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TMI Blog2023 (7) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... e business would be revenue in nature and assessable to tax. The assessee has generated business income and claimed revenue expenditure including finance cost. However, mere fact that the deposits were linked with projects would not alter the character of the income after the business has been set-up. As rightly held by Ld. CIT(A), the said bifurcation is only an artificial bifurcation. The terms of the project may require the assessee to make fixed deposits but the same could not alter the Tax treatment of the interest income so earned by the assessee. The interest arises to the assessee only because of creation of fixed deposits which is nothing but assessable as income from other sources . CIT-A was correct to concluded that it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t wherein the ground raised by the assessee read as under: - 1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to law and the facts of the case. 2. The impugned order has been passed without application of mind, without taking note of the evidence filed and the submissions made. 3. The learned Commissioner of Income Tax (Appeals) has erred in sustaining the assessment of the interest from bank deposits as income from other sources. 4. The learned Commissioner of Income Tax (Appeals) ought to have appreciated that such bank deposits had been made for project purposes and the interest therefrom should be deducted from the cost of the project. 5. The learned Commissioner of Income Tax (Appeals) erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant was at pre-operative stage. The assessee earned interest income of Rs. 309.15 Lacs out of which only Rs. 137.57 Lacs was offered to tax in the Profit Loss Account. The assessee bifurcated the interest income in proportion to debt and equity. The remaining interest portion was reduced from capital work-in-progress and not offered to tax. The assessee submitted that the deposits were made in the course of implementation of the project and the deposits were made as per mandatory requirement of project implementation. However, Ld. AO held that the said treatment was against principle laid down by Hon ble Supreme Court in the case of M/s Tuticorin Alkali Chemicals Ltd. (227 ITR 172). Accordingly Ld. AO proposed to treat the entire intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income could not be considered as capital receipt. It was pure and simple interest on deposits which had to be considered as income from other sources only. The bifurcation done by the assessee was artificial distinction. Most of the deposits relate to future revenue expenses and accordingly, the action of Ld. AO was upheld against which the assessee is in further appeal before us. Our findings and Adjudication 5. From the facts, it emerges that the assessee is engaged in power generation and its power plant was at pre-operative stage during this year. The assessee bifurcated interest income in the proportion of debt and equity and offered to tax only proportionate equity interest earned on fixed deposits on the reasoning that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. The assessee has generated business income and claimed revenue expenditure including finance cost. However, mere fact that the deposits were linked with projects would not alter the character of the income after the business has been set-up. As rightly held by Ld. CIT(A), the said bifurcation is only an artificial bifurcation. The terms of the project may require the assessee to make fixed deposits but the same could not alter the Tax treatment of the interest income so earned by the assessee. The interest arises to the assessee only because of creation of fixed deposits which is nothing but assessable as income from other sources . The ratio of case law of Hon ble Apex Court in M/s Tuticorin Alkali Chemicals Ltd. (227 ITR 172 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee's plant. It was thus held that the same would be capital receipt and not income of assessee from any independent sources. However, in the present case, interest income is from independent source. 9. Similarly, the case law of Hon ble High Court of Madras in India Metal One Plate Processing (P.) Ltd. vs. DCIT (108 Taxmann.com 332) is a case where the assessee received funds for specific purposes of acquiring plant and machinery. The same were kept in short term deposits and then withdrawn as and when required by the assessee. The assessee claimed that the interest was inextricably linked with process of setting up of business and therefore, the same should be treated as capital receipts. The Hon ble Court remanded the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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