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TMI Blog2019 (2) TMI 1460X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 48,90,510/- The case was selected was scrutiny and assessed u/s 143 (3) by applying the flat rate of @ 7% and the Assessing Officer also made an addition of Rs. 6,45,921/- on account of Interest from FDR, Rs. 3,91,497/- on account of Interest from Income Tax Refund and Rs. 1621/- on account of rebate and discount separately under the head Income from other source by ignoring the facts and past history in the assessees own case. 4. The Ld. CIT(A) deleted the interest received from FDRs based on the stand taken by the Revenue consistently. The relevant part of order of the Revenue is reproduced hereunder for the sake of reference " In Snam Progetti S. P. A. v. Add/. CTT[1981] 132 TTR 70/[1982] 10 Taxman 86 (Delhi), it was held that nexus with the activities cannot be overlooked more so where the income is attributable to or derived from the targeted activity. 12. In Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), a three-judge Bench of the apex court was dealing with the issue where the company had surplus funds in its hands and in order to earn income out of the surplus funds, it invested the amount for the purpose of earning interest. The company had borrowed funds, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made in that judgment (at page 179) to the effect that 'if the company, even before it commences business, invests surplus funds in its hands for purchase of land or house property and later sells it at profit, the gain made by the company will be assessable under the head "Capital gains". Similarly, if a company purchases rented house and gets rent, such rent will be assessable to tax under section 22 as income from house property. Likewise, a company may have income from other sources . . . The company may also, as in that case, keep the surplus funds in short-term deposits in order to earn interest. Such interest will be chargeable under section 56 of the Income-tax Act'. This court also emphasised the fact that the company was not bound to utilise the interest so earned to adjust it against the interest paid on borrowed capital. The company was free to use this income in any manner it liked. However, while interest earned b y investing borrowed capital in short-term deposits is an independent source of income not connected with the construction activities or business activities of the assessee, the same cannot be said in the present case where the utilisation of var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id 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.119991 236 ITR 315 (SC) has been followed by a two-judge Bench of this court in CIT v. Karnal Co-operative Sugar Mills Ltd. f20001 243 ITR 2 (SC) and by a three-judge Bench in CIT v.Karnataka Power Corporationf20011247ITR 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 the light of the judgment inBokaro Steel Ltd. 's case (19991236 ITR 315 (SC). It is, therefore, not possible now to take any view different from that taken in Bokaro Steel Ltd. s case (19991236 ITR 315 (SC)." 17. In CITv. Koshika Telecom Ltd.[2006] 287 ITR 479 (Delhi), the factual matrix was that the assessee was engaged in the business of operating cellular mobile telephone services. In terms of a licence awarded in its favour for operation of the said services in the States of Uttar Pradesh, Bihar, Orissa and West Bengal, the assessee was required to provide finance and performance bank guarantees to the Department of Tele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated that the interest was in the nature of capital receipt which was liable to be set off against pre-operative expenses. The Tribunal, relying on Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra), dislodged the finding recorded by the first appellate authority. While dealing with the appeal of the assessee, the Bench referred to the decision in Bokaro Steel Ltd. (supra) holding thus (page 260) : "It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. In the case of Tuticorin Alkali Chemicals and Fertilizers LtdJ19971227 TTR 172 (SO it was found by the authorities that the funds available with the assessee in that case were 'surplus' and, therefore, the Supreme Court held that the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The non-submission of the guarantee would have entailed termination of the agreement and NHAI would have been at liberty to appropriate the bid security. That apart, the release of such performance security depended upon certain conditions. Thus, it is clearly evincible that the bank guarantee was furnished as a condition precedent to entering into the contract and further it was to be kept alive to fulfil the obligations. Quite apart from the above, the release of the same was dependent on the satisfaction of certain conditions. Thus, the present case is not one where the assessee had made the deposit of surplus money lying idle with it in order to earn interest; on the contrary, the amount of interest was earned from fixed deposits which were kept in the bank for furnishing the bank guarantee. It had an inextricable nexus with securing the contract. Therefore, we are disposed to think that the factual matrix is covered by the decisions rendered in Bokaro Steel Ltd. (supra), Kama/ Co-operative Sugar Mills Ltd. (supra) and Koshika Telecom Ltd. (supra) and, accordingly, we hold that the view expressed by the Tribunal cannot be found fault with. 22. Resultantly, we do not find an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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