TMI Blog2009 (2) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate with Mr Sunil Magon, Advocate for the Appellant. Ms Prem Lata Bansal Mr Mohan Prasad Gupta, Advocate for the Respondent. JUDGMENT The judgment of the court was delivered by VIKRAMAJIT SEN, J - These are appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the „Act") preferred by the assessee against the Judgment dated 22.04.2007 passed by the Income Tax Appellate Tribunal (hereinafter referred to as the „Tribunal") in ITA No. 2349/Del/03 and ITA No. 1573/Del/04 pertaining to Assessment Years 2001-02 and 2002-03 respectively. 2. The only issue which arose for consideration of the authorities below was as to the treatment which was to be accorded to the interest earned on monies rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratio of the decision of the Supreme Court in Tuticorin Alkali Chemicals (supra) or those which follow the ratio of the Supreme Court in the case of CIT vs Bokaro Steel Ltd; (1999) 236 ITR 315. At the outset we must note that the Supreme Court in the case of Bokaro Steel Ltd (supra) has noticed the judgment of the Supreme Court in Tuticorin Alkali Chemicals (supra). Therefore, in these circumstances it would be incumbent to note the following brief facts as recorded by the authorities below: 3.1 The assessee company was incorporated on 06.10.1999 in pursuance of a joint venture entered into between Indian Oil Corporation and Marubeni Corporation of Japan. The joint venture was conceived to set up a power project at Panip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. It is pertinent to note that the CIT(A) in paragraph 4 of his Order dated 06.02.2003 categorically found that the funds were placed in fixed deposit so that liquidity was ensured and money would remain available when required for purchase of land and infrastructure development and hence the interest earned was 'inextricably linked' with the setting up of the power plant. Based on this line of reasoning the CIT(A) applied the judgment of the Supreme Court in Bokaro Steel Ltd. (supra) and allowed the claim of the assessee by directing the Assessing Officer to delete the addition and consider the same for capitalization towards pre-operative expenses. 3.5 The Tribunal in an appeal preferred by the Revenue, by virtue of the impugned jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, to our mind 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 date of setting up of the business. 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a residuary head of income. See S.G. Mercantile Corporation P. Ltd vs CIT, Calcutta ; (1972) 83 ITR 700 (SC) and CIT vs Govinda Choudhury Sons.; (1993) 203 ITR 881 (SC). 5.2 It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of constructing any work or building or the provision of any plant in contingencies mentioned in that section, the sum so paid by way of interest may be charged to capital as part of the cost of construction of the work or building or the provision of the plant. The above provision thus gives statutory recognition to the principle of capitalizing the interest in case the interest is paid on money raised to defray expenses of the construction of any work or building or the provision of any plant in contingencies mentioned in that section even though such money constitutes share capital. The same principle, in our opinion, should hold good if interest is paid on money not raised by way of share capital but taken on loan for the purpose of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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