TaxTMI 
TaxTMI 
TaxTMI 
2005 (8) TMI 45
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....ment year 1988-89. Briefly stated the facts giving rise to the present reference are as follows: The company was incorporated in 1983 with the main object of setting up a fertiliser plant and manufacturing of fertilisers. During the year under consideration, the factory was under construction and no manufacturing activity had been undertaken. The assessee company received certain loans from the financial institutions with the stipulation that any interest earned on such amount of loan not utilised temporarily would go to reduce the liability of the loan. Due to certain unexpected delay, the amount of loan received remained lying with the bankers and the company managed to get some interest on these deposits with the bank. Besides there were certain miscellaneous receipts. The Assessing Officer taxed the interest and miscellaneous receipts. In appeal, the learned Commissioner of Income-tax (Appeals) had set aside the order of the Assessing Officer. In second appeal, the Tribunal, following its earlier decision in the assessee's own case for the assessment years 1986-87 and 1987-88, held that the alleged receipt of amount of interest plus miscellaneous receipts were not exigible t....
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....o be taken into consideration for means of finance before making final disbursement and therefore, the interest accrued to the assessee was only to reduce the amount of loan and therefore, it could not be taxed under the head "Income from other sources". He heavily relied upon the following passage of the decision of the apex court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT reported in [1997] 227 ITR 172 wherein the apex court has held as follows: "There is another aspect of this matter. The company, in this case, is at liberty to use the interest income as it likes. It is under no obligation to utilize 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....
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.... aforementioned letter has been reproduced. For ready reference the said clause is reproduced below: "... we advise that the various earnings and receipts of the company during the implementation of the project, such as interest earned on inter corporation/bank deposits, miscellaneous receipts will be taken into consideration for means of finance before making final disbursement for the project. Such cash accruals during project implementation will go to reduce institutional/bank loans." From a reading of the aforesaid clause it appears that the financial institutions, who were disbursing the loan were to take into account the interest income earned by the assessee. There is no such stipulation that the assessee was under some legal obligation to utilize the amount of such interest towards construction of the project. The apex court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. [1997] 227 ITR 172 has held as follows: "The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income-tax. Profits and gains of business or profession is only o....
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....thing which flows from the property. Something received in place of the property will be capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilizing borrowed capital. It is true that the company will have to pay interest on the money borrowed by it. But that cannot be a ground for exemption of interest earned by the company by utilizing the borrowed funds as its income. It was rightly pointed out in the case of Kedar Narain Singh v. CIT [1938] 6 ITR 157 (All) that 'anything which can properly be described as income is taxable under the Act unless expressly exempted'. The interest earned by the assessee is clearly its income and unless it can be shown that any provision like section 10 has exempted it from tax, it will be taxable. The fact that the source of income was borrowed money does not detract from the revenue character of the receipt. The question of adjustment of interest payable by the company against the interest earned by it will depend upon the provisions of the Act. The expenditure would have been deductible as incurred for the purpose of busi....