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TMI Blog2021 (2) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... Judicial Member And Shri B.R.R. Kumar, Accountant Member For the Assessee : Shri Vinod Garg, Advocate, Shri Parveen Kumar, Advocate For the Revenue : Mr. Shri Prakash Dubey , Sr.DR ORDER PER BHAVNESH SAINI, J.M. This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-5, Delhi, Dated 14.12.2015, for the A.Y. 2011-2012, challenging the Orders of the authorities below in assessing a sum of ₹ 1,53,70,579/- being interest income from FDRs during pre-operative period as income from other sources. 2. We have heard the Learned Representatives of both the parties through video conferencing and perused the Orders of the authorities below. 3. Briefly the facts of the case are that return declaring NIL income was filed on 30.09.2011. The assessee company was incorporated on 05.10.2006. The source of the funds in the hands of assessee as per balance-sheet as on 31.03.2011 are share capital of ₹ 250 crores and secured loans of ₹ 576.94 crores. During the course of assessment proceedings, it was explained that company has been granted licence for construction of maintenance of certain transmission lines and evacuation of power from Karcham-Wangtoo HE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en preferred by the assessee against the order dated 31.07.2013 of the Ld. CIT (Appeals)-VII, New Delhi and pertains to assessment year 2009-10. 2. The sole issue under dispute is the addition of ₹ 3,40,52,432/- and pertains to interest income on FDRs for short term duration which was treated as income from other sources by the Assessing Officer as against the same being treated as a capital receipt by the assessee. Brief facts of the case are that the assessee is a limited company incorporated on 5.10.2006 as a joint venture company between Jaiprakash Power Ventures Ltd. and Power Grid Corporation of India Ltd. The sole objective of the company was to set up a power transmission system in the State of Himachal Pradesh. The actual work of construction of the said project was started in Financial Year 2007-08 and was completed in financial year 2012-13. The total estimated completion cost was ₹ 981 crore for which equity of ₹ 300 crore and a debt of ₹ 700 crore were raised. The entire debt was received from consortium of banks under Trust and Retention Account Agreement and loan agreement. Project funds were also raised from time to time during the period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 315 (SC) and followed in Indian Oil Panipat Power Consortium Ltd v. ITO 315 ITR 255 (Del)." 2.4 The assessee has also filed an additional ground in the appeal which reads as under:- "That without prejudice to the main ground that the interest income on FDRs during project implementation period is a capital receipt, Ld. Assessing Officer has erred in not netting the interest income of ₹ 3,40,52,432/- with interest paid of ₹ 5,79,93,992/- on funds borrowed for the implementation of the project while taxing the same as income from other sources. As such too, as interest paid far exceeds interest income, no income is taxable as other income." 3. The Ld. AR submitted that the additional ground of appeal being raised deserved to be admitted as the same pertained to a question of law. Ld. AR also relied on the judgment of the Hon'ble Apex Court in the case of National Thermal Power company Ltd. vs. C.I.T. reported in 229 ITR 383 (SC) for the proposition that additional ground pertaining to a question of law and arising from facts on record should be allowed to be raised when it was necessary to consider that question in order to correctly assess the tax liability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) had solely relied upon the judgment of Hon'ble Apex court in the case of Tuticorin Chemicals and Fertilizers Ltd. (supra), ignoring numerous subsequent judgments of the Hon'ble Apex Court. 7. The Ld. Sr. DR placed reliance on the order of the Assessing Officer as well as the Ld. Commissioner of Income Tax (A) and submitted that the judgment of the Hon'ble Apex Court in the case of Tuticorin Chemicals and Fertilizers Ltd. is very clear inasmuch as it lays down that interest earned prior to commencement of business was assessable under income from other sources. 8. We have heard the rival submissions and perused the material available on record. We note that a similar issue had come up before ITAT Ahmedabad Bench in the case of Adani Power Ltd. vs. ACIT in ITA No. 2755/AHD/2011. In its order dated 27.7.2015, the Coordinate Bench of the ITAT analysed the ratio of the judgment of the Hon'ble Apex Court in the case of Tuticorin Chemicals and Fertilizers Ltd as well as that in the case of Bokaro Steel Ltd. (supra) and the judgment of the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra) along with a plethora of other related judgments on iden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted to the staff by the assessee, (ii) hire charges for plant and machinery which was given to the contractors by the assessee for use in the construction work of the assessee, and (iii) interest from advances made to the contractors by the assessee for the purpose of facilitating the work of construction. The activities of the assessee in connection with all these three receipts were directly connected with or incidental to the work of construction of its plant undertaken by the assessee. The advances which the assessee made to the contractors to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitch as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable to the contractors and had gone to reduce the cost of construction. They had, therefore, been rightly held as capital receipts and not income of the assessee from any indepe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... karo 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 judgment 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 otherwise 'inextricably linked' to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses. 5.1 The test, therefore, to our mind is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. The clue is perhaps available in s. 3 of the Act which states that for newly set up business the previous year shall be the period beginning with the date of setting up of the business. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the authorities that the funds available with the assessee 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 during pre-commencement period was found to be 'inextricably linked' to the setting up of the plant of the assessee and hence was held to be a capital receipt which was permitted to be set off against preoperative expenses. 24. From the above, it is evident that the Hon'ble Delhi High Court has considered and interpreted the decisions of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) as well as Bokaro Steel Ltd. (supra). The conclusion of the Delhi High Court is in fact the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Indian Oil Panipat Power Consortium Ltd. (supra) and which covers the case of the assessee in its favour. The co-ordinate Bench of the Tribunal has also taken a view in favour of the assessee on identical facts and the same has been reproduced in the preceding paragraphs of this order. Therefore, in view of the order of the Coordinate Bench and respectfully applying the ratio of the judgment of the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra), we hold that since the business of the assessee had not commenced, the interest received in the period prior to the commencement of business was in the nature of capital receipt and was required to be set off against the preoperative expenses. Therefore, the impugned interest income is a capital receipt not chargeable to tax during the year under consideration. Accordingly, we allow the grounds of appeal raised by the assessee. 9. In the result, the appeal of the assessee is allowed. 5. On the other hand, Ld. D.R. merely relied upon the Orders of the authorities below. 6. Considering the above facts in the light of the Order of the Tribunal Dated 24.07.2018 (supra) in the case of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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