TaxTMI 
TaxTMI 
2020 (10) TMI 656
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....erred both in law and facts by treating capital receipt as revenue. 5. That the appellant craves leave to add or to amend the above grounds of appeal before or at the time of hearing of the appeal. 6. For these and among other grounds to be urged at the time of hearing, adequate relief as may be deemed fit be granted in the matter. 2. Brief facts of the case are that the assessee is a public limited company filed its return of income on 27.09.2014 declaring total income of Rs.Nil and deemed total income u/s.115JB of Rs. 1,77,57,799/-. The company was incorporated in order to execute the project of construction of new railway line between Haridaspur and Paradip in Odisha on Built On Operate & Transfer Mode (BOOT). The case was selected for scrutiny and statutory notices were issued to the assessee. 3. The main issue we have to decide in this case is as to whether the interest received by the assessee on fixed deposit during construction period is income from other sources or capital receipt. The AO has treated it as an income from other sources, whereas the assessee has claimed it as a capital receipt and has not offered for taxation. The AO after considering....
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....nture partners is enclosed at PB Pg. 3-12 (Relevant Pg. 5) * That, it has been provided in the MOU that the Joint Venture Partners will provide funds via Equity Participation to the assessee company to complete the cost of the project. PB Pg. 6. * Accordingly, the assessee company issued share capital to construct the Railway Line. * Further, for construction, the assessee company has entered into a construction agreement with RVNL. Wherein, RVNL shall undertake the construction of the project (Railway Line) on behalf of the assessee company and for which the assessee company provided funds. Copy of construction agreement is at PB Pg. 13-40 (Relevant Pg. 27, Para 11 of the construction Agreement) * Moreover, as per construction agreement, if any expenditure incurs out of the funds of RVNL, then RVNL shall charge interest at the Average Prime Lending Rate on the amount so expended. (Relevant Pg. 28, Para 11.5 of the construction Agreement) * That, on a regular basis, the assessee made advances to RVNL to enable it to execute the construction work. Furthermore, on such advances, the assessee company received interest which was later adjust....
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....d on Mobilization advance relying on the order passed by the Tribunal (ITA No. 83/CTK/2016), dated 09.10.2017 in the assessee's own case for the AY 2010-11. Copy of ITAT order is placed at PB Pg. 45-49 * However, the CIT (A) confirmed the addition of Interest on FDR and Flexi Deposit relying on the decision of Tuticorin Alkali Chemical and Fertilizers Ltd. (Relevant findings of CIT (A) are at Para 4.2, Pg. 11) * Challenging the order of CIT (A), the assessee in appeal before your Honors. Our Submissions: * It is submitted that in the present case, the assessee being a Joint Venture Company of- - Rail Vikas Nigam Limited; - Government of Orissa - Paradip Port Trust, - Rungta Mines Ltd; - Essel Mining & Industrial Ltd. - Jindal Steel & Power Ltd; is incorporated as a Special Purpose Vehicle (SPV) particularly to construct a New Railway Line between Haridaspur to Paradeep in Orissa. * Further, for the purpose of construction, the assessee company entered into a construction agreement with RVNL. Wherein, RVNL shall undertake the construction of the project (Railway Line) on b....
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....lhi High Court after analyzing the ratio in the case of Tuticorin Alkali Chemicals and Bokaro Steel Ltd simultaneously, held that the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources-Relevant para of Judgment are reproduced hereunder: 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 (supra) 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". On the other hand in Bokaro Steel Ltd (s....
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....he facts and circumstances of the present case, are of the substantive opinion that if the assessee company receives any amount which is inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. Hence such receipts are capital in nature and cannot be taxed as income under income from other sources. The assessee company was formed to set up a mining project and the process of setting up was got delayed and deposits of share capital amount received from the share applicants with the bank in the form of fixed deposits for short term, is to be considered as inextricably linked with the process of setting of its plant and machinery. Accordingly, we hold that the interest earned by the assessee should not be treated as income from other sources and we allow the grounds of appeal of the assessee. Therefore, the appeal of the assessee for assessment year 2011-2012 is allowed. c) POSCO INDIA PVT. LTD VERSUS, DCIT ITA Nos. 186 and 460/CTK/2011, 461/CTK/2011 and held as under: Para 5 In the instant case, it was clear upon a perusal of the facts as found by the authorities below that the funds ....
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.... ♦ M/s Saville Hospital & Research Centre PVT. Ltd. v. ITO ITA No. 491/JP/2018 * It may also be noted that recently the Hon'ble Supreme Court in the case of NATIONAL CO-OPERATIVE DEVELOPMENT CORPORATION v. CIT in CIVIL APPEAL NOS. 5105-5107 OF 2009, dated 11.09.2020 held that interest income generated on the idle funds which is applied in the business of the assessee company is to be treated as a business income thus, fall under the head of 'Profits and Gains of Business or Profession and not under Income from Other Sources. Relevant findings of the order are as under: 23. We are in agreement with this view taken by the High Court, as the only business of the appellant-Corporation is to receive funds and then to advance them as loans or grants. The interest income arose on account of the fund so received and it may not have been utilised for a certain period of time, being put in fixed deposits so that the amount does not lie idle. That the income generated was again applied to the disbursement of grants and loans. The income generated from interest is necessarily interlinked to the business of the appellant-Corporation and would, thus, fall....
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.... as to whether it has been utilized for the revenue purpose or for the construction of the project. He also submitted that the share application money is kept pending for allotment at the year ending 31.03.2014. He also made analysis of the balance sheet and submitted that the huge amounts have been kept by the assessee in liquid form in the bank by way of investments as FD. Therefore, it is clear that the intention of the assessee is to earn interest on investment in fixed deposit and no advances were made to the contractor. Therefore, ld. CIT-DR requested that the matter should go back to the AO for verification. 6. After hearing both the sides and perusing the entire material available on record and the order of the authorities below, we find that the assessee has shown interest on fixed deposit of Rs. 3,27,79,005/- and further on perusal of the documents filed by the assessee in the paper book containing page Nos.1 to 11 filed on 8th October, 2020 on email that the assessee has filed copy of the fixed deposit and the balance sheet of the assessee company. On perusal of the balance sheet it was noticed that the assessee has shown share application money pending for allotment ....