TMI Blog2023 (12) TMI 715X X X X Extracts X X X X X X X X Extracts X X X X ..... is underscored in the said sub-clause is that the permitted investments had to be readily marketable. Clause 15.3 obliges the respondent/assessee to ensure that the money which was realized through investments shall be immediately credited to the relevant account by the account bank or invested in another permitted investment, in accordance with the lender/borrower s instruction. It is in the same vein that Clause 15.6 of the TRA provided that any interest or other income paid qua permitted investments would have to be paid to the relevant account as determined by the facility agent, which broadly meant that it would enure to the benefit of the borrowers/lenders. A holistic reading of the aforementioned Clauses would show that there was indeed an inextricable link between the investment of the surplus funds and the setting up of the power transmission system. Therefore, clearly, the interest earned thereon could only be categorized as capital receipt. - HON'BLE MR JUSTICE RAJIV SHAKDHER AND HON'BLE MR JUSTICE GIRISH KATHPALIA For the Appellant Through: Mr Shailendera Singh, Sr. Standing Counsel. For the Respondent Through: Mr Nischaya Kantoor, Advo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prima facie view, given the facts and circumstances obtaining in the instant case, that it was covered by the decision rendered in Indian Oil Panipat Power Consortium s case. It is required to be noted that in the aforementioned judgment, the coordinate bench, after adverting to the decision rendered by the Supreme Court in Tuticorin Alkali Chemicals Fertilizers case and the subsequent judgment rendered in CIT v. Bokaro Steel Ltd., (1999) 236 ITR 315, distinguished the former judgment of the Supreme Court. 9. The broad facts which arise in the instant case and as noticed at the hearing held on 26.07.2023 are as follows: 6.1 The respondent/assessee was incorporated on 05.10.2006. The respondent/assessee's incorporation was an outcome of a joint venture initiative undertaken by two companies i.e., Jaiprakash Power Ventures Ltd. and Power Grid Corporation of India Ltd. albeit, with the sole objective of setting up a power transmission system in Himachal Pradesh [hereafter referred to as, the Power Plant ]. 6.2 It appears that the construction of the Power Plant commenced in Financial Year (FY) 2007-08, which reached fruition in FY 2012-13. 6.3 The estim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the two agreements under which the loan was made available to the respondent/assessee and its use was regulated by the creditors. The two agreements that Mr Singh adverted to were the Common Facility Agreement dated 17.06.2008 [in short, Loan Agreement ], and the Trust and Retention Account Agreement dated 09.09.2008 [in short, TRA Agreement ]. 12. It is not disputed that Rs. 700 crores, a figure that has been mentioned above, was received by the respondent/assessee from five creditors i.e., ICICI Bank Ltd., Punjab National Bank Ltd., Central Bank of India Ltd., United Bank of India Ltd. and Jammu and Kashmir Bank Ltd. 12.1 It is also not in dispute that Rs. 700 crores were provided by the aforementioned banks to the following extent: Sl. No. Bank Amount 1 ICICI Bank Ltd. Rs. 180 crores 2 Punjab National Bank Ltd. Rs. 200 crores 3 Central Bank of India Ltd. Rs. 150 crores 4 United Bank of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 300 crores. Insofar as borrowing was concerned, the respondent/assessee secured Rs. 700 crores from the lenders referred to hereinabove. 19. The record also shows, and something which was not disputed, that in the period in issue, Rs. 295 crores was received by the respondent/assessee in the form of equity and debt, out of which it spent Rs. 251 crores. The balance amount which was left i.e., Rs. 55.16 crores was invested in a fixed deposit, which earned an interest amounting to Rs. 3,40,52,432/- during the period in issue. 20. The argument advanced by Mr Singh that a conscious decision was taken on behalf of the respondent/assessee to invest the surplus funds in a fixed deposit, without regard to any linkage with the setting up of the power transmission system, does not impress us. The reason why we have reached this conclusion is that a project such as the present one, which involved setting up a power transmission system, could only have been completed over a period of time and was dependent on funds which were concededly received in tranches. 21. As noted above, in the period in issue, the respondent/assessee had received Rs. 295 crores out of which Rs. 251 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time, are prudent) and shall match the maturities of the Permitted Investments with the payment or transfer obligations under this Agreement, having regard to the availability of Permitted Investments which are readily marketable. [Emphasis is ours] 25. Sub-clause (ii) of Clause 15.2 indicates that the title documents and other documentary evidence establishing ownership of the permitted investments made using the sub-accounts regulated by the TRA were to be held in custody for the benefit of the borrower/lender. 26. Similarly, sub-clause (iii) of Clause 15.2 broadly casts an obligation that the maturity value of the permitted investments is related to the payment or transfer obligations under the TRA. In this regard, what is underscored in the said sub-clause is that the permitted investments had to be readily marketable. 27. Clause 15.3 obliges the respondent/assessee to ensure that the money which was realized through investments shall be immediately credited to the relevant account by the account bank or invested in another permitted investment, in accordance with the lender/borrower s instruction. 28. It is in the same vein that Clause 15.6 of the TRA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucture - then it cannot be held that the income derived by parking the funds temporarily with Tokyo Mitsubishi Bank, will result in the character of the funds being changed, in as much as, the interest earned from the bank would have a hue different than that of business and be brought to tax under the head income from other sources . It is well-settled that an income received by the assessee can be taxed under the head income from other sources only if it does not fall under any other head of income as provided in Section 14 of the Act. The head income from other sources is 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 busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 243 ITR 2 (SC). 32.2 The following observations made in Shree Rama Multi Tech Ltd. s case would be apposite and are set forth hereafter: .....We are, therefore, of the opinion that interest earned was inextricably linked with requirement of company to raise share capital and was thus adjustable towards the expenditures involved for the share issue. xxxx xxxx xxxx 11. Further, the rationale of judgment of Bokaro Steel Ltd. (Supra) was followed in Commissioner of Income Tax v. Karnal Cooperative Sugar Mills Ltd. Manu/SC/1289/1999 : (2000) 243 ITR 2 (SC). In this case, the company had deposited certain amount with the bank to open letter of credit for purchase of machinery for setting up plant. On the money so deposited, it earned interest. In that background, this Court observed that this is not a case where any surplus shares capital money which was lying idle had been deposited in the bank for the purpose of earning interest. The deposit of money is directly linked with the purchase of plant and machinery. 12. The common rationale that is followed in all these judgment is that if there is any surplus money which is lying idle it has been deposited i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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