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TMI Blog2014 (1) TMI 1327X X X X Extracts X X X X X X X X Extracts X X X X ..... th Railways, , interest charged on mobilization advances is to be credited to the concerned product under the misc. receipts which ultimately reduces the cost of the project and the project is the asset of the Ministry of Railways – order of the CIT(A) set aside – Decided in favour of Assessee. - ITA No.6165/Del/2012 - - - Dated:- 2-8-2013 - B C Meena And C M Garg, JJ. For the Appellant : Dr Rakesh Gupta, Adv and Shri Somil Agarwal, CA For the Respondent : Mrs Veena Joshi, CIT (DR) ORDER:- PER : B C Meena This appeal filed by the assessee emanates from the order of the CIT (Appeals)-XVIII, New Delhi dated 07.09.2012. 2. The assessee is a limited company wholly owned by Ministry of Railways, Government of India, incorporated on 24.02.2003. The main objects of the company is to enter into and carry on business relating to project development, project financing, if required, and project execution of rail infrastructure project for and on behalf of Ministry of Railways. During the year, the assessee has executed several railway infrastructure projects. The assessee company raises a loan from Indian Railway Finance Corporation (IRFC) and also received project adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion of law to be drawn from those facts-CIT v Rai Bahadur Jariam Valji [1959] 35 ITR 148 (SC). However, it would be worthwhile to gain an understanding of some of the important tests which are usually applied in distinguishing between capital receipts and income receipts. There are certain Tests laid down for differentiating capital receipts and revenue receipts in the above case : 1. A receipt by way of price or compensation on disposal of circulating capital or stock-in-trade is a revenue receipt. A receipt on the disposal of a capital asset referable to fixed capital is a capital receipt. Whether an asset is a capital asset or a trading asset must be determined on the facts of each. - Ordinarily, fixed capital is retained in business in order to earn profits, e.g., plant, machinery and building etc. Circulating capital circulates in the business and it is out of this circulation (e.g., capital invested in stock-in-trade) that the profit is earned. - Compensation received for the immobilisation, sterilisation or destruction of a capital asset is a capital receipt while compensation for injurious affectation of a trading asset is a revenue receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is not income of the assessee company and Ld. CIT(A) has erred in holding the action of Ld. AO in taxing the receipt as income despite the fact that the same has been credited to the cost of project being executed for and on behalf of Ministry of Railways. 2. That in any case and in any view of the matter, the impugned amount is not taxable as income in the hands of the assessee company more so as there is diversion of receipt by overriding title at the source itself as the amount has been received on behalf of Railway Board, Government of India. 3. Without prejudice to the above, action of Ld. CIT(A) in confirming the action of Ld. AO in not treating the interest earned on mobilization advance of Rs.6,37,45,667/- as capital receipt is contrary to law and facts. 4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.6,37,45,667/- being interest on mobilization advance and has erred in treating the same as income and has further erred in not allowing the deduction u/s 80IA of the Act on this amount and the same amount has been wrongly treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (SC); (iii) CIT vs. Ambur Co-op Sugar Mills Ltd. (2004) 269 ITR 398 (SC); and (iv) CIT vs. New Horizon Sugar Mills P Ltd. (2004) 269 ITR 397 (SC) Ultimately, Ld. AR also submitted that if such interest income on mobilization advances is treated as interest income of the assessee then the interest paid on the source of the amount for earning such interest deserved to be allowed u/s 57 of the Act. Ld. AR further submitted that the assessee was following this method of accounting since the inception of the company but such disallowance was never made in the prior and subsequent years. Ld. AR also relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Bokaro Steel Limited reported in 236 ITR 315 wherein the Hon'ble Apex Court has held as under :- The activities of the assessee in connection with all three receipts viz. rent charged by the assessee to its contractors for housing workers and staff employed by the contractor for the construction work of the assessee including certain amenities granted to the staff by the assessee; secondly, hire charges for plant and machinery which was given to the contractors by the assessee for use in the constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 : (1988) 170 ITR 545 (Pat) : TC 38R.1012 and CTT VS. Bokaro Steel Ltd. (1988) 67 CTR (Pat) 138 : (1988) 170 ITR 522 (Pat) : TC 38R.1011 affirmed; Challapalli Sugars Ltd. VS. CTT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) : TC 17R.834 applied; Addl. CTT VS. Indian Drugs Pharmaceuticals Ltd. (1983) 141 ITR 134 (Del) : TC 13R.668 approved; Tuticorin Alkali Chemicals Fertilisers Ltd. VS. CTT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC) distinguished. Ld. AR also submitted that the issue is covered by this decision of Hon'ble Supreme Court wherein the interest earned on the mobilization advances has held to be a capital receipt and to be adjusted against the cost of the project. 4. On the other hand, the ld. DR relied on the orders of the authorities below. 5. We have heard both the sides on the issue. We have also perused the computation of income wherein the ld. AR was successful in demonstrating that this interest earned of Rs.6,37,45,667/- is not forming part of the income on which the deduction u/s 80IA has been claimed. Therefore, we do not find any merit in the order of authorities below with regard to reduction in 80IA claim. It was also made clear during the h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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