2015 (6) TMI 1221 - AT - Income Tax

Correct head of income - interest on short term deposits - Addition by AO treating the same as income from other sources - capital receipt or income from other sources - HELD THAT - As decided in assessee s own case 2014 (6) TMI 1050 - ITAT CHANDIGARH no merit in the plea of the assessee that the interest earned by the assessee is to be infused as share capital and/or to be returned to the Principals who had had advanced the loans to the assessee as the assessee has failed to bring on record any evidence to establish its claim. Merely because the money in future would be utilized for capital expenditure does not make the receipts as capital receipts in the hands of the assessee. - Decided against assessee.

Summary

Issues Involved:
1. Justification of the addition of Rs. 1,28,80,767/- as income from other sources.
2. Taxability of interest income from short-term deposits.
3. Applicability of the Supreme Court decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT.

Issue-wise Detailed Analysis:

1. Justification of the addition of Rs. 1,28,80,767/- as income from other sources:
The assessee challenged the addition of Rs. 1,28,80,767/- as income from other sources, arguing that the funds were received from the Government of Himachal Pradesh for specific purposes and were temporarily parked in bank deposits due to delays in obtaining necessary approvals. The assessee contended that the funds were not surplus and should not be treated as income from other sources. The Assessing Officer (AO) and the CIT(A) upheld the addition, relying on the Supreme Court's decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT, which states that interest income earned on surplus funds is taxable as income from other sources.

2. Taxability of interest income from short-term deposits:
The assessee argued that the interest earned on short-term deposits should be treated as a capital receipt and set off against pre-operative expenses. The AO and CIT(A) disagreed, noting that the interest income was not inextricably linked to the business operations but was earned from surplus funds parked in bank deposits. The Tribunal referred to the assessee's own case for the assessment years 2008-09 and 2009-10, where a similar issue was decided against the assessee. The Tribunal reiterated that the interest income earned during the pre-operation period is assessable as income from other sources, as per the Supreme Court's ruling in Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT.

3. Applicability of the Supreme Court decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT:
The Tribunal emphasized the applicability of the Supreme Court's decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT, which held that interest earned on surplus funds, even if temporarily parked, is taxable as income from other sources. The Tribunal distinguished the facts of the present case from those in Bokaro Steel Ltd. and Indian Oil Panipat Consortium Ltd., where the interest income was found to be inextricably linked to the business operations and treated as a capital receipt. The Tribunal concluded that the facts of the present case were more aligned with Tuticorin Alkali Chemicals & Fertilizers Ltd., and thus, the interest income should be taxed as income from other sources.

Conclusion:
The Tribunal upheld the addition of Rs. 1,28,80,767/- as income from other sources, following the Supreme Court's decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT. The appeal filed by the assessee was dismissed.