2007 (2) TMI 247 - AT - Income Tax

Tribunal deems interest income during construction period as revenue, rejects capital treatment

The Tribunal upheld the taxability of interest income earned by the assessee-company during the construction period as revenue receipt, following the ... Income From Other Sources Issues involved:The taxability of interest received by the assessee-company from bank deposit before the commencement of business of running a hospital.Summary:Issue 1: Taxability of interest income during construction periodThe assessee challenged the taxability of interest income earned during the construction period as a capital receipt to be set off against expenditure incurred. The Assessing Officer taxed the entire interest amount as 'Income from other sources'. The CIT (Appeals) upheld the taxability of interest as revenue receipt citing the decision in Tuticorin Alkali Chemicals & Fertilizers Ltd v. CIT [1997] 227 ITR 172. The assessee contended that the interest should be treated as a capital receipt based on various precedents. The Tribunal held that the interest earned by the assessee on bank deposits during the construction period is assessable as income, following the principles laid down by the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. The Tribunal confirmed the CIT (Appeals) order on this issue, dismissing the assessee's appeals.Issue 2: Treatment of interest received on bank depositThe controversy centered on the treatment of interest received by the assessee on bank deposits before the commencement of business. The assessee deducted pre-operative expenses from the gross interest amount and capitalized the net amount as a capital receipt. The Tribunal noted that the interest earned by the assessee was of revenue nature and should be taxed accordingly. Referring to the decision in Tuticorin Alkali Chemicals & Fertilizers Ltd, the Tribunal held that the interest earned on bank deposits during the construction period is assessable as income. The Tribunal found no reason to interfere with the CIT (Appeals) order, confirming the taxability of the interest income.Separate Judgement:In the assessment year 1995-96, the assessee raised a ground on the issue of limitation, which was not pressed by the authorized representative. Consequently, the said ground was rejected. Ultimately, all appeals of the assessee were dismissed by the Tribunal.