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TMI Blog2021 (2) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee: That the Ld. Assessing Officer (Ld. AO) has erred on facts and in law in assessing a sum of ₹ 57,40,935/- being interest income from FDRs during preoperative period as income from other sources. The Ld. AO has erred in not treating the same as capital receipt to be set off against pre-operative expenses. The Ld. CIT(A) has erred in sustaining the view of the Ld. AO. 2. That the Ld. AO has erred on facts and in law in assessing income on FDRs of ₹ 57,40,935/- at its gross amount as income from other sources rather than in netting of the same against substantial ly higher interest paid which is y l inked with the said interest earned during pre-operative period related to the sole project being implemented. The Ld. CIT(A) has erred in sustaining the view of the Ld. AO. 3. That the treatment of the said interest from FDRs as income from other sources rather than in assessing the same as capital receipt to be set off against pre-operative expenses is contrary to binding Accounting Standards. As such too, the addition as made and as sustained by Ld. CIT(A) is liable to be deleted. 4. That the FDRs are intrinsically linked to the essentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench in the case of Adani Power Ltd. vs. ACIT (supra). The same is being reproduced hereunder for a ready reference:- 18. We find that both the parties have relied upon the decisions of the Hon'ble Apex Court and in addition, the assessee has relied upon the decision of Hon'ble Delhi High Court. Therefore, it would be appropriate to first refer to those decisions. In the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra), the Hon'ble Apex Court held as under:- ...that the company had surplus funds in its hands. In order to earn income out of the surplus funds, it had invested the amount for the purpose of earning interest. The interest thus earned was clearly of revenue nature and would have to be taxed accordingly. The accountants might have taken some other view but accountancy practice was not necessarily good law. This was not a case of diversion of income by overriding title. The assessee was entirely at liberty to deal with the interest amount as it liked. The application of the income for payment of interest would not affect its taxability in any way. The company could not claim any relief under section 70 or section 71 since its busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aro Steel Ltd. (supra), held as under:- Held, that, in the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest had been earned. This was, therefore, not a case where any surplus share capital money which was lying idle had been deposited in the bank for the purpose of earning interest. The deposit of money in the present case was directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit was incidental to the acquisition of assets for the setting up of the plant and machinery. The interest was a capital receipt, which would go to reduce the cost of asset. 21. In the case of Karnataka Power Corporation (supra), their Lordships of Hon'ble Apex Court, following the decision of Bokaro Steel Ltd. (supra), held as under:- ...also, (i) that the Tribunal was right in law in upholding the order of the Commissioner (Appeals) who deleted the addition of ₹ 1,30,44,518/- being interest receipts and hire charges from contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under s. 14 in Chapter IV of the Act. For an income to be classified as income under the head Profits and gains of business or profession it would have to be an activity which is in some manner or form connected with business. The word business is of wide import which would also include all such activities which coalesce into setting up of the business. See Mazagaon Dock Ltd. vs. CIT/CEPT (1958) 34 ITR 368 (SC) and Narain Swadeshi Weaving Mills vs. CEPT (1954) 26 ITR 765 (SC). Once it is held that the assessee's income is an income connected with business, which would be so in the present case, in view of the finding of fact by the CIT(A) that the monies which were inducted into the joint venture company by the joint venture partners were primarily infused to purchase land and to develop infrastructure then it cannot be held that the income derived by parking the funds temporarily with Tokyo Mitsubishi Bank, will result in the charac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue is covered by the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra). After considering these two decisions of the Hon'ble Apex Court and also some other decisions of the Hon'ble Apex Court, their Lordships of the Delhi High Court arrived at the conclusion 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 the 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 the preoperative expenses. That, the ratio of the above finding of the Hon'ble Delhi High Court would be squarely applicable to the facts of the assessee's case, because admittedly in the case under appeal before us the share capital as well as loans were raised for the specific purpose of setting up of the power generation plants. The bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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