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TMI Blog2019 (8) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... g to Rs. 1,46,89,403/- under the head Income from other sources may be deleted. 3.On the facts & circumstances of the case the appellant prays that the sum of Rs. 1 ,46,89,403/- may be treated as income earned from business and profession and may he reduced from the total value of the capital work in progress and the said amount is not chargeable to tax under the head Income from other sources. 4. on the facts & circumstances of the ease the Learned Commissioner Of Income Tax (Appeals) has erred in concluding that the appellant is not entitled to claim the deduction of the sum of Rs, 4,38,83,558/- , being the interest paid against the interest income. 5. On the facts and circumstances the appellant prays that the sum of Rs. 4,38,83,558/- being the interest payment may be allowed as deduction against the interest of Rs. 1,46,89,403/- treated as the income chargeable lo tax under the head income from other sources. 6. Without prejudice Lo ground I to 5 the appellant prays that if the sum of Rs. 1,46,89,403/- is taxed under the head income from other sources and if deduction of interest payment is not allowed to be set olfayaint the said income then the sum of Rs. 1 ,46, 89, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest earned is not linked to the business of the assessee, it cannot be assessed under the business income. Further the interest paid/payable on borrowed fund has not connection with the receipt of interest. The earning of interest on fixed deposit has no nexus with business activity of the assesee. The assessee has borrowed fund for carrying out business activities ad not for parking the fund in fixed deposit. Therefore, the interest earned on fixed deposit should be charged as income from other sources and should not be capitalised nor set off against the interest paid on borrowed fund. 5.1 In the case of South India Shipping Corporation Ltd. Vs CIT (1999) 240 ITR 24 (Madras), the Hon'ble Madras High Court has held that when the assessee was carrying on business, the interest earned by it from loans and bank deposits was assessable under the head 'Income From Other Sources." The High Court had followed the Hon'ble Apex Court's judgement in the case of Tuticorin Alkali Chemicals & Fertilisers Ltd. Vs CIT 227 ITR 172 wherein it was held that in usual course, interest received by the company on loans and banks deposits would be taxable as income under the head income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest earned from short term fixed deposits kept in bank out of funds earmarked for project construction needs to be considered as business receipts, consequently during the period of construction of project, the same needs to be reduced from capital working progress. The Ld. CIT(A) after considering relevant submission of the assessee and also by relied upon the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & fertilizer Ltd. vs CIT (227 ITR 172) held that interest earned from fixed deposits is at no stretch of imagination can be considered as receipts from business assessable under the head income from business. Therefore, he opined that there is no error in the findings recorded by the AO in assessing interest income under the head income from other sources. The relevant findings of the CIT(A) are as under: 5.1 I have considered the matter. I find that the issue of deduction of interest payment against the Income from Other Sources has also been addressed at length by the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) wherein it had observed and held as under: "15 It is true that the company will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of purchase of plants and machineries even before commencement of the business of the assessee. 18. It has been argued that the source from which the company has earned interest is borrowed capital. The company has to pay interest to its creditors on the same borrowed capital. Having regard to the identity of the fund on which interest is earned and interest is payable, the company should be allowed to set off its income against interest payable by it on the same fund. We are of the view that no adjustment can be allowed except in accordance with the provisions of the IT Act. However desirable it may be from the point of view of equity, this adjustment cannot be made unless the law specifically permits such adjustment. 5.2 As mentioned earlier, there is no dispute that during the year under consideration the appellant was yet to commence its business. The appellant company has been set up with the main object of design engineering .construction development finance operation and maintenance of 4 laning of Pune-Sholapur Section of NH-9 from KM 144.400 to KM 249.000 in the State of Maharashtra under NHDP phase III on Design Build Finance Operate and Transfer (DBFOT) basis., ft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under identical set of facts and also after considering various judicial precedents, including the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & fertilizer Ltd. vs CIT (supra) held that interest income from short term fixed deposits kept in bank out of funds borrowed for the purpose of project is assessable under the head income from business, consequently during construction period of project, it needs to be reduced from working progress. We, further noted that the Hon'ble Bombay High Court in the case of Pr.CIT vs M/s West Gujarat Expressway Ltd. in ITA No. 610 of 2016 dated 19/03/2019 had considered an identical question of law raised by the revenue and after considering relevant facts not entertained, question of law raised by the revenue, because for earlier assessment years although, the revenue had filed appeal before the High Court, but the question of law raised for the year under consideration, in respect of interest income from short term fixed deposits was not taken before the High Court. From the above, it is very clear that although, the High Court has not expressed any opinion on question of law raised by the revenue, but because of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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