TaxTMI 
TaxTMI 
2019 (4) TMI 1160
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....Year and the assessment was concluded under section 143(3) of the Income Tax Act, 1961 (in short 'the Act') vide order dated 27.12.2010; wherein the assessee's income was determined at Rs. 2,01,30,250/-. This was on account of the Assessing Officer (AO) holding that the interest earned on funds deposited in Banks; out of equity contributions from promoters for construction of plant; till actual utilization for the project of setting up the Aromatic Plant in Mangalore SEZ; to be exigible to tax under the head "Income from Other Sources". In doing so, the AO rejected the assessee's claim that the interest earned should qualify for capitalization against capital work-in-progress being pre-operative expenditure incurred prior to the commencement of business. On appeal, the CIT(A) upheld the order of the AO that the said interest earned was exigible to tax as "Income from Other Sources" as the deposits were made out of surplus funds and dismissed the assessee's appeal vide the impugned order dated 26.04.2017. 3.1 Aggrieved by the order of CIT(A), Mangalore dated 26.04.2017 for Assessment Year 2008-09, the assessee has preferred this appeal before the Tribunal in which it has raised t....
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....Before the learned CIT (A), it was submitted that the appellant company is promoted by ONGC Ltd. & MRPL for setting up an aromatic complex at MSEZ. The appellant received Rs. 217.5 crores as advance against equity capital for the purpose of acquisition of land grading and development of site for industrial purposes, appointment and payment to project & Management consultants, placing orders for machineries, calling for tenders, payment to civil contractors and payments to machinery suppliers etc. 4. Land for the project admeasuring 442 acres has earmarked inside Mangalore SEZ. As the appellant company is in the construction phase and funds are infused as advance against equity from the promoters exclusively for the specific purpose of acquisition of land and development of infrastructure, the interest/earning on funds invested temporarily in Bank deposits etc., till actual utilization for the project purpose would qualify for capitalization (netting out) against the capital work in progress and preoperative expenses. The accounting has been done with books of accounts accordingly. 5. The appellant explained that the advance of the funds infused by the promotors an....
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....The clue is perhaps available in section 3 of the Act which states that for newly set up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, as per the provision of section 4 of the Act which is the charging section income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set up business, post the date of its setting up can be taxed if it is of a revenue. nature under any of the heads provided under section 14 in Chapter IV of the Act. For an income to be classified as income under the head "Profit and gains of business or profession" it would have to be an activity which is in some manner or form connected with business. The word "business" is of wide import which would also include all such activities which coalesce into setting up of the business. See Mazagaon Dock Ltd. v. CIT/Excess Profits Tax (1958) 34 ITR 368 (SC) and Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax (1954) 26 ITR 765 (SC). Once it is held that the assesses income is an income c....
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.... building or the provision of any plant. The reason indeed would be stronger in case such interest is paid on money taken on loan for meeting the above expenses." 15. 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 latter situation it cannot be capitalized. To test the principle we could extend the example, that is, would our answer be any different had assesse 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. 16. 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 (1997) 227 ITR 172 in the facts of the present case. In our opinion, on account of the finding of fact returned by the Commissioner of Incometax (Appeals) that the funds infused in the assess....
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.... to note and appreciate that Honourable Delhi High Court has followed the principle laid down by Honourable SC in Bokaro Steel Plant case 236 ITR 315(SC). It may be noted that basing on the said principle, the Honourable Delhi High Court upheld the claim of the assessee that the interest earned on short term deposit with banks by the assessee out of capital contribution by the promoters pending investment in the implementation of the project. 11. I earnestly submit that my contentions are fortified by the under noted decisions: a) CIT Vs Panem Coal Mines Ltd -ITA 639/2008 Delhi H.0 b) Electrosteel Steels Ltd. Vs DCIT -ITA No. 29 & 30 ITAT Kolkata 'C' Bench. c) CIT Vs Sastn Power Ltd. -ITA No.10/2012 Delhi H.C. d) CIT Vs Petronet LNG Ltd. -ITA 290 & 291/2011 - Delhi H.C. e) NTPC SAIL Power Co (P) Ltd. Vs CIT - ITA No.1238/2011 Delhi HC f) Bokaro Power Supply Co. Vs DCIT -ITA No. 3405 & 3692 ITAT Delhi 'A' Bench g) ITO Vs NTPC Tamil Nadu Energy Co. Ltd. -ITA 4558 & 4559 ITAT Delhi 'E' Bench h) ACIT Vs Aravali Power Co. (P) Ltd. -ITA 2953/Delhi/2012 ITAT Delhi 'A' Bench ....
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....etc., till actual utilization for the project. Therefore, according to the assessee, the interest so earned on these short-term deposits would qualify for capitalization against capital work-in-progress and pre-operative expenses; as these funds / deposits / investments and interest thereon are inextricably linked to the setting up / implementation of the project at MSEZ. 3.4.3 In the light of the facts and circumstances of the case, as discussed above, we find that the decision of the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd., Vs. ITO reported in (2009) 315 ITR 255 (Del) is squarely applicable factually to the case on hand and supports the case of the assessee. In the aforesaid case, the Hon'ble Court held that where the interest on money received on share capital is temporarily placed in fixed deposits awaiting acquisition of land and development of infrastructure, then the interest earned on funds, primarily brought in for infusion in business, cannot be classified as "Income from Other Sources". Since the interest income was earned in a period prior to commencement of business, the claim that such interest is a capital receipt, in the n....