TMI Blog2014 (6) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... apital expenditure does not make the receipts as capital receipts in the hands of the assessee. - Decided against assessee. - ITA No.169 /Chd/2013, ITA No.488 /Chd/2012 - - - Dated:- 30-6-2014 - SHRI T.R.SOOD AND Ms. SUSHMA CHOWLA, JJ. Appellant by : Shri Rajeev Sood Respondent by : Smt. Jyoti Kumari, DR ORDER SUSHMA CHOWLA. J. These two appeals filed by the assessee are against the order of the Commissioner of Income Tax (Appeals), Shim la dated 05.1 1.2012 and 28.02.2012 respectively against the order passed under section 143(3) of Income Tax Act, 1961 (in short 'the Act'). 2. In both the appeals the assessee has raised following concise grounds of appeal which read as under: 1. That the Ld A. O. has erred in fact and law and has misconstrued the provisions of the Income Tax Act and the basic tenets of accounting by treating interest earned during construction period as Income from other sources without going into the nature of the funds which were invested, and disregarding the ratio of the cases decided after Tuticorin Alkalies Chemical Ltd 227 ITR 172 which is distinguishable and has outlived its life. 2. The assessee craves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that were placed before the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium New Delhi cited by the assessee. The Assessing Officer in view thereof observed that since the business has not commenced and since the setting up of the plant has also not commenced, the interest income earned cannot be assessed as profits and gains of business and hence cannot be set off against the preoperative expenses, which do not include any expenditure on setting up of the plant. On the other hand, on the facts of the present case it is the judgment of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) that is squarely applicable. IN view thereof, sum of R s. 1.59 crores was treated as income of the assessee in assessment year 2008-09. 6. Similarly in assessment year 2009-10 the assessee had earned interest on FDRs totaling ₹ 27.75 crores. The explanation of the assessee was that it had received money from Delhi Jal Board to implement Renuka Dam Project as per the agreement entered into between the parties. The funds in the project were provided by the Central Government and payment was made by Delhi Jal Board of R s. 210 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration and all the assets and liabilities of those companies were taken over at book value. There was no activity undertaken during the year towards the setting up of any of the power plants. By virtue of being a joint venture company, the government of Himachal Pradesh contributed an amount of ₹ 79,71,00,000/- during the year under consideration towards its equity share. Another amount of R s. R s.12,36,82,000/- was received by the appellant company from Delhi Jal Board. Thus the total funds received during the year amounted to R s. 92,07,82, ()00/-. The company also had an opening balance of ₹ 40 lacs as on 01.04.2007. Thus the total funds available with the appellant company were to the tune of ₹ 000/- out of which an amount of R s. was invested in the form of fixed deposits with the bank. The appellant was still left with the balance of An interest of les. was earned by the appellant on account of the investment in fixed deposits. ' 8. Before the CIT (Appeals) in assessment year 2009-10 the plea of the assessee was as under: 4.3 The appellant has further argued that the interest earned on the bank deposits invested from the funds received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Q/ the meeting above. Such a decision unilaterally taken by the appellant Corporation thus has no sanctity, and is indicative only of the desperate attempt of the appellant corporation to somehow devise a method to avoid the payment of due tax on its interest income. 4.6 Without prejudice to the above, the appellant's argument that the interest income, in view of the Resolution above, belongs to the State Govt. and not to the appellant corporation is devoid of any merit on another count. Going by this plea of the appellant, the incidence of tax on the given interest income should be shitted to the H.P. State Govt. because the appellant has a/so admitted that the given income belongs to the State Govt. and shall be added towards the equity of the State government. But the appellant has failed to show that it had invested the funds in the name of the State Govt. or that it was duly authorized by the State Govt. to invest the surplus funds Q/ the State Govt. in the form Q/ bank deposits, or that it had duly informed the State Govt. about the interest income earned thereon, and that the accounting of the said interest income was made by the State Govt. anywhere in its acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year and the same was not taxable during the year under consideration. Further reliance was placed on the ratio laid down by the Hon'ble Delhi High Court in Indian Oil Panipat Power Consortium Ltd. vs. ITO [315 ITR 255 (DLI)]. It was fairly admitted by the learned A. R. for the assessee that there was no agreement between the parties who had advanced the said funds to the assessee and further there were no provision of any interest liability. 12. The learned D. R. for the Revenue placed reliance on the orders of the authorities below and also placed reliance on the case of Whistling Woods International Ltd. vs. ITO (2011) 135 T TJ (Mumbai) 28. 