TaxTMI 
TaxTMI 
2017 (8) TMI 1626
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....in confirming the addition of Rs. 2323888/-, received as interest during construction period as Income from Other Sources, since the said receipts are inextricably linked with plant set up activities hence is in the nature of Capital Receipt. 2.That the learned CIT(Appeals) and A.O. has failed to take into consideration that the company has not commenced any business activities and is solely involved in the plant set up activities. The entire funds received by the company was for the purpose of setting up of plant and was being so utilized as and when required. 3. The learned CIT(Appeals) and A.O. has failed to appreciate that the funds deposited in bank were not surplus funds as the same was required for disbursal and dep....
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....ssessment Year 2010-11, the company received interest amounting to Rs. 19,05,634/- which was again treated by the Assessing Officer as income from other sources. 5. Being aggrieved by the assessment order, the assessee filed appeals before the CIT(A). The order of the CIT(A) for A.Y. 2009-10 is extracted as under:- "5. Decision: The appellant's main contention is that the funds on which interest earned were not surplus funds of the company, but were equity contributions by the joint venture partners, for acquisitions, construction and setting up of the plant and other infrastructure facilities. I have gone through the order of the A.O. in which he has also quoted the submission of the; appellant on the receipt of the interest. B....
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....nfrastructure. I also do not agree with the submission of the appellant that the funds were not surplus. To my considered view, the funds will be treated surplus, so long those are not or at least not contemplated to be used for any other work. As a matter of fact, the use of the term surplus may be relative to the time. In any case, where the business activity is carried out, the funds are parked for earning interest so that it does not lie idle and keeps on generating some income. The facts of the assessee are not different as the interest has been earned on the funds which were not used and which were not immediately required for setting up of the capital structure. I also find that the Hon'ble Supreme Court has not over ruled its decisi....
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....upra), there have been many other decisions of the Hon'ble Supreme Court on this issue. I discuss each of them as under :- In the case of Bongaigaon Refinery & Petrochemicals Ltd. v. CIT [251 ITR 329 (SC)] the facts are similar to those of Bokaro Steel; thus requires no further elaboration. Similarly, the decision rendered by the Hon'ble Supreme Court in the case of CIT v. Karnataka Power Corporation [247 ITR 268 (SC)] was concerning interest and hire charges received from the contractors, which was held to be capital in nature. The facts of the instant case are materially different. In another case, namely that of CIT v. Karnal Co-operative Sugar Mills Ltd. [243 ITR 2 (SC)], the Hon'ble Supreme Court found that the interest had be....
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....f above, we are of the opinion that the interest income of Rs. 1,35,87,158/- as well as 7,91,51,306/- was a capital receipt not chargeable to tax during the year under consideration." 8. The Ld. AR also relied upon the judgment of Allahabad High Court in case of CIT Vs. Indo-Gulf Fertilizers & Chemicals (2006) 280 ITR 521 in the said case as well. It is held in para 12 as under:- "12. Thus the plea that the interest earned by the assessee on such loan is to be set off against the interest payable on loan given for the purpose of construction cannot be accepted . So far as the plea that the assessee was free to sue the interest income as it liked and therefore, the interest income could not be taxable, suffice it to mention that ....
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....never invested or deposited in any long term deposit instrument but automatically transferred by the bank in short term MODs Accounts in accordance with the account terms and conditions. The said MODs were reversed automatically as and when the assessee withdrew the amounts from account. There was no intention to earn any interest on such funds. The funds were kept in liquid so as to use them as and when required, since, the interest on short term MODs were inextricably link to the construction and acquisition activities in the regular courses of the assessee's activities. The interest was not earned out of the surplus funds so to treat the said income as income from other source is not justified. This claim of the assessee sustains because....