TMI Blog2022 (8) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... ccrued therefrom on deposits in bank has to be applied only for the purpose of welfare of the State as provided in the guidelines. We have no hesitation in holding the order passed by the Ld. CIT(A) that the interest income is to be treated as capital in nature and therefore the addition made by the Assessing Officer is hereby deleted. Thus the grounds of appeal raised by the Revenue are hereby rejected and Cross objection raised by the Assessee are hereby allowed. - ITA No. 1754/Ahd/2019 And C.O. No. 30/AHD/2020 - - - Dated:- 27-7-2022 - Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Appellant : Shri S.N. Soparkar, And Shri Bandish Soparkar, A.R. For the Respondent : Shri V.K. Singh, Sr.D.R. ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER: The present appeal has been filed by the Revenue against the order dated 07.10.2019 passed by the Commissioner of Income Tax (Appeals), Gandhinagar, Ahmedabad as against the Assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to the Assessment Year (A.Y) 2016-17 as against this Revenue appeal, the aases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A), Gandhinagar. 3.1. The ld. CIT(A) following the judgment rendered in the case of Kolkata Metro Rail Corporation Ltd. and deleted the addition made by the Assessing Officer as follows: 4.6 After carefully perusing the aforesaid decision of the Hon'ble Kolkata Bench of ITAT, the facts as emerged in that case and the facts of the appellant's case have been compared. Both the companies had been set up for laying down the rail infrastructure within the cities of Kolkata Ahmedabad respectively and both the companies are government companies receiving the capital grants from Central and the State Governments of Gujarat and West Bengal as the case may be. Therefore, it is necessary to examine the accounting treatment given in the Profit Loss Account and the balance-sheet in the case of the appellant to find out any difference of the facts as examined by the Hon'ble ITAT of Kolkata Bench. On examination of the annual accounts for the financial year ending' on 31.03.2016, the following facts are noticed:- 1) The appellant company was incorporated on 04.02.2010 with the shareholding pattern of 17% shares to be subscribed by the Central Government and 83% sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lization along with other receipts so as to arrive at the net expenses of Rs.4279.00 lakhs. 6) In the annual accounts for the financial year ending on 31.03.2018, the appellant has reduced the interest income of Rs.2581.48 lakhs from the statement of incidental expenses pending capitalization for the project (other than Phase-1) out of expenses capitalized for Rs.6889.94 lakhs. As per statement in Table 5.A.2, the appellant has reduced the interest income of Rs.2,581.48 lakhs which has been carried over to the next financial year 2018-19. 4.7 If the facts of the appellant's case are considered in the light of above financial analysis, the interest income earned on the surplus/unutilized funds with the bank is required to be treated as capital receipts as no project has commenced and no revenue was generated from the project during the year under consideration. Therefore, there cannot be revenue receipts from the projects which are either not completed or commenced. However, the interest on fixed deposits made with various banks are required to be taxed under the head Income from other sources as observed by the Hon'ble Kolkata Bench of ITAT after allowing the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the Ld.Commissioner of IncomeTax(appeals) ought to have upheld the order of the Assessing Officer. iii) It is, therefore prayed that the order of the Ld.Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer be restored. 4.1. The Grounds of Appeal raised by the C.O. of the Assessee which reads as under: I.1 The learned A.O. has erred in law and on facts in not accepting the view taken by the learned CIT(A). The learned A.O. has failed to appreciate that in view of decision of Hon!ble Kolkata ITAT in the case of ITO Wd 2(3), Kolkata vs. Kolkata Metro Rail Corporation Limited in ITA no. 1362 / Kol / 2015 and 49 / Kol / 2016, Interest income on Short term deposits which are linked with the setting up of infrastructure project are to be considered in the nature of capital receipts as the project of the appellant is in pre-operative / construction stage. The learned A.O. has also failed to consider that no revenue was generated from the project during the year under consideration. Accordingly, return has been rightly revised by treating the interest income as capital receipt. The learned A.O. has failed to consider that the interest inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Expenses capitalized and transferred to Incidental expenses: Pending Capitalization 5.3. Thus, the profit before tax was on account of capitalizing of the expenses (not claimed as revenue expenses). Thereafter by revised statement of income, the assessee has claimed the interest income of Rs. 3679.75 lakhs and has treated the same as capital receipts without giving any accounting treating for the financial year ending on 31.03.2016. Similar practice has been followed by the assessee for the next financial year ending on 31.03.2017. Thus interest income earned on the surplus/unutilized funds with the bank is required to be treated as capital receipts, as no project has commenced and no revenue was generated from the project during the Assessment year 2016-17. Therefore, there cannot be revenue receipts from the projects, which are neither completed nor commenced its functioning of Ahmedabad Metro Rail Transportation. Further the very purpose of constitution of the assessee company was to act as a Special Purpose Vehicle (SPV) created by the Government of India and Government of Gujarat as a joint venture for implementation of Rapid Transport Infrastructure in and around ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said project and the funds from the Central and State Government flow directly to the assessee company. Thus the assessee company is a SPV formed by the Central Government and State Governmet of Gujarat and there is no profit motive as the entire fund entrusted and the interest accrued therefrom on deposits in bank has to be applied only for the purpose of welfare of the State as provided in the guidelines. 6.1. Further the Co-ordinate Bench decision in the case of Kolkata Metro Rail Corporation Ltd. (cited supra) is directly covered in favour of the assessee on this issue, wherein it was held as follows: 7. We have given a careful consideration to the rival submissions. We note that the Assessee,(Kolkata Metro Rail Corporation Ltd) is a Government company in the form of joint venture of Government of India and Government of West Bengal with equal equity participation for the execution of East -West Metro Corridor Project at Kolkata by creating a rapid transit system surrounding the City of Kolkata and the District of North 24 Parganas. The required fund has been provided from time to time by Govt. of India and Government of West Bengal in the form of equity and Subor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness. Therefore, as per the provision of section 4 of the Act which is the charging section, income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under section 14 of the Act, in Chapter IV of the Act. For an income to be classified as income under the head Profits and gains of business or profession it would have to be an activity which is in some manner or form connected with business. The word business is of wide import which would also include all such activities which coalesce into setting up of the business. We take support of these propositions from the judgments of Hon'ble Supreme Court in the case of Mazagaon Dock Ltd. v. Commissioner of Income tax and Excess Profit tax [1958] 34 ITR 368 and Narain Swadeshi Wev. Mills vs, CEPT [1954] 26 ITR 765 (SC). Once it is held that the assessee's income is an income connected with business, which would be so in the present case, in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engal as per the guidelines; there is no profit motive as the entire fund entrusted and the interest accrued therefrom on deposits in bank though in the name of the Assessee has to be applied only for the purpose of welfare of the State as provided in the guidelines. Therefore, considering the factual position discussed above, we are of the view that the Assessee has rightly set off the interest income against the pre-operative expenses in its books of accounts and therefore we confirm the order passed by the Id CIT (A). 6.2. The Hon ble High Court of Karnataka in the case of Bangalore Metro Rail Corporation Ltd. (cited supra) held as follows: Section 4 of the Income-tax Act, 1961 - Income - Chargeable as (Interest) - Assessment years 2007-08 and 2008-09 - Assessee company was a wholly owned undertaking of Government of Karnataka, established with approval of Government of India, for implementation of a rail-based Mass Rapid Transit System - Assessee had received funds during year for project from Government - Unutilized funds of project, before commencement of functional operation of project were invested by assessee in fixed deposits and mutual funds as per direction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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