TMI Blog2019 (6) TMI 1411X X X X Extracts X X X X X X X X Extracts X X X X ..... he project development expenditure incurred for set up of power plant. We note that identical issue came up for consideration of the co-ordinate bench in the case of M/s. Adani Power Rajasthan Ltd. [ 2019 (1) TMI 1132 - ITAT AHMEDABAD] in a similarly placed situation. We find that the CIT(A) has rightly applied the law laid down by the Hon ble Supreme Court in Bokaro Steel Ltd. [ 1998 (12) TMI 4 - SUPREME COURT] It is a case where the fixed deposits giving rise to the interest income has been placed as margin money with the State Bank of India for obtaining bank guarantee for the purposes of the project in progress and consequently, the fixed deposits are integrally connected with the setting up the power plant. The interest income therefore is not independent of the costs incurred for power project. Hence, we find ourselves in complete agreement with the action of the CIT(A) in upholding the action of the assessee to reduce interest income arising from deposits placed with banks out of the costs of project in progress and in reversing the action of the AO in treating the same as revenue de hors the development of the project. The grievance of the Revenue is bereft of any meri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of ₹ 1,05,14,115/- to be of capital nature linked with the process of setting up its power project and consequently, such receipt would go to reduce the cost of the project. It is the case of the Revenue that the interest income arising from deposits made with the Bank during the pre-commencement period is taxable under the head income from other sources and has wrongly been capitalized and reduced from the cost of the project. 5. Briefly stated, the assessee company is engaged in the business of power generation. During the relevant assessment year under consideration, the company owns and operates coal based power plant of 1200 MW in Phase-I and is in the process of implementation of 1320 MW in Phase-II near Salaya, Gujarat. For the AY 2013-14 in question, the assessee has filed its return of income declaring total loss of ₹ 841.06 Crore under the normal provisions of the Act. The return of the assessee was subjected to scrutiny assessment. The AO inter alia observed that assessee has derived interest income of ₹ 1,05,14,115/- on margin money deposits with bank which were capitalized and reduced from capital work-in-progress in its financial state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. I have carefully considered the facts of the case, the assessment order and the written submissions of the appellant. I have also perused the judicial decisions relied on by the AO and the appellant. It is an undisputed fact that the impugned interest of ₹ 1,05,14,115/-, which was the subject matter of addition in the assessment order, represents interest receipts from margin money deposits placed, by the appellant with the banks for the purpose of obtaining BG and LC facilities, which in turn were necessary for the purpose of procurement of plant, equipment and other materials required in the course of construction and setting up of the power plants by the appellant prior to commencement of the operations of the said units of the power plants. Hence, there is no factual dispute and the only issue for determination is whether such interest receipts can be considered to be capital receipts that go towards reducing the capital cost or whether they are required to be assessed as Income from Other sources. 14. In the assessment order, the AO held that the interest receipts of such nature are required to be assessed as Income from Other Sources by relying on the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and later sells it at profit, the gain made by the company will be assessable under the head 'Capital gains'. Similarly, if a company purchases a rented house and gets rent, such rent will be assessable to tax under section 22 as income from house property. Likewise, a company may have income from other sources. It may buy shares and get dividends. Such dividends will be taxable under section 56. The company may also, as in this case, keep the surplus fund in short-term deposits in order to earn interest. Such interests will be chargeable under section 56. In the instant case, the company had chosen not to keep its surplus capital idle, but had decided to invest it fruitfully. The fruits of such investment will clearly be of the revenue nature . 16. Thus, it is seen that the Hon'ble Supreme Court held that the interest earned on short term deposits made with a bank out of the surplus / idle funds held by an assessee company during the period prior to commencement of its business/operations is chargeable to tax under the head Income from Other Sources. Hence, the ratio laid down by the Hon'ble Supreme Court in this case will be applicable in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on borrowed capital. The company was free to use this income in any manner it liked. However, while interest 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 interest 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 allowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest. The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this Court in Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT [19971 227 ITR 172, will not be attracted. The more appropriate decision in the factual situation in the present case is in CIT v. Bokaro Steel Ltd. [1999] 236 ITR. 315 (SO, The appeal is dismissed. There will be no order as to costs. 20. As can be seen from the above, the Hon'ble Supreme Court held that the ratio laid down in its earlier decision in the case of Tuticorin Alkali Chemicals Fertilisers Ltd. will attracted while deciding the issue of taxability of interest receipts derived from the deposits placed with a bank for obtaining Letter of Credit for the purchase of machinery required for setting up its plant. The Hon'ble Court held that the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that interest received from margin money deposits inextricably linked with the installation of project cannot be seen as independent source of income but would form part of the cost of the project under progress. The CIT(A) accordingly reversed the action of the AO and deleted the addition of ₹ 1,05,14,115/- made in this regard by the AO. 7. Aggrieved, the Revenue is in appeal before the Tribunal. 7.1 The learned DR for the Revenue relied upon the order of the AO. 7.2 The learned AR for the assessee, on the other hand, supported the action of the CIT(A) and submitted that the AO proceeded on misappreciation of facts and mis-conception of law. The learned AR for the assessee pointed out that the law is well settled on this score by the decision of Bokaro Steel Ltd. (supra) and Karnal Co-operative Sugar Mills Ltd. (supra) which have been followed in plethora of judicial precedents wherein decision rendered by the Hon ble Supreme Court in Tuticorin Alkali Chemicals Fertilisers Ltd. (supra) relied upon by the Revenue has been distinguished in unequivocal terms. On facts, the learned AR referred to the bank guarantee letter issued by its banker Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income to be capital in nature and would consequently go to reduce the power project costs being set up. It is primarily the case of the assessee that the interest income derived from margin money deposits is inextricably linked to the project being set up. Hence, the interest income is required to be regarded as income of capital nature for the purposes of project. We concur with the view taken by the CIT(A) that interest income so earned on deposits placed with Bank to obtain the bank guarantee have been rightly reduced from the project development expenditure incurred for set up of power plant. We note that identical issue came up for consideration of the co-ordinate bench in the case of M/s. Adani Power Rajasthan Ltd. (supra) in a similarly placed situation. We find that the CIT(A) has rightly applied the law laid down by the Hon ble Supreme Court in Bokaro Steel Ltd. (supra) and Karnal Co-operative Sugar Mills Ltd. (supra). The case in hand is clearly distinguishable from the facts placed before the Hon ble Supreme Court in Tuticorin Alkali Chemicals Fertilisers Ltd. (supra). It is not the case where idle and surplus funds have been parked with the banks as fixed deposits p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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