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TMI Blog2023 (4) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... capital subsidy, unutilized debt funds, unutilized equity funds received as capital during the formative years till the project was completed, was rightly claimed by the assessee under the head of capital receipts. Revenue s stand that this interest income should be treated as revenue receipts so as to make it taxable income is not acceptable in view of the law as laid down in the case of Bokaro Steel Ltd. [ 1998 (12) TMI 4 - SUPREME COURT] - No substantial question of law. X X X X Extracts X X X X X X X X Extracts X X X X ..... lved in these appeals and hence the same do not merit admission. It was submitted that the issue regarding the interest on short term deposits made by the Company from the surplus funds during its formative years being exempted from tax is no longer res integra and has been put to rest beyond the pale of doubt by the Hon'ble Supreme Court in the case of Commissioner of Income Tax, Bihar II, Patna Vs. Bokaro Steel Limited, Bokaro, (1999) 1 SCC 645. It was further contended that the ITAT, whilst rejecting the appeals of the Revenue observed that the same view was taken in the case of assessee for the accounting years of 2009-2010, 2010-2011 and the said judgment of the Tribunal not having been challenged any further has attained finality. 7. Dr. Saraf submitted that the assessee is a public sector enterprise working under the Ministry of Chemicals & Fertilizers (hereinafter referred to as MoCF) and was promoted to undertake the Assam Gas Cracker Project approved by the Cabinet Committee of Economic Affairs for setting up an Integrated Petro- Chemical Complex at Lepetkata, District Dibrugarh, Assam. The Project had not been set up/made operational during the years under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l consideration to the submissions advanced at Bar and gone through the impugned orders, the materials placed on record and the precedents cited at Bar. 11. There is no quarrel on the factual matrix of the case that the respondent assessee is a public sector undertaking which was assigned the task of setting up the integrated Petrochemical Complex at Lepetkata, District Dibrugarh, Assam. The assessee garnered funds for carrying out the Project through capital subsidy, debt and equity. While the project was underway, the unutilized funds from all the three heads were placed in short-term deposits with the Banks and interest was earned thereupon. The assessee in its return for the relevant years filed before completion of the project, claimed these receipts to be of capital nature exempted from the application of income tax not being revenue receipts. The AO ruled otherwise and held that the income under these heads was in the nature of revenue receipts and was liable to tax. The assessee challenged the assessment orders to the CIT which ruled in favour of the assessee and the Revenue's appeals to the ITAT failed. Thus, two jurisdictional authorities have decided the issue in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etting up of the project. There is no indication in the facts of the present case that the assessee utilized these funds for any purpose other than the development of the infrastructure of the plant to be set up. 15. In the case of Bongaigaon Refinery Petrochemicals Ltd. (supra) relied upon by Mr. Keyal, the assessee derived income from housing property, its guest house, charges for equipments, etc. and recoveries from contractors on account of water and electricity supply. These sources of income were held as excluded from capital receipts. In this case, the assessee did not challenge the part of the assessment order wherein, the interest income derived during the formative period was charged to tax after declaring of the same to be revenue receipt. Thus, the said judgment does not come to aid of Revenue because no adjudication was made by the Hon'ble Supreme Court on the issue of interest from unutilized capital funds. 16. However, in the present case, the factual aspect which is not disputed by the Revenue is that the interest income which was sought to be taxed by the Revenue was derived by short-term Bank deposits made from the unutilized funds received by the public sector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expected to educate the assesse and not to deprive the legitimate deductions which is otherwise entitled for the assesse. Hence respectfully following these principles and the judicial precedents relied upon we hold that the interest income on deposits earned in the sum of Rs.1,18,85,987/- for the Asst. Year 2009-10 (raised by way of additional ground) out of equity funds, shall have to be treated only as capital receipt as the same is inextricably linked with the business of the assesse and linked with the capital structure of the assesse company. Hence the ld AO is directed to delete the said addition. Accordingly the Additional Ground raised by the assesse for the Asst. Year 2009-10 is allowed." 17. Identical controversy was considered and discussed threadbare by the Hon'ble Supreme Court in the case of Commissioner of Income Tax, Bihar II, Patna Vs. Bokaro Steel Ltd., Bokaro, reported in (1999) 1 SCC 645 wherein the Hon'ble Supreme Court also considered the judgment rendered in Tuticorin Alkali Chemicals Fertilizers Ltd. Vs. CIT, reported in (1997) 6 SCC 117 and held as below: "7. The appellant, however, relied upon the decision of this Court in Tuticorin Alkali Chemicals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion by a company on amounts borrowed for the acquisition and installation of plant and machinery would form a part of the actual cost of the asset to the assessee within the meaning of that expression in Section 10(5) of the Indian Income-tax Act, 1922 and whether the assessee will be entitled to depreciation allowances and development rebate with reference to such interest also. The Court held that the accepted accountancy rule for determining cost off fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by a newly-started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production of such borrowed money can be capitalised and added to the cost of the fixed assets created as a result of such expenditure. By the same reasoning, if the assessee receives any amounts which are inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of a capital nature and cannot be taxed as income. [Emphasis supplied] 18. An identica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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