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TMI Blog2019 (4) TMI 1160X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of Indian Oil Panipat Power Consortium Ltd.,(supra), we hold that the interest income being the amount invested temporarily in short term deposits out of advance towards equity share capital by promoters are capital receipts and go to reduce the project cost of setting up the aromatic complex at MSEZ with which it is inextricably linked. We, therefore, reverse the findings rendered by the authorities below that the aforesaid interest is exigible to tax under the head Income from Other Sources . Consequently, the grounds raised by the assessee on this issue are allowed. - ITA No.1522/Bang/2017 - - - Dated:- 15-3-2019 - SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER For The Assessee : Shri. B. R. Kamath, CA For The Revenue : Shri. R. N. Siddappaji, Addl.CIT ORDER Per Jason P Boaz, Accountant Member This appeal by the assessee is directed against the order of the CIT(A)-Mangalore, dated 26.04.2017 for Assessment Year 2008-09. 2. Briefly stated, the facts of the cases are as under: 2.1 The assessee company, promoted by ONGC, MRPL and others, for setting up an Aromatic Complex in Mangalore S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inextricably linked to settling up of the project by the appellant. 6. Your appellant craves for Leave to add alter amend or delete all or any of these grounds of appeal. 7. For these grounds and such other grounds as are advanced at the time of hearing, your appellant prays that the appeal be allowed. 3.2 In support of the grounds raised (supra), the learned AR of the assessee was heard and has put forth the following written submissions which we extract hereunder: 1. Your appellant is a company incorporated under the companies Act to set up an aromatic complex in Mangalore SEZ. Your appellant filed their return of income on 23-09-2008 declaring a total income of ₹ 2,01,30,250/-. Subsequently, your appellant filed a revised return of income on 09-02-2010 declaring a Nil income. The original return was processed u/s.143(1) and then a rectification made u/s.154 was processed to grant credit for TDS. Then the case was selected for scrutiny by issue of notice u/s.143(2). After hearing the various submissions made by the appellant, the learned Assessing Officer completed the assessment rejecting the claim of the appellant that interest received on short term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. I earnestly draw your attention to the decision of Delhi High Court in Indian Oil Panipat Power Corporation Ltd. Vs ITO 315 ITR 255 and also the decision of Delhi High Court in Principal C.I.T. Vs FACOR Ltd 380 ITR 0474 (Delhi). 8. I earnestly draw your attention to para 11 to 16 of the judgement reported in page 258-261 of ITR 315 which is reproduced here below: 11. In our opinion, the Tribunal has misconstrued the the judgment of the 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 Chemicals (1997) 227 ITR 172 is that if funds have been borrowed for setting up of a plant and if the funds are surplus and then 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 judgement in Bokaro Steel Ltd. (1999) 236 ITR 315 to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. The head Income from other sources is a residuary head of income. See S.G. Mercantile Corporation P. Ltd. v. CIT (1972) 83 ITR 700 (SC) and CIT v. Govinda Choudhury and Sons (1993) 203 ITR 881 (SC). 13. 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 (1997) 227 ITR 172 it was found by authorities that the funds available with the assesse in that case were surplus and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as Income from other sources . On the other hand in Bokaro Steel Ltd.(1999) 236 ITR 315 (SC) where the assessee had earned interest on advance paid to contractors durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h makes provision for payment of interest on share capital in certain contingencies. Clause (b) of subsection (1) of that section provides that in case interest is paid on share capital issued for the purpose of raising money to defray the expenses of constructing any work or building or the provision of any plant in contingencies mentioned in that section, the sum so paid by way of interest may be charged to capital as part of the cost of construction of the work or building or the provision of the plant. The above provision thus gives statutory recognition to the principle of capitalizing the interest in case the interest is paid on money raised to defray expenses of the construction of any work or building or the provision of any plant in contingencies mentioned in that setting up of the plant, the interest earned by the assesse could not be treated as income from other sources. In the result we answer the question as framed in favour of the assesse and against the Revenue. These appeals are allowed and the impugned judgement is set aside. 9. I earnestly submit that the Honourable Delhi High Court has rightfully distinguished the decision of Honourable S.C. in Tuticorin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record; including the judicial pronouncements cited. The issue for consideration before us is whether the interest received by the assessee on short term deposits kept temporarily with Bank out of advances towards share capital from promoters during the construction period i.e., for purchase of land, grading and development thereof for industrial purposes, development of infrastructure, payment to consultants, civil contractors, advance payments to machinery suppliers, prior to the commencement of business, is to be capitalized and set off in capital work-in-progress as contended by the assessee OR is to be taxed as income under the head Income from Other Sources as held by the authorities below. 3.4.2 The facts of the matter, as emerge from an appraisal of the record, is that the assessee company is promoted by ONGC Ltd., MRPL and others for setting up of an aromatic plant at MSEZ; for which 442 acres has been earmarked. For this purpose, the assessee received ₹ 217.50 Crores as advance against equity capital for the purpose of acquisition of land, grading and development of site for industrial purposes, appointment and payment to Project Management Consultant, placin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Hon ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd., Vs. ITO (supra) and the other decisions referred to by us (supra), we are unable to sustain the view taken by the learned CIT(A) by placing reliance on the decision in the case of Tuticorin Alkalis Chemicals and Fertilizers Ltd., (227 ITR 172) (SC). Respectfully following, inter alia, the decision of the Hon ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd., (supra), we hold that the interest income of ₹ 2,01,30,250/-; being the amount invested temporarily in short term deposits out of advance towards equity share capital by promoters are capital receipts and go to reduce the project cost of setting up the aromatic complex at MSEZ with which it is inextricably linked. We, therefore, reverse the findings rendered by the authorities below that the aforesaid interest of ₹ 2,01,30,250/- is exigible to tax under the head Income from Other Sources . Consequently, the grounds raised by the assessee on this issue are allowed. 4. In the result, the assessee s appeal for Assessment Year 2008-09 is allowed. Pronounced in the open court on 15th March ..... X X X X Extracts X X X X X X X X Extracts X X X X
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