2008 (10) TMI 591 - AT - Income Tax

Summary

Issues Involved:
1. Whether the interest received by the assessee amounting to Rs. 27,94,929 should be taxed as income from other sources.

Summary:

Issue 1: Taxation of Interest Income

The assessee appealed against the Commissioner of Income-tax (Appeals) decision, which upheld the Income-tax Officer's ruling that the interest received by the assessee amounting to Rs. 27,94,929 should be taxed as income from other sources. The assessee-company was setting up a factory and had applied for loans from IDBI. The Assessing Officer noted that the interest received was adjusted against project expenses to be capitalized but charged it to tax based on the Supreme Court decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172.

The Commissioner of Income-tax (Appeals) upheld this assessment, relying on the decisions in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT and CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC). The Tribunal, in a previous appeal, had set aside the assessment order with directions to re-examine the issue. The Assessing Officer, upon re-examination, concluded that keeping the money in fixed deposits was not a precondition for the loan disbursement by IDBI and disallowed the assessee's claim, following the judgments of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT and CIT v. Bokaro Steel Ltd.

The assessee contended that placing the funds in fixed deposits was a precondition for loan disbursement by IDBI and relied on the judgment in CIT v. Karnal Co-op. Sugar Mills Ltd. [2000] 243 ITR 2. However, the Assessing Officer found no additional evidence supporting this claim and treated the interest income as income from other sources. The Tribunal noted that the onus was on the assessee to prove that placing the funds in fixed deposits was a precondition for loan disbursement, which the assessee failed to do.

The Tribunal observed that the assessee did not deposit the entire equity share capital and unsecured loan in fixed deposits, which contradicted the claim that it was a precondition for loan disbursement. The Tribunal concluded that the facts of the case attracted the application of the judgment in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT and upheld the order of the Commissioner of Income-tax (Appeals).

In the result, the appeal of the assessee was dismissed.

The order pronounced in the open court, on this 7th day of October, 2008.