9911796707
TMI Blog2016 (1) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... s engaged in the business of providing telecommunication services and filed its return of income on 27.11.1998 declaring the income at Rs. 12 lacs. The Assessing Officer framed the assessment under Section 143(3) of the Act vide order dated 30.8.2000 (Annexure A-1) at Rs. 75,00,960/- by holding that the interest earned on the fixed deposit relating to pre-operative period constitutes income assessable under the head 'Income from other sources' and such income could not be set off against the pre-operative expenses, the assessing officer assessed the interest amounting to Rs. 62,93,942/- under the head 'Income from other sources' for which he drew support from Tuticorin Alkali Chemicals and Fertilizers Ltd. v. Commissioner of Income-Tax, Madras, (1997) 227 ITR 172 and Commissioner of Income-Tax Vs. Coromandal Cements Ltd., 234 ITR 412 (SC). Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity "the CIT(A)"]. The CIT(A) vide order dated 2.3.2001 (Annexure A-2) allowed the appeal and deleted the interest income of Rs. 62,93,942/-. Reliance was placed upon judgments of the Apex Court in Karnal Cooperative Sugar Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not assessable as income from other sources as it was directly related to acquisition of the asset and would reduce the cost of the asset. The relevant conclusion reads thus:- "In the case of the assessee before us, it has already been seen that money was deposited, to open a letter of credit under the terms of the agreement with the supplier of the machine. It was, therefore, not a case where surplus share capital money lying idle and unused had been deposited in the bank. Here the money was deposited out of necessity for the purpose of acquiring an asset. The plea of the Department that unutilised and surplus money had been deposited by the assessee, does not appear to be correct. The assessee's plea that money had been deposited so as to open a letter of credit has not been controverted. Therefore, the activity of depositing money out of the share capital was an activity incidental to the acquisition of the asset. It was not a case where surplus share capital money was deposited with the bank because it was lying unutilised and idle. The assessee deposited the money with the bank with a definite purpose to execute an agreement for the purpose of acquiring the machine. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest earned by the assessee shall go to reduce the cost of the asset acquired out of the transaction." 8. An appeal carried by the revenue against the aforesaid pronouncement was dismissed by the Apex Court in Commissioner of Income Tax v. Karnal Cooperative Sugar Mills Ltd. (2000) 243 ITR 2 with the following observations:- "Leave granted. 2. In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest. The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this court in Tuticorin Alkali Chemicals and Fertilizers Limited v. CIT, will not be attracted. The more appropriate decision in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aro Steel Ltd's case (supra) and, therefore, these receipts will go to reduce the cost of construction. A relevant extract from the decision of the Supreme Court is quoted as under:- "That was a case in which the question related to interest earned by a company during its formative period by investments. This court has held in CIT v. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC), that it is so confined and did not apply where the receipts were directly connected with or were incidental to the work of construction of the assessee's plant. The decision in CIT v. Bokaro Steel Ltd. (supra) has been followed by a two-judge Bench of this Court in CIT v. Karnal Cooperative Sugar Mills Ltd. (2000) 243 ITR 2 (SC) and by a three-Judge Bench in CIT v. Karnataka Power Corporation (2001) 247 ITR 268 (SC). In fact, in the latter case, it was not disputed by the Revenue that the question that related to hire charges paid by contractors had to be answered in light of the judgment in Bokaro Steel Ltd's case (supra). It is, therefore, not possible now to take any view different from that taken in Bokaro Steel Ltd's case (supra)." 12. It may also be noted that in the case of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
