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TMI Blog2018 (10) TMI 1226X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 19,72,584. The Assessing Officer also made addition on account of income from interest on FDR and discounts received from suppliers of material, treating the same as income from other sources. The Assessing Officer computed the taxable income at Rs. 56,78,516 against the income of Rs. 7,08,390 declared by the assessee in respect of assessment year 2011-12. Aggrieved thereby, the assessee preferred appeal before the CIT(A), who partly allowed the same and estimated the net profit @ 11.5% and deleted the addition made on account of interest from FDR treating the same as business profit. The CIT(A) also deleted the addition made on account of various unverifiable payments. The Revenue aggrieved thereby preferred appeal before the ITAT. Similar orders were passed by the Assessing Officer in respect of assessment year 2012-13 by holding that interest income on FDR of the assessee as income from other sources. The CIT(A) reduced the G.P. rate under Section 145(3) from 13% to 11.75% and treated the income from FDR and NSC as business income. The ITAT while partly allowing the appeal filed by the Revenue reduced the discount received by the assessee from various suppliers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in M/s. Bhawal Synthetics (India) did not notice the judgement of the Supreme Court in Commissioner of Income Tax vs. Karnal Co-operative Sugar Mills Ltd.-(2001) 118 Taxman 489 (SC), which arose out of somewhat identical case and taken a contrary view. That was a case where the money in FDR was part of the amount that was kept to obtain letter of credit for purchase of machinery and, therefore, the interest earned thereon was held to be income from other sources. Learned counsel in support of his arguments has also relied on the judgement of Madhya Pradesh High Court in Bharat Oman Refineries Ltd. vs. Income-tax Officer, Bhopal-(2014) 52 Taxmann.com 347 (Madhya Pradesh), judgement of Gujarat High Court in Cedan Vinimay (P.) Ltd. vs. Assistant Commissioner of Income-tax-(2015) 54 Taxmann.com 425 (Gujarat) and judgement of Delhi High Court in Commissioner of Income-tax vs. Jaypee DSC Ventures Ltd.-(2012) 17 Taxmann.com 257 (Delhi). Per contra, Shri Daksh Pareek, learned counsel for the respondent-revenue has submitted that since the interest income on the FDR is not part of contract receipt, the same is liable to be taxed under the head 'income from other source'. The Tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. This Court in the aforesaid judgement has relied on the judgement of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers, supra in which case it was held that the interest earned on short-term investment of funds borrowed for setting up of factory during construction of factory before commencement of business has to be assessed as income from other sources and it cannot be said that interest income is not taxable on the ground that it would go to reduce interest on borrowed amount which would be capitalized. The Supreme Court in para 14 of the report in Tuticorin Alkali Chemicals and Fertilizers Ltd., supra has held that "if the capital of a company is fruitfully utilised instead of keeping it idle the income thus generated will be of revenue nature and not accretion of capital. Whether the company raised the capital by issue of shares or debentures or by borrowing will not make any difference to this principle. If borrowed capital is used for the purpose of earning income that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be capital receipt. The amount of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a case where the assessee filed its return of income for the relevant assessment year declaring nil income. It had furnished performance guarantee in favour of National Highway Authority of India to get the contract awarded in its favour and to procure the said guarantee, it had kept the amount in a fixed deposit in the bank. The amount of interest income from fixed deposits was set off against the project expenses. The case of the assessee was that the furnishing of bank guarantee had a direct nexus with the carrying on of the project and, therefore, the said set off deserves to be allowed. The Assessing Officer held that interest received by the company on the bank deposit was taxable as income under the head `income from other sources'. According to the Assessing Officer, project expenses did not have even remote proximity with the earning of interest and thus the same could not be allowed to be set off against the interest income. On second appeal, the ITAT allowed the assessee's claim. The revenue approached the High Court. The High Court on consideration of the number of precedents including the Tuticorin Alkali Chemicals & Fertilizers, supra dismissed the appeal holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit certain funds with the Bank as margin money and it is on this margin money the interest was earned in the light of the nature of deposit made and the source form which the interest was received. We may in this connection also refer to the judgement of the Karnataka High Court in CIT vs. Chinna Nachimuthu Constructions-(2008) 297 ITR 70 (Karn). That was a case somewhat similar on facts where the assessee being a contractor, in order to secure a contract work was required to offer a bank guarantee to the contractee. There also the assessee had shown the interest accrued on the fixed deposit as business income but the Assessing Officer treated the interest as "Income from other sources". The Karnataka High Court noticed that the investment of amount in fixed deposits by the assessee was only to provide a bank guarantee to the contractee in order to acquire the contract work. It was held that the interest income could not be treated as income from other sources and had to be treated as business income only. Karnataka High Court in that case relied upon judgement of the Supreme Court in the Supreme Court in CIT vs. Govinda Choudhary and Sons-(1993) 203 ITR 881. The aforesaid judge ..... X X X X Extracts X X X X X X X X Extracts X X X X
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