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TMI Blog2024 (10) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... be utilised as per the wish and will of the Company. The funds, with the income derived therefrom are to be used exclusively for the setting of the project. Thus understanding the characteristics of the amount, we hold that the interest income on the short-term deposits of the funds infused by the Government are, in the case at hand, in the nature of capital receipt and not revenue receipt . We cannot agree with the finding of the authorities to the contrary. The substantial question of law posed, is answered accordingly and in favour of the assessee. - HONOURABLE MR. JUSTICE SATHISH NINAN AND HONOURABLE MR. JUSTICE JOHNSON JOHN For the Appellant : By Advs. M. Gopikrishnan Nambiar, K. John Mathai, Joson Manavalan, Kuryan Thomas, Paulose C. Abraham, S. Parvathi. For the Respondent : None. JUDGMENT SATHISH NINAN, J. The common substantial question of law that arises for determination in these appeals is, Whether the interest income earned by the assessee from the funds received from the Government of India for setting up of the Company, taxable as income from other sources . These appeals are by the assessee, challenging the orders of the Appellate Tribunal answering the said quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexure-H orders in ITA No. 241/2019, treating the interest received from out of the investments of the equity funds as, income from other sources . 9. The orders of the assessing authority were affirmed in appeals, by the Commissioner of Income Tax (Appeals) as per Annexure-I order in ITA No. 241/2019. The assessee was also unsuccessful in its further appeals before the Income Tax Appellate Tribunal. The orders dismissing the appeals is Annexure-L (common order) in all the IT Appeals. The authorities held that the interest received from the short-term deposits are to be treated as income from other sources and it cannot be set off against the construction expenditure. It is challenging the same, that these appeals have been preferred by the assessee. 10. We have heard Sri. Kuryan Thomas, the learned counsel for the appellant and Sri. Christopher Abraham, the learned standing counsel for the respondent on the substantial question of law. 11. The learned counsel for the appellant would contend that, the interest income received from the deposits is only in the nature of a capital receipt. The fund and the interest income therefrom are integrally connected with the setting up of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case, is at liberty to use the interest income as it likes. It is under no obligation to utilise this interest income to reduce its liability to pay interest to its creditors. It can reinvest the interest income in land or shares, it can purchase securities, it can buy house property, it can also set up another line of business, it may even pay dividends out of this income to its shareholders. There is no overriding title of anybody diverting the income at source to pay the amount to the creditors of the company. It is well settled that tax is attracted at the point when the income is earned. Taxability of income is not dependent upon its destination or the manner of its utilisation. It has to be seen whether at the point of accrual, the amount is of revenue nature. If so, the amount will have to be taxed. Pondicherry Railway Co. Ltd. vs. CIT (1931) 1 Comp Cas 314; AIR 1931 PC 165. (emphasis supplied by us) 15. The judgment in Tuticorin Alkali Chemicals Fertilizers v. Commissioner of Income Tax was distinguished by the Apex Court in, Commissioner of Income Tax v. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC). It was a case where, the work of construction of the Company's fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p 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 by us) 16. In Roads Bridges Development Corporation of Kerala Ltd. v. Assistant Commissioner of Income Tax (2018) 257 Taxman 392 (Ker), a Division Bench of this Court, considering the question as to whether the interest accrued on mobilisation advances made by the assessee to its contractors is capital income or revenue income, after referring to the judgments of the Apex Court in Tuticorin Alkali Chemicals Fertilizers v. Commissioner of Income Tax (supra) and Commissioner of Income Tax v. Bokaro Steel Ltd. (supra) held that the interest income received therein was capital receipt. 17. In Principal Commissioner of Income Tax v. FACOR Power Ltd. (2016) 283 CTR (Del) 141, a Division Bench of the Delhi High Court was dealing with the question as to whether the interest income on fixed deposit receipts placed with the Bank as margin money for procurement of various capital goods for setting up of the power project, is liable to be taxed as income from other sources . The Bench, finding that the fixed deposits were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of Tuticorin Alkali Chemicals (supra) 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. (supra) 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 pre-operative expenses. After referring to the above, the Division Bench in Principal Commissioner of Income Tax v. FACOR Power Ltd. (supra) held :- 11. From the above extract, it is evident that the test that is required to be employed 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 same. ... 18. From the above judgments it is clear that, if the funds invested are not surplus funds as such, and the funds and interest accrued thereon are inextricably li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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