2011 (9) TMI 211 - AT - Income Tax

Nature of receipt during the process of setting of a plant - capital receipt or revenue receipt - interest income on bank deposits - Held that - the issue is squarely covered by the decision of the Hon ble Supreme Court in the case of Bokaro Steel Limited (1998 -TMI - 5705 - SUPREME Court) as well as by Hon ble Delhi High Court in the case of India Drugs & Pharmaceuticals Limited (1981 -TMI - 28877 - DELHI High Court). The ld. CIT(A) after applying the proposition of law laid down in these cases to the facts of the instant case, had correctly held that receipts on account of tender form and recovery of house accommodation and furniture & fixture provided with house accommodation were of capital nature. - Decided against the revenue.

Summary

Issues:
Revenue's appeal against deletion of addition of misc. income by CIT(A) for assessment year 2007-08.

Analysis:
The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 18,56,427 of misc. income for the assessment year 2007-08. The Revenue argued that the CIT(A) erred in deleting the addition based on the decision in Bokaro Steel Limited, which they claimed was not applicable in the assessee's case. The assessee, a company in the process of setting up a refinery, declared total income of Rs. 4,17,14,064 for the year, including interest income. The dispute arose from the misc. income of Rs. 18,56,427, which the assessee did not offer for tax, citing precedents from the Hon'ble Supreme Court and CIT(A) in their favor. However, the Assessing Officer (AO) rejected the submission and made the addition.

The CIT(A) deleted the addition after considering the appellant's submissions and the facts of the case. Referring to the decision of the Hon'ble High Court of Delhi in the case of India Drugs and Pharmaceutical Limited, it was established that certain receipts during the setup phase of a business were of capital nature and not taxable. The CIT(A) also relied on the decision in Bokaro Steel Limited by the Hon'ble Supreme Court to support the capital nature of the receipts. The CIT(A) concluded that the receipts on account of tender forms, house rent, and furniture rent recovery were of capital nature, aligning with the legal position and the fact that the business was not fully operational.

The Tribunal upheld the CIT(A)'s decision, stating that it was in line with the precedents set by the Hon'ble Supreme Court and the Hon'ble Delhi High Court. The Tribunal found that the nature of the receipts in question was capital and not subject to taxation, as they were directly connected to the construction work of the company. Therefore, the appeal of the Revenue was dismissed, affirming the deletion of the addition of misc. income by the CIT(A) for the assessment year 2007-08.