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TMI Blog2020 (9) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 & 305 to 307/Hyd/2019 (Assessment Years: 2009-10 to 2015-16) - - - Dated:- 9-6-2020 - Smt. P. Madhavi Devi, Judicial Member And Shri A. Mohan Alankamony, Accountant Member Assessee by: Sri Manish Shah Revenue by: Sri Kiran Katta, DR ORDER PER SMT. P. MADHAVI DEVI, J.M. All these are assessee s appeals for the relevant A.Ys against the orders of the respective CIT(A)s. 2. Brief facts of the case as taken from the A.Y 2009-10 are that the assessee company which is in the business of implementing a Multi-Product Special Economic Zone, filed its return of income on 29.09.2010 admitting Rs. NIL as income. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has secured huge loan to the tune of ₹ 405.00 crores as on 31.03.2009 by equitable mortgage of company s land by way of depositing title deeds and has invested in acquiring the assets for the business of the company. He observed that out of the loans taken, the company has made fixed deposits in the Bank to the tune of ₹ 95.48 crores for earning interest on the deposits and as per the details furnished by the assessee, the assessee company has rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowed capital in fixed deposits. As regards the issue of netting of interest is concerned, the AO held that the interest expenditure has to be capitalized and the same cannot be set off against the income from other sources. 3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO by following the decision of the ITAT in the assessee s own case for the A.Y 2007-08. Against the order of the CIT (A), the assessee is in appeal before us by raising the following grounds of appeal: Ground I: Taxing Interest earned on fixed deposit under the head Income from other sources :- 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the Income Tax Officer, Ward-2(1), Hyderabad ( the A.O. ) in charging to tax the interest earned amounting to ₹ 1 ,36,04,879/-on fixed deposits under the head Income from other sources . 2. The Appellant prays that the AO be directed to delete the aforesaid chargeability of the amount of interest earned on fixed deposits as the same is in the nature of capital receipt and hence will go to reduce the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier AYs 2007-08 and 08-09, this Tribunal in the assessee s own case has decided the issue against the assessee, the ld. Counsel for the assessee submitted that the facts of the case for the years before us are distinguishable. He submitted that in the earlier years, the assessee s FDs were out of surplus funds whereas in the years before us, the fixed deposits were out of funds which were temporarily idle and were placed in fixed deposits for a brief period during the relevant FY only. Thus, according to him, the fixed deposits are for the business purpose of setting up of SEZs and, therefore, the interest earned therefrom go to reduce the interest cost to the assessee. He has also relied upon the additional ground of appeal raised by the assessee and placed reliance upon the following decisions in support of the additional ground. i. Indian Oil Panipat Power Consortium Ltd. Vs. ITO (Delhi H.C.) reported in 315 ITR 255 ii. CIT vs. Petronet LNG Ltd. (2011) (Delhi H.C.) reported in 10 taxmann.com 257 iii. Hyderabad Hi-Tech Textile Part P Ltd. Vs. ITO in ITA no.587/Hyd/2016, ITAT Hyderabad Bench. iv. Adani Power Ltd. Vs. ACIT (2015) 61 taxmann.com 355 (ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest from fixed deposits for the FY 2006-07 to 2015- 16, which is as under: Statement showing details of own funds, borrowed funds, fixed assets, investment in Fixed deposits, interest on borrowed funds and interest from fixed deposits for the FY 2006-07 to FY 2015-16 (Amount in Rs. Lakhs) S. No Particulars Financial year ended 31.03.07 31.03.08 31.03.09 31.03.010 31.03.11 31.03.12 31.03.13 31.03.14 31.03.15 31.03.16 A Own funds 1 Share capital 1052.71 1052.71 4052.71 4418.22 9399.43 9399.43 9399.43 9399.43 9399.43 9399.43 2 Share Applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Fixed Assets 14.35 13.24 12.46 17.05 17.28 41.84 84.80 98.89 130.20 92.99 2 CWIP 17343.84 22060.52 44195.77 51817.71 75544.21 72890.16 85704.85 99881.09 116801.38 170069.73 3 Bank Balances Fixed deposits 9415.07 9548.54 - - - - 947.39 1011.75 1630.20 2180.68 Current Account 380.43 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from other sources instead of netting it off against interest paid by the assessee on borrowed funds. 