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TMI Blog2015 (7) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AO erred in considering the interest income of Rs. 7,35,675 as income from other sources. The appellant prays that the said treatment of the A.O. may kindly be ordered to be deleted and the action of the appellant of reducing the same from the capital work in progress be upheld. 2. Without prejudice to the contention raided in ground no.1, in relation to non taxability of the interest income and assuming that the interest income is taxable as income from other sources, we submit that the appellant be granted deduction under section 57 of the Act. Accordingly, the appellant prays that the A.O. be directed to assess the interest income under the head Income from Other Sources after allowing the permissible deductions and interest p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee also submitted that the interest has been earned by investing the loan funds available with it in ultra short term fixed deposit of 11 to 30 days and earned interest @ 2% to 4%, whereas, the cost of the borrowing was about 13%. The Assessing Officer rejected the contention of the assessee and held that it is the deployment of the surplus funds and the interest income on FDR is to be charged to tax as income from other sources under section 56 of the Act. The Assessing Officer held that the Hon'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilisers Ltd. v/s CIT [1997] 227 ITR 172 (SC), has upheld that the interest on deployment of surplus funds is chargeable to tax under section 56 of the Act. 3. Aggrieved by the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 7,35,674, earned on these ultra short term fixed deposit with the Bank is reduced from the capital work-in-progress as the funds raised from the Banks are inextricably linked with the setting up of the integrated market complex. The assessee also relied upon the judgment of Hon'ble Delhi High Court in Indian Oil Panipat Power Consortium Ltd. v/s ITO, [2009] 315 ITR 235 (Del.). It was contended that the Hon'ble Delhi High Court has duly considered the decisions of Hon'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilisers Ltd. (supra) and CIT v/s Bokaro Steel Ltd. (supra) and it squarely applies to the present case. Hence, the assessee submitted that the addition of Rs. 7,35,674, being interest on FDRs need to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apitalized, i.e., assessee has reduced it from the figure of capital work-in-progress. The claim of the assessee is that the impugned interest income is inextricably linked to the setting-up of the project and thus it is a capital receipt which is permissible to be set-off against the capital work-in-progress. On the contrary, the stand of the Revenue is that since the assessee has not commenced its business, the netting-off of interest income of FDRs is not permissible and such income of Rs. 7,35,675, is to be taxed as "Income From Other Sources", following the ratio of the judgment of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilisers Ltd. (supra). 7. First of all, it is factually evident that the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Oil Panipat Power Consortium Ltd. (supra) in the following words:- "In our opinion, the Tribunal has misconstrued the ratio of the judgment of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 and that of Bokaro Steel Ltd, [1999] 236 ITR 315. The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemical [1997] 227 ITR 172 is that if funds have been borrowed for setting up of a plant and if the funds are "surplus" and tehn by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head "Income from other sources". On the other hand, the ratio of the Supreme Court judgment in Bokaro St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 10. I conclude by holding that the assessee has rightly reduced the said interest income from the capital work-in-progress, because the funds deployed are only for an ultra short period which in inextricably linked with the project. Hence, I set aside the impugned order passed by the learned Commissioner (Appeals) and hold that the addition of Rs. 7,35,675, needs to be deleted. I order accordingly. The Ground of appeal no.1, raised by the assessee is allowed. 11. Insofar as the Ground of appeal no.2, is concerned, it is only an alternate plea. Since assessee has succeeded on the main Ground as above, the Ground of appeal no.2, is infructuous, and the same is dismissed. 12. In the result, assessee's appeal is partly allowed as above. X X X X Extracts X X X X X X X X Extracts X X X X
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