TMI Blog2019 (7) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Tribunal had made a fact finding exercise to ascertain as to whether there was an inextricable link with the setting up the business. As pointed out by us earlier, in the instant case, the Assessing Officer did not examine such aspect though the assessee has specifically stated in the written submissions dated 18.03.2015. In our considered view, the matter shall be considered afresh by the AO steering clear of the factual position, record his finding on facts and then apply the legal principle. As we have found that such procedure was not followed in the instant case, we deem it appropriate to remit the matter back to the AO for fresh consideration. - TCA.No.322 of 2019 And CMP.No.12046 of 2019 - - - Dated:- 13-6-2019 - Mr. Justice T.S. Sivagnanam And Mrs. Justice V. Bhavani Subbaroyan For the Appellant : Mr. SP.Chidambaram For the Respondent : Mr.Karthick Rengathan, SSC assisted by Mr.S. Rajesh JUDGMENT T.S.SIVAGNANAM, J. This appeal filed by the assessee under Section 260 A of the 'Income Tax Act, 1961' ( hereinafter referred to as the Act) is directed ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We find that such an exercise has not been undertaken by the Assessing Officer at the first instance, as a result of which the matter was proceeded solely based upon the interpretation of the law laid down by the Hon'ble Supreme Court in various decisions. We are of the firm view that the fact situation is required to be considered and the Assessing Officer has to then apply legal principle laid down in various decisions and come to a conclusion. We find that such an exercise has not been done in this case. 7. To elaborate, on this issue, we refer to the following facts: The assessee is engaged in the business of Manufacturing Steel Plate Processing and Fabrication for Heavy Machinery part and components. The assessee had filed his return of income for the Assessment year 2012-13. The return was duly processed under Section 143(1) of the Act on 10.05.2013. The assessee's case was selected for scrutiny and notice under Section 143(2) of the Act was issued on 14.08.2013. Subsequently, the case was heard and the assessee had submitted a written submission during the personal hearing on 18.03.2015. On a readi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether the stand taken by assessee as regards deployment of the funds, forming part of the fixed deposits, retained as short term deposits. The discussion in the Assessment Order commences from paragraph 3.3, the Assessing Officer has straight away referred to the decision of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals Fertilizers Ltd., Vs. Commissioner of Income Tax [1997] 93 TAXMAN 502 (SC). After referring to two paragraphs of the decision, the Assessing Officer held that in the light of the decision in Tuticorin Alkali Chemicals Fertilizers case, before commencement of business, income has to be assessed as Income from Other Sources and it cannot be said that interest income is not taxable. Accordingly, the same was added back to the total income under the head Income from Other Sources for the Financial Year 2011-12 relevant to the Assessment year 2012-13. To be noted, there was no discussion with regard to the stand taken by the assessee as to the reason for parking the funds in short term deposits with the bank. The assessee carried the matter on appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. We find from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Supreme Court decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. [1997] 227 ITR 172, it is only in the event of interest earned from out of deposits made from borrowed funds that it would be in the nature of income. Share application monies do not fall into the category of borrowed funds and do not involve payment of interest. In effect share application monies, etc., are gathered for being used in setting up of an industry, unit, purchase of assets, and so on. Till such time the money is required for deferment of various items, obviously the money has to be kept in deposit with a bank. Keeping the money i current account would not yield any interest income. In can, therefore, be seen that it is during the course of construction that the monies are kept in deposits with the bank. In these circumstances in the light of the Supreme Court decisions in the case of Bokaro Steel Ltd. [1999] 236 ITR 315, Karnal Co-operative Sugar Mills Litd. [2000] 243 ITR 2 and Karnataka Power Corporation [2001] 247 ITR 268, the claim of the assessee is reasonable and deserves to be accepted. We accordingly uphold the claim of the assessee and delete the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t earned by investing borrowed capital in short-term deposits is an independent source of income not connected with the construction activities or business activities of the assessee, the same cannot be said in the present case where the utilisation of various assets of the company and the payments received for such utilisation are directly linked with the activity of setting up the steel plant of the assessee. These receipts are inextricably linked with the setting up of the capital structure of the assessee-company. They must, therefore, be viewed as capital receipts going to reduce the cost of construction. In the case of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167, this Court examined the question whether interst paid before the commencement of production by a company on amounts borrowed for the acquisition and installation of plant and machinery would form a part of the actual cost of the asset to the assessee within the meaning of that expression in Section 10(5) of the Indian Income-tax Act, 1922 and whether the assessee will be entitled to depreciation allowances and development rebate with reference to such interest also. The Court held that the accepted accountancy r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Power Consortium Ltd. Vs. Income Tax Officer reported in [2009] 181 Taxman 249 (Delhi), the Court noted the decision in Tuticorin Alkali Chemicals Fertilizers Ltd and Bokaro Steel Ltd and held as follows: 5.2 It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital 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. In the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (Supra) it was found by the authorities that the funds available with the assessee in that case were 'surplus' and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as 'income from other sources'. On the other hand in Bokaro Steel Ltd.'s (Supra) where the assessee had e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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