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2020 (10) TMI 460 - HC - Income TaxCorrect head of income - interest income earned from the fixed deposits - income from other source or 'business income' - HELD THAT - Plea raised by the assessee before us that their business had commenced and therefore, the interest amount should be allowed, appears to be raised for the first time before this Court, as the assessee, before the AO, the CIT(A) and the Tribunal, submitted that the fixed deposits were in the pre-operative period and therefore, it had to be considered as part of the project cost. Thus, the plea raised before us for the first time appears to be contrary to the factual position as pleaded by the assessee themselves. Thus, the said contention raised by the assessee is not acceptable. As rightly pointed out by the learned Senior Standing Counsel appearing for the respondent Revenue, the issue involved has been settled by the Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. 1997 (7) TMI 4 - SUPREME COURT and BOKARO STEEL LIMITED 1998 (12) TMI 4 - SUPREME COURT - Decided against the assessee.
Issues:
1. Classification of interest income from fixed deposits. 2. Treatment of interest income in relation to capital work in progress. 3. Taxation of interest accrued on funds deployed with the bank. 4. Nexus between interest earned and short deposits made with borrowed funds. 5. Tax liability on income earned before commencement of business. Analysis: 1. The appeal was filed challenging the classification of interest income from fixed deposits as 'income from other sources' instead of business income. The appellant argued that the interest income should be considered part of the project cost as the fixed deposits were made during the pre-operative period. The CIT(A) and Tribunal relied on the decision of the Supreme Court in Tuticorin Alkali Chemicals case to support their conclusion that the interest income should be treated separately. The High Court found the appellant's new argument, raised for the first time, contradictory to their previous submissions and upheld the Tribunal's decision. 2. The appellant contended that the interest income should be allowed to be netted off against capital work in progress as it was inextricably connected to the business purpose. However, the Tribunal, supported by the decisions in the Tuticorin Alkali Chemicals case and CIT Vs. Bokaro Steels Ltd., dismissed the appeal, stating that the interest income should be taxed separately. The High Court found no grounds to interfere with the Tribunal's decision. 3. The issue of taxation of interest accrued on funds deployed with the bank was raised, arguing that it should be considered a capital receipt set off against pre-operative expenses. The High Court, following the decisions in the Tuticorin Alkali Chemicals case and CIT Vs. Bokaro Steels Ltd., upheld the Tribunal's decision that the interest income should be treated as income from other sources and not as a capital receipt. 4. The Tribunal's decision regarding the direct nexus between interest earned and short deposits made with borrowed funds was challenged. The High Court, after considering the factual position, agreed with the Tribunal's view and found no reason to interfere with the order passed by the Tribunal. 5. Lastly, the issue of tax liability on income earned before the commencement of business was raised. The appellant argued that since the business had commenced, the interest amount should be allowed. However, the High Court found the appellant's argument to be inconsistent with their previous submissions and upheld the Tribunal's decision, citing the settled issue by the Supreme Court in the Tuticorin Alkali Chemicals case. The tax case appeal was dismissed, and the substantial questions of law were answered against the assessee.
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