Interest on Fixed Deposits During Construction: Capital Nature, Not Taxable Income

The High Court dismissed the appeal and affirmed the ITAT's decision on capitalizing interest earned on Fixed Deposit Receipts during the construction period, as it aligned with RBI guidelines and previous judicial precedents. The Court held that such interest amounts linked to setting up plant and machinery are of a capital nature and not taxable as income, citing relevant cases. The Court found no substantial question of law as the issues were already addressed in previous decisions by the Apex Court and the High Court.

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Issues:
Challenge to ITAT order on capitalization of interest on FDRs during construction period without following RBI guidelines.

Analysis:
The High Court dealt with an Income Tax Appeal challenging the ITAT's Order dated 27th August, 2020 for the Assessment Year 2013-14. The Appellant argued that the ITAT erred in allowing the capitalization of interest on Fixed Deposit Receipts (FDRs) earned during construction without adhering to RBI guidelines. The counsel also contended that the ITAT failed to consider precedents, including the Tuticorin Alkali Chemicals case.

The Court referred to a previous order in a similar case for the Assessment Year 2012-13, where it dismissed the Revenue's appeal against the ITAT order. The Court cited the Tuticorin Alkali Chemicals case and the subsequent clarification by the Apex Court in the Bokaro Steel Ltd. case. It emphasized that amounts linked to setting up plant and machinery are of a capital nature and cannot be taxed as income. The Court also mentioned the Indian Oil Panipat Power Consortium case, where interest earned was not treated as income due to being linked with setting up the plant.

Based on these precedents, the Court concluded that no substantial question of law arises in the present appeal as the issues raised are already covered by decisions of the Apex Court and the High Court. Consequently, the Court dismissed the appeal, affirming the ITAT's decision on the capitalization of interest earned on FDRs during the construction period.

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