TaxTMI 
TaxTMI 
2019 (10) TMI 1262
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....st income of Rs. 21,36,319/- as income inextricably linked with the process of setting up the project which has yet not commenced i.e. considered as capital receipt relying on the decision of Supreme Court of India in case of Commissioner of Income Tax Vs. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC). 1.3 The learned CIT(A) has grossly erred in stating that for the interest income of Rs. 21,36,319/- the facts of the case of Tuticorm Alkalies are squarely applicable to interest income received on FDRs and thereby grossly erred in making addition of the interest income of Rs. 21,36,319/-. 1.4 The learned CIT(A) has failed to appreciate that the appellant has earned interest income from Fixed Deposits by making temporary investment from borrowed funds for its project. The receipt of interest income will go to reduce the cost of assets 1.5 Without prejudice to our claim & contentions, the learned A.O. has grossly erred in facts by allowing Rs. 21,36,598/- instead of Rs. 21,36,319/-. 1.6 The appellant respectfully prays that the interest income of Rs. 21,36,598/- be considered as capital receipt being inextricably linked with the process of setting up of the project as the same....
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....um Corporation, set up a power project at village Kovaya Dist Amreli. The assessing officer has noticed that assessee has shown other interest of Rs. 15.87 lacs as per schedule 26, however, under the head other income, the assessee had shown interest income of Rs. 0.50 only. Therefore, the assessee was asked to explain the differences. The assessee has explained that total income of Rs. 21,36,319/- (Rs. 15,36,598 + Rs. 5,99,721/-) has been considered as capital receipt and Rs. 50,405 has been considered revenue receipt. In this regard, the assessing officer has given a show cause notice to the assessee stating that interest of Rs. 21,36,319/- has been considered as capital receipt stating that GPPC has not commenced its project, however, as per director's report the GPCC's 5 MW Solar Power s has started generating revenue since March, 2012. Therefore, assessee was show caused by referring the decision of Hon'ble Supreme Court in the case of CIT vs. Bokaro Steel Ltd. as to why the interest earned by it during the year should not be treated as revenue receipt under the head income from other sources. The assessee has explained that there were two purchases undertaken by the company (....
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.... ITAT and considered that the identical issue on similar facts has been adjudicated in favour of the assessee. Relevant part of the decision is reproduced as under:- "23. That the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra), after considering the decisions in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) and Bokaro Steel Ltd. (supra) at length, held at pages 258, 259 and 260 of report, i.e., 315 ITR 255, as under:- 5. In our opinion the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 and that of Bokaro Steel Ltd. [1999] 236 ITR 315. The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals [1997] 227 ITR 172 is that if funds have been borrowed for setting up of a plant and if the funds are 'surplus' and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head "Income from other sources'. On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd. [1999] 236 ITR 315 to o....
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....rces" only if it does not fall under any other head of income as provided in s. 14 of the Act. The head "Income from other sources" is a residuary head of income. See S.G. Mercantile Corporation (P) Ltd. vs. CIT1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC) and CIT vs. Govinda Choudhury & Sons (1994) 116 CTR (SC) 61 : (1993) 203 ITR 881 (SC). 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 prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. In the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 it was found by the authorities that the funds available with the assessee in that case were 'surplus' and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as 'income from other sources&....