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TMI Blog2017 (4) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case the AO has erred in taxing a sum of Rs. 26,39,428/- being interest on mobilization advance despite the fact that the same has been credited to the cost of project and the same is capital receipt. 3. On the facts and circumstances of the case AO eared in the taxing interest on mobilization advance without giving reasonable opportunity to the appellant. 4. That the appellant craves leave to add or to amend the above grounds of appeal before or at the time of hearing of the appeal. 5. For these and among other grounds to be urged at the time of hearing, adequate relief as may be deemed fit be granted in the matter." 3. The brief facts of the case are that the assessee company is a joint venture company of Rail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee about the necessity of making mobilization advance has no nexus with the issue under consideration. Neither there was any doubt on its necessity nor was the veracity of the same questioned. But the issue under consideration was the treatment of interest on mobilization advance so made. Now following the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilisers Ltd vs CIT, 227 ITR 172 (SC), it was business expediency for the assessee to keep the money received on share issue in bank account till the funds were utilized. Here also, it was the business expediency to give mobilization advance but just as in Tuticorin Alkali Chemicals and Fertilsiers Ltd (supra), the interest so received is taxable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em were concerned, phase I was said to have been completed up to March, 2001. The second phase was also completed up to March, 2001. The directors' report was indicative of drinking water having been supplied during periods of scarcity through the partially completed Narmada main canal. For determining when the business could be said to have been set up, the flow of the water from the Narmada canal in the given circumstances needed to be viewed as an integral and inseparable activity of the business of the assessee. The Tribunal Special Bench was right in holding that the assessee's business had been set up with effect from February 21 2001, just by the flow of drinking water." 7. He argued that in the case of the assessee also, the proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) held that no activity was carried out to do any earning but all actions undertaken in the execution of the project therefore, any income earned on that process would go to reduce the cost of project. 10. He further submitted that same view was taken by Hon'ble Uttarakhand High Court in the case of CIT vs. Tehri Hydro Development Corporation & Anr (2009) 25 DTR (UK) 100 with respect to interest earned on rental income earned from contractor during construction. It was also submitted that the Hon'ble Uttarakhand High Court has followed the decision of Hon'ble Supreme Court in the case of CIT vs. Bokaro Steel Ltd (supra) and treated the same as capital receipt. It was also submitted that in the case of Indian Oil Panipat Power Consortium Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kash Nigam Ltd as a contractor. In order to ensure smooth progress of the construction work, the assessee gave mobilization advance to Railway Vikash Nigam Ltd., and earned interest income thereon of an amount of Rs. 26,39,428/-. The assessee claimed this interest income as capital receipt as the mobilization advance given to the contractor was in connection with laying of railway line and hence, adjusted the same by reducing it from the capital work in progress. The contention of the assessee is that the income is capital receipt and goes on to reduce capital work in progress as the business has not yet commenced. On the other hand as per revenue the interest income is liable to tax under the head income from other sources in view of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xus with the contract being executed by the assessee. On the similar facts and circumstances of the case, the Hon'ble Supreme Court in the case of CIT vs. Bokaro Steel Ltd., (supra) has held that the receipt of rent, hire charges and interest from contractors were directly connected with or incidental to the work of construction of its plant undertaken by the assessee. The advance which the assessee made to the contractors to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitch as to help the contractors. The arrangements which were made between the assessee company and the contractors pertaining to these three receipts were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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