4.7 In support of his contention that the interest income on temporarily idle funds is a capital receipt and is not to be treated as income from other sources , the ld. counsel for the assessee placed reliance upon the decision of the A Bench of Mumbai, ITAT in the case of Kamat Hotels (India) Ltd., ITA No. 1078/Mum/2013, order dated 03/10/2017. In support of his contention that where the fixed deposits are inextricably linked with the business of the assessee, the interest income therefrom has to be set off against the preoperative expenses of the assessee, he placed reliance upon the decision of the coordinate bench of the ITAT, Chennai in the case of M/s Chennai Network Infrastructure Pvt. Ltd., ITA No. 1649/Mds/2015, order dated 9th September, 2016. In support of his contention that interest income earned on fixed deposits of own funds cannot be treated as income from other sources, he has relied on the decision of the Hon ble Supreme Court in the case of CIT Vs. Shree Rama Multi Tech Ltd., [2018] 92 Taxmann.com 363. 5. The learned DR, on the other hand, submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble High Court, after considering the judgments of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) as well as in the case of Bokaro Steel Ltd. (supra), held that the interest income was in the nature of capital receipt and was required to be set-off against pre-operative expenses. In coming to its decision, the Hon'ble High Court observed that the test is whether the activity which is taken up for setting up of the business and the funds which are generated are inextricably connected to the setting-up of the plant or not. Pertinently, the Hon'ble High Court was dealing with a similar argument that is being set-up before us, which is to the effect that the deposit of share capital in short term deposits with bank had no connection with setting-up of the power plant. The Hon'ble High Court in the context of the above arguments observed as under:- 5. In our opinion, the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) and that of Bokaro Steel Ltd. (supra). The test which permeates through the judgment of the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) would prevail to treat the interest income as an independent income assessable as 'income from other sources'. No doubt, and as noted by the Hon'ble Delhi High Court in Indian Oil Panipat Power Consortium Ltd. (supra), in the case of Tuticorin Alkali Chemicals Fertilisers Ltd. (supra), the funds available with the assessee were surplus and therefore the Hon'ble Supreme Court held that the interest income would be treated as 'income from other sources'. Factually speaking, in the instant case, there is no dispute that the FCCB proceeds have been raised with the specific purpose of funding the ongoing new hotel projects and it is only during the period awaiting deployment of full funds in the construction of new projects that a part has been placed in the banks, which has yielded impugned interest income. It may be a case of idle funds , as the CIT(A) has put it, but it certainly is not a case of surplus funds, so as to attract the rationale of Tuticorin Alkali Chemicals Fertilisers Ltd. (supra). Because it is only in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gress. Thus, assessee succeeds on this aspect. 6.1 This decision is on similar set of facts as in the case of the assessee before us for all the Assessment Years before us, and therefore, in our opinion, it is clearly applicable to the case before us. On the other hand, we find that the decisions relied upon by the ld. DR are distinguishable on facts. In the case of Raasi Cements Ltd., the Jurisdictional High Court was considering the case where interest was earned on surplus funds deposited during the installation of assessee company and, therefore, it was held that it has to be treated as income from other sources. In the case of Sponge Iron India Ltd., (supra), the assessee therein had set off of interest on short term deposits against the setting up of the project under the head exploration and general administration. Since the assessee had not commenced its business, it was held that interest income cannot be treated as business income of the assessee and cannot be set off against the expenditure incurred towards administration, exploration and mining expenditure. In the case of Thermal Power Tech Corporation India Ltd, the coordinate bench has followed the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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