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TMI Blog2015 (7) TMI 1370X X X X Extracts X X X X X X X X Extracts X X X X ..... revised return was filed by the assessee on 29.03.2011 declaring NIL income. The Assessing Officer completed the assessment under section 143(3) at an income of Rs. 1,76,06,560/- by treating the interest income as income from other sources. 3. During the course of assessment proceeding, the Assessing Officer noted that the assessee received interest on bank deposits/FDRs to the tune of Rs. 1,76,06,556/-. The assessee was asked to show cause as to why interest earned on FDR with banks should not be treated as income from other sources. The assessee filed reply where it was submitted that in view of position of law as laid down by Hon'ble Supreme Court in the case of CIT Vs. Bokaro Steel Ltd. : 236 ITR 315 (SC) and in the case of Indian Oil Panipat Consortium Ltd. Vs. ITO : 315 ITR 255 by Hon'ble Delhi High Court, the assessee revised its return of income. It was also submitted that in the audited accounts the interest income in question stood set off against the preoperative expenses. The assessee claimed that the revised return of income was not only with the accordance of law but also confirms to the company's audited accounts. 4. After considering the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction project and were, therefore, inextricably connected with it, as was the case in India Oil Panipat Consortium (supra). Hence, any interest earned therefrom was a capital receipt which went to reduce the cost of the project and was rightly credited to the preoperative expenditure. Hence, the same cannot be assessed as income from other sources. 7. The learned CIT (Appeals) considering the submissions of the assessee and material on record dismissed the appeal of the assessee. His findings in the appellate order in paras 6 and 7 are reproduced as under: "6. I have gone through the facts of the case and the written submissions filed by the appellant. It is noted that the assessee had capital including borrowed fund for the purpose of road construction project. The assessee company earned interest on the bank deposits parked with banks out of the funds brought in by way of capital and debt for the project. The interest so earned was adjusted against the project expenditure pending allocation and application for project expenditure. The company set off the earned interest income against the expenditure by placing reliance on the judgments of Hon'ble Supreme Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommencement of business has to be assessed as income from other sources and it cannot be said that interest income is not taxable on ground that it would go to reduce interest on borrowed amount which would be capitalized. The decision of Hon'ble Supreme Court was based on the finding in that case as under:- "The total income of the company is chargeable to tax under section 4. The total income has to be computed in accordance with the provisions of the Act. Section 14 lays down that for the purpose of computation, income of an assessee has to be classified under six heads. The computation of income under each of the six heads will have to be made independently and separately. There are specific rules of deduction and allowances under each head. No deduction or adjustment on account of any expenditure can be made except as provided by the Act. 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 'profit and gains of business or profession' is only one of the heads under which the company's income is liable to be assessed to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest payable by the company against the interest earned by it will depend upon the provisions of the Act. The expenditure would have been deductible as incurred for the purpose of business if the assessee's business had commenced. But that was not the case in the instant case. The assessee may be entitled to capitalize the interest payable by it. But what the assessee could not claim was adjustment of this expenditure against interest assessable u/s. 56. Section 57 sets out in its clauses (i) to (iii) the expenditure which are allowable as deduction form income assessable u/s. 56. It is not the case of the assessee that the interest payable by it on term loans is allowable as deduction u/s. 57. There are specific provisions of the Act for setting off of loss from one source against income from another source under the same head of income (section 70), as well as setting off of loss form one head against income from another (section 71). In the facts of this case, the company could not claim any relief since its business had not started and there could not be any computation of business income or loss incurred by the assessee in the relevant accounting year. In such a situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned CIT (Appeals) and submitted that the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT (supra) do not apply to the facts of the case and relied upon the decision of the Hon'ble Delhi High Court in the case of Indian Oil Panipat Consortium Ltd. Vs. ITO (supra) and the decision of the Hon'ble Supreme Court in the case of CIT Vs. Bokaro Steel Ltd. (supra). 9. On the other hand, the learned D.R. for the Revenue relied upon the orders of the authorities below and submitted that the issue is covered against the assessee by the judgment of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT (supra). He has also relied upon the order of the I.T.A.T. Chandigarh Bench in the case of M/s. HP Power Corporation Ltd. Vs. DCIT in ITA No. 169/Chd/2013 and ITA No. 488/Chd/2012, in which on identical facts the similar claim was dismissed by the Tribunal. Copy of the order of Tribunal is placed on record. The learned D.R. for the Revenue, therefore, submitted that the issue is covered against the assessee by the above judgments. 10. We have considered the rival submissions. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of fact recorded by the learned CIT (Appeals) have not been rebutted through any material that the assessee had surplus funds which were utilized for making term deposits, therefore, the above decision of the Hon'ble Supreme Court was correctly applied against the assessee. The learned D.R. for the Revenue also relied upon the order of the I.T.A.T. Chandigarh Bench in the case of M/s. HP Power Corporation Ltd. (supra) in which in paras 13 to 26 it was held as under: "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 (HPPCL) 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 equity participation in the assessee company. 14. On 31.7.2007 i.e. during he assessment year 2008-09, two other companies i.e. M/s. Kinnar Kailash Power Corporation Ltd. and M/s. Pabber Valley Powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 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 FDRs against which interest income was earned. The assessee during the assessment year 2009-10 had received interest income of Rs. 27.64 crores which was set off against the incidental expenses. 16. The analysis of the above said facts reflects that the assessee company was in the process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 money to have been accorded to the assessee against equity shares of State Government or for utilization for the specific projects. It is also mentioned in the said sanction orders as to where the money cannot be ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 assessee could have been used for many other purposes. If the assessee purchased a house or distributed dividend or paid salary to its 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 assessee 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 taxability in any way." 19. The plea of the learned A.R. for the assessee before us was that the said decision of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT (supra) had been reversed by the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 Consortium Ltd. Vs. ITO (supra) as the facts of the said case were at variance. We also find no merit in the plea of the assessee that the interest earned by the assessee is to be infused as share capital and/or to be returned to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of carry forward of net loss of Rs. 29,360. The company later on realised its mistake and on 26th Dec., 1984, it filed a revised return showing business loss of Rs. 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 Rs. 2,92,440 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. 1,13,06,068 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 Rs. 2,92,440 was not exigible to tax. The ITO rejected the assessee's claim that the interest income was not exigible to tax. The view of the ITO was upheld by the CIT(A). The company's further appeal to the Tribunal was dismissed. We are also concerned in this case with the asst. yr. 1983-84. During the previous year releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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 will be taxable under s. 56 of the Act. 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 s. 56 of the Act." Thus, it is clear from the above discussion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given against it. In any case, this question is now concluded by a decision of this court in of M/s. Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. 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 M/s. Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. 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 of machine and that is why the ratio of Bokaro Steel Ltd.: 236 ITR 315 was made applicable. In the case of CIT vs. Karnataka Power Corporation [supra], the first question referred before the Hon'ble Court was as under-5 "(1) Whether, on the facts and in the circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 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 Cooperative 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 to execute by way of construction of power plant for the Government of Madhya Pradesh but that contract could not be executed. Therefore, this decision is clearly distinguishable, particularly in the light of the principles laid down by the Hon'ble Supreme Court. 17. As far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. vs. 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. 11. Considering the facts of the case in the light of the above decision, it is clear that the issue is squarely covered against the assessee by the judgment of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT (supra) as well as by the order of the I.T.A.T. Chandigarh Bench in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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