TaxTMI 
TaxTMI 
2013 (9) TMI 533
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....e facts and submissions brought on record. 2. The learned Counsel of the assessee proposed that the hearing of the Assessment Year 2008-09 would be proper insofar as facts have remained the same to the extent that the commencement of business has not taken place due to non-availability of land as per the Memorandum of Understanding entered into by the assessee Company and the Government of Orissa resulting in the project taking undue delay as envisaged. 3. The learned Counsel of the assessee initiating his arguments submitted that the assessee Company is an Indian Company and is a wholly owned subsidiary of POSCO, Korea of POSCO Group, of international repute. POSCO Group have specialized knowledge in steel making and were desirous to have a Port based Steel plant in the state of Orissa, India since Port based Steel plant are highly cost effective and POSCO Group has excelled in the same. POSCO- India Private Limited is a company formed to undertake a Greenfield project for setting up an Integrated Steel Plant, near Paradeep, Orissa. POSCO, Korea entered into a Memorandum of Understanding ("MoU") with the Govt. of Orissa on 22nd June 2005 to set up a 12 million Ton p.a (MTPA) Int....
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.... prawn ponds etc upon the Government land. The resistance movement has been led and supported with ideology and resources from outside and the local villagers including the encroachers were incited to oppose giving away Government or Private land for the mega project. Illegal and anti-social activities increased manifold in the pretext of project opposition, and consequent to the non-involvement of the local administration. Even the Panchayat elections were nullified. Local people supporting the project, vocational trainees and survey assistants were being terrorized. Even twice company officials were made hostage by the opposing local hoodlums. Such was the affect that after leasing 506.74 of acres of Govt. land till November,2008 , Govt. of Orissa could lease only 22.5 acres of land to POSCO in January,2010 . The total land leased to POSCO is only 528.50 acres as against the requirement of about 4000 acres for the project. And thus excepting a small portion (about 13%) of the required / agreed land could not be taken possession of through Government of Orissa. It was but logical that POSCO can start work on ground only after taking possession of encroachment free Government Land.....
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....ng Officer following the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd v. CIT (supra) considered the case of the assessee and also denied the 10% expenditure incurred on estimation on the amount of interest earned when actually the whole of the amount earned was capitalized by reducing from the project cost insofar as not a single rupee was earned on account of any other business. This was before the learned CIT(A) when he followed the decision of his predecessor CIT(A) in the Assessment Year 2008-09 by adjudicating the facts which are pertinent to recapitulate as follows:- "Additional Ground No.1: The additional ground no.1 states that the interest income of Rs.6,37,44,444/- is inextricably linked to the setting of Dhamra Port Project and therefore, the A.O. should not have taxed it under the head other sources. It appears that Dhamra Port Project is a typographical error. It should be read as Integrated Steel Project by POSCO. I have examined this issue in detail. The appellant himself has offered the income under verification. This ground was not taken in the original appeal. In fact, the integrated steel plant has not obtained the n....
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....approved project. Since the project has not got all the statutory approvals, it cannot deploy funds for setting up of the project. The appellant company has brought in the share capital which has no direct nexus with the proposed unapproved project and therefore, the share capital is to be considered as "excess". Since the share capital is a "surplus", the decision of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT (supra) will e applicable not the decision of Bokaro Steel Ltd. [1999] 236 ITR 315 (SC). The "surplus" was deployed and interest income was earned on the same. In accordance with the decision of the Hon'ble Apex court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT (supra) here funds have been brought in and in the absence of requisite clearance, the funds have become "surplus" and they are invested in bank deposits etc. and the income earned in the form of interest will be taxable under the head "Other Sources". In view of the above, there is no merit in this ground because in the facts of the case there is no direct connection between funds and setting up of the steel plant project. The steel plant project can be set up only if all the clea....
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....ion, it can be concluded that the interest earned has any link with the proposed setting up of the unapproved project. The Hon'ble Delhi High Court in the very case cited by the appellant has interpreted the decision in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT (227 ITR 172) (supra) in which the Apex court has found that if the funds are "surplus" and they are invested, the income earned in the form of interest will be taxable under the head income from other sources. Here the appellant company has brought in share capital of Rs.225 crores. Since there is no possibility of setting up of a power plant in the absence of the requisite approvals and clearances the funds, obviously, became "surplus". Under such circumstance the appellant company deposited the money in the banks and earned the interest. The appellant company has rightly declared the interest income as income from other sources. The appellant company, without any valid basis claks in this additional ground that the entire income is not taxable. Such claim of the appellant is devoid of any merit for the detailed reasons discussed above The ratio of each case is case specific. The ratio can be found....
