9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (12) TMI 715 - HC - Income TaxNature of receipt - capital receipt or income from other sources - Investment made in fixed deposits, out of the funds received for setting up a power transmission system in the state of Himachal Pradesh - whether the interest earned on the fixed deposit is dependent on whether the invested funds were inextricably linked with setting up of the power transmission system? - AO concluded interest earned on funds invested in the fixed deposit was taxable under the head income from other sources - HELD THAT - Sub-clause (ii) of Clause 15.2 indicates that the title documents and other documentary evidence establishing ownership of the permitted investments made using the sub-accounts regulated by the TRA were to be held in custody for the benefit of the borrower/lender. Similarly, sub-clause (iii) of Clause 15.2 broadly casts an obligation that the maturity value of the permitted investments is related to the payment or transfer obligations under the TRA. In this regard, what is underscored in the said sub-clause is that the permitted investments had to be readily marketable. Clause 15.3 obliges the respondent/assessee to ensure that the money which was realized through investments shall be immediately credited to the relevant account by the account bank or invested in another permitted investment, in accordance with the lender/borrower s instruction. It is in the same vein that Clause 15.6 of the TRA provided that any interest or other income paid qua permitted investments would have to be paid to the relevant account as determined by the facility agent, which broadly meant that it would enure to the benefit of the borrowers/lenders. A holistic reading of the aforementioned Clauses would show that there was indeed an inextricable link between the investment of the surplus funds and the setting up of the power transmission system. Therefore, clearly, the interest earned thereon could only be categorized as capital receipt.
Issues Involved:
1. Taxability of interest earned from fixed deposits under "income from other sources". 2. Linkage between investment of funds and the setting up of a power transmission system. Summary: Issue 1: Taxability of Interest Earned from Fixed Deposits The appellant/revenue challenged the Income Tax Appellate Tribunal's order, which ruled in favor of the respondent/assessee regarding the taxability of interest earned from fixed deposits. The Assessing Officer (AO) had concluded that the interest earned on funds invested in fixed deposits was taxable under "income from other sources". The Commissioner of Income Tax (Appeal) [CIT(A)] upheld this view, referencing the Supreme Court decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. The Tribunal, however, applied the ratio of the judgment in Indian Oil Panipat Power Consortium Ltd. v. ITO, which distinguished the former Supreme Court judgment and ruled in favor of the respondent/assessee. Issue 2: Linkage Between Investment of Funds and Setting Up of Power Transmission SystemThe respondent/assessee argued that the interest earned on the fixed deposits was a capital receipt because the funds were inextricably linked to the setting up of a power transmission system. The court examined the facts and agreements, including the Trust and Retention Account Agreement (TRA Agreement), which regulated the use of borrowed funds. The court concluded that the funds invested in fixed deposits were closely linked to the project and that the interest earned should be treated as a capital receipt, not "income from other sources". This conclusion was supported by the principles laid out in Indian Oil Panipat Power Consortium's case and other relevant judgments. The court emphasized that the test for deciding the nature of the interest earned depended on whether the invested funds were inextricably linked with the project. Given the inextricable linkage, the interest earned was categorized as a capital receipt. The court also referenced recent judgments, including The Commissioner of Income Tax-IV, Ahmedabad v. Shree Rama Multi Tech Ltd., which supported this view. Ultimately, the court found no substantial question of law for consideration and upheld the Tribunal's order, closing the appeal.
|
