2018 (7) TMI 1904 - HC - Income Tax

Interest on sum of OFCD deposited in bank - capitalization of interest earned - Whether interest earned is not inextricably linked to setting up of plant and machinery? - Appellant had issued Optional Fully Convertible Debentures (OFCD) and amounts were deposited in Bank and earned interest thereon - Whether assessee deposited money in the bank itself is not sufficient to show that the deposit was made with a view to carrying out the business in the sense of earning profit by investment? - HELD THAT - In the present facts, both the CIT (A) and the Tribunal have rendered a finding of fact that the interest earned is not inextricably linked to setting up of plant and machinery on the part of the Appellant-Assessee. It also records a finding that money by OFCD was not received for setting up of plant. Therefore, cannot be capitalised. We find that on the facts as found by the Authorities, the decision of the Apex Court in Bokaro Steels Ltd. 1998 (12) TMI 4 - SUPREME COURT and Karnal Cooperative Sugar Mills Ltd. . 1999 (4) TMI 7 - SUPREME COURT has been correctly applied. No substantial question of law Whether Tribunal is right in not adjudicating the alternate argument taken before it that the interest on Fixed Deposit kept in lien favoring trustees of debenture holders is not the income of the assessee but that of the beneficiary debenture holders? - HELD THAT - As this question was not urged before the Tribunal, no occasion to entertain the same arises in view of the decision of this Court in CIT v. Tata Chemicals 2002 (4) TMI 42 - BOMBAY HIGH COURT .

Summary

Issues:
1. Whether the Tribunal was right in confirming the order of CIT(A) regarding the treatment of interest earned on bank deposits.
2. Whether the Tribunal erred in not adjudicating the alternate argument regarding the interest on Fixed Deposit being the income of the beneficiary debenture holders.

Analysis:

1. Re. Question (a):
The Appellant, engaged in power generation, issued Optional Fully Convertible Debentures (OFCD) and deposited the amounts in a bank, earning interest. The Appellant sought to capitalize the interest for setting up hydro power projects. The Assessing Officer did not address this claim as it was not raised initially. The CIT(A) concluded that the interest could not be capitalized as it was not for capital expenditure related to the project but to reduce project tariffs. The Tribunal upheld this decision, stating that the interest earned was not linked to setting up the business and was rightly assessed as income from other sources. The Appellant argued citing various court decisions, but the Tribunal's decision was found to be in line with the Apex Court rulings. The Tribunal's decision was based on factual findings that the interest earned was not connected to capital assets or project setup, leading to the dismissal of the appeal.

2. Re. Question (b):
The Appellant's counsel acknowledged that the Tribunal did not address the alternate argument raised in this question. Despite filing a Rectification Application to include the alternate submissions, it was dismissed by the Tribunal in 2016, and the Appellant did not challenge it. Citing precedent, the Court found no basis to entertain this question as it was not raised before the Tribunal, leading to the conclusion that this issue did not present a substantial question of law. Consequently, the question was not entertained, and the appeal was dismissed.