TMI Blog2021 (2) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... ccountant Member For the Assessee : Shri Vinod Garg, Advocate, Shri Parveen Kumar, Advocate For the Revenue : Mr. Shri Prakash Dubey , Sr.DR ORDER PER BHAVNESH SAINI, J.M. This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-5, Delhi, Dated 14.12.2015, for the A.Y. 2011-2012, challenging the Orders of the authorities below in assessing a sum of ₹ 1,53,70,579/- being interest income from FDRs during pre-operative period as income from other sources. 2. We have heard the Learned Representatives of both the parties through video conferencing and perused the Orders of the authorities below. 3. Briefly the facts of the case are that return declaring NIL income was filed on 30.09.2011. The assessee company was incorporated on 05.10.2006. The source of the funds in the hands of assessee as per balance-sheet as on 31.03.2011 are share capital of ₹ 250 crores and secured loans of ₹ 576.94 crores. During the course of assessment proceedings, it was explained that company has been granted licence for construction of maintenance of certain transmission lines and evacuation of power from Karcham-Wangtoo HEP located in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Parveen Kumar, FCA Respondent by : Shri Amit Jain, Sr. DR Date of Hearing: 26.04.2018 Date of Pronouncement: 24.07.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M. This appeal has been preferred by the assessee against the order dated 31.07.2013 of the Ld. CIT (Appeals)-VII, New Delhi and pertains to assessment year 2009-10. 2. The sole issue under dispute is the addition of ₹ 3,40,52,432/- and pertains to interest income on FDRs for short term duration which was treated as income from other sources by the Assessing Officer as against the same being treated as a capital receipt by the assessee. Brief facts of the case are that the assessee is a limited company incorporated on 5.10.2006 as a joint venture company between Jaiprakash Power Ventures Ltd. and Power Grid Corporation of India Ltd. The sole objective of the company was to set up a power transmission system in the State of Himachal Pradesh. The actual work of construction of the said project was started in Financial Year 2007-08 and was completed in financial year 2012-13. The total estimated completion cost was ₹ 981 crore for which equity of ₹ 300 crore and a debt of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no surplus funds which may be invested with the intention of creating any independent source of income by way of interest. 3) The appellant has temporarily placed in fixed deposits a part of the capital meant for construction of the transmission-line. 4) The interest earned by the appellant is inextricably linked with the implementation of the transmission-line project and is a capital receipt which only offsets the cost of the project. 5) The appellant's case is governed by the rule in Bokaro Steel Ltd [1999] 236 ITR 315 (SC) and followed in Indian Oil Panipat Power Consortium Ltd v. ITO 315 ITR 255 (Del). 2.4 The assessee has also filed an additional ground in the appeal which reads as under:- That without prejudice to the main ground that the interest income on FDRs during project implementation period is a capital receipt, Ld. Assessing Officer has erred in not netting the interest income of ₹ 3,40,52,432/- with interest paid of ₹ 5,79,93,992/- on funds borrowed for the implementation of the project while taxing the same as income from other sources. As such too, as interest paid far exceeds interest income, no income is taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o commencement of business, it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. Reliance was also placed on the judgment of Hon ble Apex Court in the case of CIT vs. Bokaro Steel Ltd. reported in 236 ITR 315 (SC) wherein it had been held that if any amount which is inextricably linked with the process of setting up of plant and machinery is received, such receipt will be in the nature of capital and cannot be taxed as income. 6.1 Ld. AR also submitted that the Ld. Commissioner of Income Tax (A) had solely relied upon the judgment of Hon ble Apex court in the case of Tuticorin Chemicals and Fertilizers Ltd. (supra), ignoring numerous subsequent judgments of the Hon ble Apex Court. 7. The Ld. Sr. DR placed reliance on the order of the Assessing Officer as well as the Ld. Commissioner of Income Tax (A) and submitted that the judgment of the Hon ble Apex Court in the case of Tuticorin Chemicals and Fertilizers Ltd. is very clear inasmuch as it lays down that interest earned prior to commencement of business was assessable under income from other sources. 8. We have heard the rival submissions and perused the material ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrowed for the purpose of purchase of plant and machinery even before commencement of the business of the assessee. 19. In the case of Bokaro Steel Ltd. (supra), the Hon'ble Apex Court, after considering the decision of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra), held as under:- ..., dismissing the appeal, that the first three heads of income were (i) the rent charged by the assessee to its contractors for housing workers and staff employed by the contractor for the construction work of the assessee including certain amenities granted to the staff by the assessee, (ii) hire charges for plant and machinery which was given to the contractors by the assessee for use in the construction work of the assessee, and (iii) interest from advances made to the contractors by the assessee for the purpose of facilitating the work of construction. The activities of the assessee in connection with all these three receipts were directly connected with or incidental to the work of construction of its plant undertaken by the assessee. The advances which the assessee made to the contractors to facilitate the construction activity of putting together a very large project was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of oil refinery and petrochemicals. 23. That the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra), after considering the decisions in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) and Bokaro Steel Ltd. (supra) at length, held at pages 258, 259 and 260 of report, i.e., 315 ITR 255, as under:- 5. In our opinion the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 and that of Bokaro Steel Ltd. [1999] 236 ITR 315. The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals [1997] 227 ITR 172 is that if funds have been borrowed for setting up of a plant and if the funds are 'surplus' and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head Income from other sources'. On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd. [1999] 236 ITR 315 to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.G. Mercantile Corporation (P) Ltd. vs. CIT1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC) and CIT vs. Govinda Choudhury Sons (1994) 116 CTR (SC) 61 : (1993) 203 ITR 881 (SC). 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 pre-operative expenses. In the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 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. [1999] 236 ITR 315 (SC) where the assessee had earned interest on advance paid to contractors during pre-commencement p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1,35,87,158/- as well as ₹ 7,91,51,306/- was a capital receipt not chargeable to tax during the year under consideration. Accordingly, Ground Nos. 2 and 4 of the assessee's appeal are allowed. 8.1 The Ld. Sr. DR could not point out any other judgment in favour of the revenue other than the judgment of the Hon ble Apex Court in the case of Tuticorin Chemicals and Fertilizers Ltd (supra) which has been duly considered and distinguished by the Hon ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra) and which covers the case of the assessee in its favour. The co-ordinate Bench of the Tribunal has also taken a view in favour of the assessee on identical facts and the same has been reproduced in the preceding paragraphs of this order. Therefore, in view of the order of the Coordinate Bench and respectfully applying the ratio of the judgment of the Hon ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra), we hold that since the business of the assessee had not commenced, the interest received in the period prior to the commencement of business was in the nature of capital receipt and was required t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