13. We have heard the rival contentions and perused the record. The brief facts of the case are that the assessee company namely, Himachal Pradesh Power Corporation Limited (H P PCL) was incorporated in December 2006 under the Companies Act 1956. Its objectives were to plan, promote and organize the development of all aspects of hydroelectric power on behalf of Himachal Pradesh State Government (GOHP) and Himachal Pradesh State Electricity Board (HPSEB) in the State of Himachal Pradesh. The GOHP and HPSEB have a 60:40 equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repared. During the assessment year 2009-10 the explanation of the assessee before the Assessing Officer is reproduced at page 3 of the assessment order in which the assessee had explained that on the one hand the State Government of Himachal Pradesh had contributed funds to the assessee as share capital for use in construction of several power generation projects and since the construction of the projects had got delayed on account of certain reasons, the funds were utilized for making short term deposits with the bank for earning some interest. The said interest earned would in turn reduce the cost of the projects. Therefore, the same constitutes capital receipt. Further it was explained by the assessee to the Assessing Officer that in addition the assessee was also constructing Renuka Dam Project on behalf of the Central Government on no profit and no loss basis. The said project was declared as a national project and the entire funds required for the construction of the said project were provided by the Delhi Jal Board on behalf of Central Government. The said funds were utilized for making FDR s against which interest income was earned. The assessee during the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n up and after discussion with the tax consultant, the Managing Director informed in the meeting that the advance tax is to be paid on such interest. The CIT (Appeals) has reproduced the relevant portion of the Minutes of Meeting and the same are not being reproduced for the sake of brevity. The assessee has filed copy of the said meeting at pages 72 to 84 of the Paper Book with the relevant Item No. 2 at pages 83 and 84 of the Paper Book. In the said meeting two decisions were taken by the Members of the assessee Board, that the advance tax due on the said interest earned by the assessee is to be paid and further the amount is to be claimed as refund while filing the income tax return by taking the plea that the interest earned is to be converted into equity for the money coming from Himachal Pradesh Government and is not the income of the assessee and the interest on money from Delhi Government has to be spent on the work itself. 17. The assessee had further placed on record the sanction orders of allocation of funds by the Himachal Pradesh Government and also the Delhi Jal Board at pages 85 to 96 of the Paper Book. The perusal of the different sanction orders reflects the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration period is assessable as income from other sources in the hands of the assessee in view of the ratio laid down by the Hon'ble Supreme Court in Tuticorin Alkali Chemicals Fertilizers Ltd. Vs. CIT (supra). The Hon'ble Supreme Court (supra) held as under: If a person borrows money for business purpose but utilizes that money to earn interest, however temporarily, the interest so generated will be his income. This income can be utilized by the assessee whichever may he likes. He may or may not discharge his liability to pay interest with this income. Merely because it was utilized to repay the interest on the loan taken by the assessee, it did not cease to be his income. The interest earned by the asses see could have been used for many other purposes. If the assessee purchased a house or distributed dividend or paid salary to its taxability in any way. employees with the money received as interest will the interest amount be treated as not his income? This is not a case of diversion of income by overriding title. The asses see was entirely at liberty to deal with the interest amount as he liked. The application of the income for payment of it could not affect its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness to be taxable in the hands of the assessee. 22. The CIT (Appeals) vide para Il had held that the fact situation in that case was very similar to the case before Hon 'ble Delhi High Court in International Marketing Ltd. Vs. ITO (supra) and where surplus funds were parked with different companies and the Hon 'ble High Court applied the ratio laid down in Tuticorin Alkali Chemicals Fertilizers Ltd. Vs. CIT (supra) to bring the interest to tax. 23. In order to decide the issue and to apply the ratio laid down by the Hon'ble Supreme Court or other various High Courts, the first parameter to be applied is the facts of the case. We find that the facts of the present case are similar to the facts before the Hon 'ble Supreme Court in Tuticorin Alkali Chemicals Fertilizers Ltd. Vs. CIT (supra) and applying the ratio laid down by the Hon 'ble Apex Court we hold that the interest earned by the assessee by parking its funds in short term deposits with the bank is assessable as income from other sources. We find no merit in the reliance placed upon the decision of the Hon'ble Delhi High Court by the learned A. R. for the assessee in Indian Oil Panipal Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 22nd June, 1982, the company disclosed the said sum of ₹ 2,92,440 as