9911796707
TMI Blog2022 (6) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer be restored." 3. Facts, in brief, are that the company was incorporated on 01.01.2010 under the Companies 1956 with its main object of Development and Operation of Highway. The assessee was incorporated as a Special Purpose Vehicle (SPV) for four laning of Rohtak-Panipal section in the state of Haryana on Design, Build, Finance, Operate and Transfer (DBFOT) Toll basis. The assessee earned interest on fixed deposits of the funds temporarily invested in the bank during its pre-construction period and also made gains on sale of mutual funds amounting to Rs. 3,49,29,368/- during the year under consideration. The AO treated the above receipts as income from other sources. The Ld. Assessing Officer held that income from interest was earned during the pre-construction period of the project and therefore, the ratio of the judgement of Tuticorin Alkai Chemicals and Fertilizers Ltd 227 ITR 172 would be applicable. Accordingly, he taxed the receipts u/s. 56 of the Act. The Ld. Assessing Officer while passing the order observed as under: 4.9 In view of the facts stated above and relying on the decision of Hon'ble Supreme Court in case of Tuticorin Alkali Chemicals & Ferti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red opinion, the action of the AO was not in order. Accordingly, this ground of appeal is allowed. 5. The issue for consideration before us is whether in the instant set of facts, the interest earned by the assessee company from temporary fixed deposits and gains on sale of mutual funds amounting to _ 3,49,29,368/- during the pre-construction period could be treated as 'Income from Other Sources' or whether the same would qualify as 'Capital Receipts' and hence not in the nature of income. In our considered view, the company is a Special Purpose Vehicle (SPV) incorporated for the purpose of four laning of Rohtak Panipat Highway and therefore funds of the assessee company could only be utilized for this specific purpose for which it was incorporated. It was only during the period when the funds could not be utilized for the aforesaid purpose, that they were temporarily parked with banks/mutual funds for earning income. In the case of Adani Power Ltd. [2015] 61 taxmann.com 355 (Ahmedabad - Trib.), the brief facts of the case were that the assessee company was engaged in business of developing, operating, maintenance of power projects and sale of power. During year under consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s [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 & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502, 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. (supra), is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise 'inextricably linked' to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses. The test, therefore, is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. The clue is perhaps available in section 3 of the Act which states that for newly set up business the previous year shall be the period beginning with the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.'s case (supra) where the assessee had earned interest on advance paid to contractors during pre-commencement period was found to be 'inextricably linked' to the setting up of the plant of the assessee and hence was held to be a capital receipt which was permitted to be set off against pre-operative expenses. The very purpose of constitution of the Assessee was to act as a Special Purpose Vehicle (SPV) created by the Govt of India and Govt. of West Bengal in the form of Joint Venture with equal equity participation for implementation of rapid transport infrastructure in Kolkata. Both the Central and the State Governments are to provide requisite finances for implementation of the said project. The funds from the Central and State Governments flow directly to the Assessee company as equity and Subordinate Debt/Loans. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and, therefore, the Assessee is a SPV formed by the Government of India and Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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