TMI Blog2015 (5) TMI 1226X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of Ld. CIT(A) and remit the matter back to the file of AO with a direction to examine bifurcation of funds borrowed by the assessee and funds owned by the assessee. Interest earned on account of funds borrowed should not be subjected to tax and only interest on balance surplus funds should be subjected to tax. Appeal of the assessee is allowed for statistical purposes. - ITA No. 842/Chd/2014 - - - Dated:- 6-5-2015 - Shri Bhavnesh Saini, Judicial Member And Shri T.R. Sood, Accountant Member For the Appellant : Sh. Vishal Mohan. For the Respondent : Dr . Amarveer Singh. ORDER Per T.R. Sood, A.M. The appeal by the Assessee is directed against the order dated 23/07/2014 passed by the CIT(A) Shimla, H.P. 2. In this appeal Assessee has raised the following grounds which are as under : 1. That in the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) is not justified in upholding the taxability of interest under the head Income from other sources. Fact of the matter is that the same should have been under the head Income from business or profession. 2. That in the facts and circumstances of the case the Ld. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not shown under the Head Income from other sources as already explained, the company is at construction state and there is no source of income. The HPPCL have to keep some amount in short term deposits in the bank out of the amount received as Share Capital / Power Finance Company loan/ADB funds to meet out the urgent requirements against works on becoming due and the HPPCL has earned interest on short term deposit during the year. The fund against which interest has been received is from the equity share capital of Govt. of Himachal Pradesh/PFC loans and ADB funding. These funds could not be utilized due to delay in execution of projects for want of NOCs from the villagers in land acquisition cases as well as forest environment clearance and due to certain other technical reasons resulting which these funds have temporarily been parked in various scheduled banks. It is further submitted that for meeting the construction cost of hydro project there is a time lag between the receipt of funds and its utilization in the construction of the project giving rise to temporary surplus funds. These temporary surplus funds are invested in bank deposit and earn interest. The incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were distinguishable and held that interest on investment was accessible as income from other sources. 4. On appeal it was mainly stated that assessee has been assigned the tasks of construction of Hydro-electric power project near Renuka in Sirmour. The said power project was wholly funded by the Delhi Government through Delhi Jal Board but there was some delay in the project and therefore funds were invested in FDRs temporarily and therefore income from interest was not taxable. 5. The Ld. CIT after examining the submissions did not agree with the same and decide the issue against the assessee vide para 4.1 which is as under: 4.1 I have gone through the facts of the case submission of assessee, assessment order and various case laws cited by A.O. and assessee. In the present case main issue is for a company, at pre-operative stage, interest earned on investment of borrowed funds, would be revenue receipt chargeable under the head income from other sources or would be capital receipt which can be set of against the pre-operative expenses. The assessee is a State Government owned company which has taken loan from Delhi Jal Board. The statutory auditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. These funds were parked in temporary investment in FDRs therefore, at least interest on these investments could not be subjected to tax. In this regard assessee relied on the decision of Tribunal in case of M/s Beas Valley Power Corporation Ltd. Vs. The ACIT in ITA No. 857/Chd/2012. 7. On the other hand Ld. DR strongly supported the impugned order. 8. After considering the rival submissions carefully we find that during this year assessee has borrowed certain funds as mentioned in the submissions before AO from PFC and ADB. The Assessee had earlier taken the money from Delhi Jal Board on which no interest was required to be paid. It was held in the earlier year in assessee s own case that interest on such investment of these funds would be taxable. In view of the decision of Hon ble Supreme Court in case of Tuticorin Alkali Chemicals And Fertilizers Ltd. Vs. CIT 227 ITR 172. However, the interest earned on temporary investment made out of the borrowed funds can not be taxed because these funds have been specifically borrowed for the purpose of project but project was delayed and therefore funds were parked in temporary investment in the form of FDR. Same view was taken in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (ii) 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 as much to ensure that the work of the contractors proceeded without any financial hitch as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted agains ..... X X X X Extracts X X X X X X X X Extracts X X X X
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