Income from other sources . It also disclosed business loss of ₹ 3,21,802. After setting off the interest income against business loss, the company claimed the benefit of carry forward of net loss of ₹ 29,360. The company later on realised its mistake and on 26th Dec., 1984, it filed a revised return showing business loss of ₹ 3, 21,802. It claimed that according to the accepted accounting practice, interest and finance charges along with other pre-production expenses will have to be capitalised, and that, therefore, the interest income of should go to reduce the pre-production expenses (including interest and finance charges), which would ultimately be capitalised. In this connection, the company highlighted the fact that during the previous year relevant to the asst. yr. 1982-83, it had incurred a sum of Rs. as and by way of interest and finance charges, which had to be capitalised along with other pre-production expenses. In other words, according to the assessee, the interest income of ₹ 2,92,440 was not exigible to tax. The ITO rejected the assessee's claim that the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n while adjudication this matter, the Hon 'ble Supreme Court had also observed at page 179 as under: 'The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income tax. Profits and gains of business or profession is only one of the heads under which the company's income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. If the company, even before it commences business, invests the surplus fund in its hand for purchase of land or house property 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 s. 22 as income from House property. Likewise, a company may have income from other sources. It may buy shares and get dividends. Such dividends wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k which were not immediately required, in short- term deposits and earned interest. It has been held in these proceedings that the receipt of interest amounts to income of the assessee from other sources. The assessee has not filed any appeal from this finding which is given against it. In any case, this question is now concluded by a decision of this court in of ws Tuticorin Alkali Chemicals Fertilisers Ltd. vis. CIT [1997] 227 ITR 172. Hence, we are not called upto to examine that issue. ' 14. Thus, it is clear that as far as interest received from short term deposits which were not immediately required, were held to be taxable following the decision of ws Tuticorin Alkali Chemicals Fertilisers Ltd. v/s. CIT [supra]. Only those sums which were received from contractors, which we can say were inextricably connected with the construction activities, were held to be not taxable, rather than they were held to be reduced from the total capital expenditure. 15. In the case of Karnal Co-operative Sugar Mill Ltd. [supra], interest was received on the money deposited to open a letter of credit for purchase of machinery which is again directly connected with the purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uce the actual cost of the plant and machinery. The Department took an appeal to the Supreme Court, the Supreme Court reversed the decision of the High Court holding that the interest was taxable in the hands of the assessee. ' This judgment has been rendered on November 21, 2000 i.e., much after the decision of Bokaro Steel Ltd. [supra] which was rendered on September 3, 1999 and the decision in the case of CIT vs. Karnataka Power Corporation [supra] which was rendered on July 27, 2000. Thus, it is clear that the principles laid down in of M/S Tuticorin Alkali Chemicals Fertilisers Ltd's case [supra] were never diluted and the decisions of Bokaro Steel Ltd. [supra] and Karnal Co-operative Sugar Mill Ltd. [supra] and CIT vs. Karnataka Power Corporation [supra], operates in different field. As far as the decision of Tribunal in the case of Shapoorji Pallonji Power Co. Ltd. vs. ITO [supra] is concerned, the Tribunal made the distinction from of M/S Tuticorin Alkali Chemicals Fertilisers Ltd's principle [supra], because money was deposited as security deposit with the electricity board which was part of the condition of the contract which the assessee company was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne in the case before us. 19. From the above discussion, it is clear that both the decisions of Hon'ble Delhi High Court are not applicable to the facts of the assessee's case before us. Thus, it is clear that in the case before us, assessee was still constructing the building for the institute which was to establish for training of peoples. During this phase, assessee has raised a share capital and funds raised from such share capital have been invested in fixed deposit receipts of the banks as well as deposits with various companies and assessee has earned interest on the same. The same has to be taxed as 'income from other sources' in the light of the decision of the Hon'ble Supreme Court in the case of M/S Tuticorin Alkali Chemicals Fertilisers Ltd. v/s. CIT [supra], which we have discussed in detail. ' 25. We are in conformity with the order of the CIT (Appeals) relating to assessment year 2009-10 and reliance placed on various case laws and upholding both the orders of the CIT (Appeals) we dismiss the grounds of appeal raised by the assessee in both the appeals. 26. In the result, both the appeals filed by the assessee are dismissed. O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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