13 th Mar.2015 - Permission to carry outCapital Dredging at the Karanja Site 1-4 2 Letter from MMB bearing ref. no. RPO/MORA/GEN/KTLPL-KARANJA/1070,dtd.28 th Sept.2015- response to project update confirming LeaseAgre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lems faced by the appellant company in starting the project. It is also apparent from the above that the lease agreement granted by the Maharashtra Maritime Board has been extended from 30 years to 50 years. Maharashtra Maritime Board have further given more 200 acres land and 1000 meters of water front and even permission of the trial operation has been granted vide their letter dated 22/10/2018. 19. We observe that the above letters have no bearing on the issue to be adjudicated by us but only reinforces the stand of the assessee that port terminal is in final stage and permission has been granted for trial run vide letter dated 22/10/2018.After taking into consideration the facts before us we have no doubt in our mind that the income by way interest is received on the unutilized funds which were directly related to the development of port and received by way of Share capital exclusively raised for the purpose of development of port terminal. Thus we have no doubt in our mind that these funds were exclusively and inextricably connected to the development of port facilities at Karanja Creek. The various decisions relied upon by the ld AR and DR as stated hereinabove are perused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommencement of production of such borrowed money can be capitalised and added to the cost of the fixed assets created as a result of such expenditure. By the same reasoning if the assessee such expenditure. By the same reasoning if the assessee receives any amounts which are inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of a capital nature and cannot be taxed as income. The same reasoning would apply to royalty received by the assessee company for stone etc. excavated from the assessee company's land. The land had been allowed to be utilized by the contractors for the purpose of excavating stones to be used in the construction work of assessee's steel plant. The cost of the plant to the extent of such royalty received, is reduced for the assessee. It is therefore, rightly taken as a capital receipt. The ratio laid down by the apex court squarely applies to the assessee s case as it has been held by the court that when the interest on borrowings by newly started company who is in the process of erecting its plant is capitalized and added to the cost of fixed assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptional Fully Convertible Debentures, were not received for setting up of the plant and machinery. This decision is not applicable on the facts of the case as in this case the money was collected under Optional Fully Convertible Debenture. At Para (v) the Bombay High Court in the decision referred to supra while deciding the matter in favour of the Revenue held as follows: (v) In the decisions of the Delhi High Court in Sasan Power Ltd. (Supra) and Facor Power Ltd. (Supra) the Tribunal had come to finding of fact that interest which has been earned is in respect of deposits made in the course of/for setting up of plant. Thus, the interest was capitalised. So far as Indian Oil Panipat Power Consortium Ltd. (Supra) is concerned, it was earned prior to commencement of business and could be set off against pre-operative expenses. The fact situation in this case is completely different. In the present facts, both the CIT (A) and the Tribunal have rendered a finding of fact that the interest earned is not inextricably linked to settins up of plant and machinery on the part of the Appellant-Assessee. It also records a finding that money by OFCD was not received for setting up of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Court has held that the object of MAT provisions is to bring out the real profit of the companies. The thrust is to find out the real working results of the company. Inclusion of receipt in the computation of MAT would defeat two fundamental principles, it would levy tax on receipt which is not in the nature of income at all and secondly it would not result in arriving at real working results of the company. The real working result can be arrived at only after excluding this receipt which has been credited to P L a/c and not otherwise. The case of the assessee is supported by the following decisions: In the case of Shivalik Venture Pvt. Ltd. V/s. Dy. CIT, 43 ITR(Mum Trib) 187 the issue was, profits and gains arising on transfer of a capital asset by a company to its subsidiary company does not fall under definition of income as given in section 2(24) of The Income Tax Act, 1961. Since it does not enter into computation provisions of Act, it cannot be included in book profit as per scheme of provisions of section 115 JB. In the case of DCIT Circle-1 V/s. McNally Bharat Engineering Co. Ltd., ITA No.l00/Kol/2011, Dated 01/03/2017(Kol Tri) the facts were that the retention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio laid down in the said judgment. Thus, the settled position now is that such capital receipts not forming part of the P L account cannot be brought to tax by including it in the book profit. 22. Accordingly, even for the Asst year 13-14 14-15 interest earned is credited to the P L account but at the same time it was mentioned in the notes to the audited statement of accounts that interest is not taxable under the normal provisions of the Act as well as u/s. 115JB the Act. In the assessment year 2015-15 the interest was not credited to the profit and loss account at all and was reduced from the capital work in progress. Finally, after considering the facts of the assessee case in the light of various decisions by the Hon ble Apex court, Hon ble High Court and coordinate benches, we hold that the interest income received by the assessee from the FDRs/ICDs made out of funds are inextricably linked to the development of port terminal and other infrastructure at Karanja Creek which is yet to be completed and commissioned. We would like to add that the these funds could not be used for the development work of the port due to late issuance of permissions/clearances by the Govt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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