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....tal receipt because the funds which were put into bank deposits were for land and putting up the project and the same is inextricably linked to the Power project and therefore not taxable. The Assessing Office (ACIT) did not accept the same and taxed the whole interest from bank. In appeal by IOPPCL, Commissioner (Appeals) agreed with IOPPCL's stand and passed order that such interest is not taxable / exempt from tax as capital receipt . The Tax department filed appeal to Income Tax Tribunal (ITAT) against order of CIT(A) and tax Tribunal reversed CIT(Appeals) decision and thereafter IOPPCL took the matter to the Delhi High Court. The Hon'ble Delhi High Court agreed with the IOPPCL's stand and decided that interest from bank as capital receipt and hence not taxable and held that. "5.2. It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period pri....
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....for the purpose of defraying the expenses of the construction of any work or building or the provision any plant. The reason indeed would be stronger in case such interest is paid on money taken on loan for meeting the above expenses." (p. 175). 6.1 In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought in by way of share capital for a specific purpose. Could it be said that in the former situation interest could have been capitalized and in the later situation it cannot be capitalized. To test the principle we could extend the example, that is, would our answer be any different had assessee passed on the interest to the respective shareholders. If not, then in our view the only conclusion possible is that interest earned in the present circumstances ought to be capitalized. 7. In view of the discussion above, in our opinion the Tribunal misdirected itself in applying the decision of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra ) in the facts of the present case. In our opinion on account of the finding of fact returned by....
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....has obtained various approvals , consents and permission. It has acted in best possible manner in the circumstances to pay/deposit money for Land to Govt. and private parties but the Govt. has failed to transfer/ give possession of the same and the money of Rs.225 crores brought in under Share Capital towards land and Infra facilities could not be spent and unutilized funds had to be kept in deposit in Bank which resulted in Interest which has immediate and direct link and nexus with the Project and thus the learned CIT(A) has relied upon some news item and on irrelevant considerations, erroneously distinguished POSCO's case with that of Indian Oil Panipat' case, and did not apply the same in POSCO's case and dismissed the appeal of assessee. 3.3. He submitted that in the implementation of any mega project, first the land is acquired and the Stage I clearance from 'MoEF, GoI' is obtained and thereafter the amounts are spent for acquiring land and creating infrastructure facility. It is not correct to say that unless and until all the final approvals from 'MoEF, GoI' are obtained, the project is unapproved/ unauthorized. POSCO India has obtained Stage I clearance from 'MoEF, GoI' a....
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.... not an indication of taxability was considered by the Assessing Officer on the filing of the return by the assessee declaring interest income as income from other sources and denying the claim of 10% expenditure thereof as the case laws cited by the assessee appellant before the learned CIT(A) were also distinguished by the learned Commissioner of Income-tax (A) for the Assessment Year 2008-09, the facts remaining identical as were in Assessment Years 2006-07 and 2007-08 the assessee could not now claim the applicability of facts similar to that of Hon'ble Delhi High Court's decision in the case of India Oil Panipat Power Consortium Ltd v. ITO (supra). 5. We have heard the rival parties and perused the material available on record. On our careful consideration of the facts and circumstances of case as brought on record by the authorities below, we are inclined to find the contention of the learned Counsel of the assessee appropriate to the extent that it was never a change of stance on the facts remaining the same beginning from Assessment Year 2006-07. It was a misconstruction of the facts for the purpose of finding applicability of the provisions of law ennunciated by the Hon'b....
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....all such activities which coalesce into setting up of the business. Once it is held that the assessee's income is an income connected with business, which would be so in the present case, in view of the finding of fact by the Commissioner of Income-tax (Appeals) that the monies which were inducted into the joint venture by the Koreans were primarily infused to purchase land and to develop infrastructure then it cannot be held that the income derived by parking the funds temporarily with Bank, will result in the character of the funds being changed, inasmuch as, the interest earned from the bank would have a hue different than that of business and be brought to tax under the head " Income from other sources". It is well-settled that an income received by the assessee can be taxed under the head "Income from other sources" only if it does not fall under any other head of income as provided in section 14 of the Act. The head "Income from other sources" is a residuary head of income. In the instant case, it was clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the dev....
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....ome not connected with the construction activities or business activities of the assessee, the same cannot be said in the present case where the utilisation of various assets of the company and the payments received for such utilisation are directly linked with the activity of setting up the steel plant of the assessee. These receipts are inextricably linked with the setting up of the capital structure of the assessee company. They must, therefore, be viewed as capital receipts going to reduce the cost of construction." Merits for consideration as brought on record for the AYs in appeal before us are as under : Rs. in Lakhs Particulars. As on 31.3.2006 As on 31.3.2007 As on 31.3.2008 1. Share Capital 22500.00 22500.00 22500.00 2. Land (CWIP) 307.00 664.74 1440.85 3. In Bank Deposit. 19190.00 1289.00 - 4. Interest from Bank 637.44 1,04.17 432.67 5. Pre-operative Expenses. 629.76 3736.28 5280.69 The returns filed by the assessee for the AYs 2006-07 and 2007-08 clearly indicate that the assessee at no point of time was having income from other sources irrespective of the accounting of the income having been capitalized when the claim of ex....