TaxTMI 
TaxTMI 
2021 (9) TMI 757
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....AR filed a petition along with an affidavit affirming therein that assessee companies MDs were preoccupied with other important works, which caused the impugned delay in filing of the instant appeal. Case law Collector Land Acquisition vs Mst. Katiji & Ors,: 1987 AIR 1353 (SC) and University of Delhi Vs. Union of India, Civil Appeal No. 9488 & 9489/2019 dated 17 December, 2019, hold that such a delay; supported by cogent reasons, deserves to be condoned so as to make way for the cause of substantial justice. We accordingly hold that revenue's impugned delays are neither intentional nor deliberate but due to the circumstances beyond its control. The same stands condoned. Cases are now taken up for adjudication on merits. 2. The grounds raised in these appeals are common, therefore, the grounds raised in AY 2122/Hyd/2018 are as under: "1. The order of Ld. CITCA) confirming the AO's Order is erroneous in law, contrary to facts, probabilities of the case and against the principles of equity and natural justice. 2. The Ld. CITCA) erred in treating interest earned on unutilized funds amounting to Rs. 87,73,686/-, which were inextricably linked for the purposes of developing ....
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....e assessee submitted as follows: "During the F. Y. 2012-13, some of the temporary excess funds have been invested by way of fixed term deposits with various Banks and mutual funds and income received on such deposits. Further the said receipts have been adjusted and deducted from capital work in progress for the F. Y. 2012-13. Therefore this is as per generally accepted accounting procedure and as per provisions of Income tax Act as such investments were made out of temporary unutilized funds during the course of road development activity. " 7.1. After considering the assessee's reply, the Assessing Officer concluded that the assessee company deposited the surplus funds in the various Banks & Mutual funds, and earned Interest income amounting to Rs. 87,73,686/-. In this case, the deposits made were not for giving Bank guarantee/Margin money deposit. The ideal funds lying with the company were deposited as fixed deposits in the various Banks & Mutual funds. The Assessing Officer concluded that the deposits were not compulsion to the assessee company, hence the interest received on this deposits were not Business Income to the Company and taxable under the head "Other source o....
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.... the assessee filed written submissions which are as under: "2. With respect to the first issue being interest on bank deposits, appellant is It is hereby submitted that appellant is a SPV registered under companies act, 1956 acting as concessionaire in respect of projects awarded by NHAI for design, build, finance, operate and transfer of infrastructural facilities like roads etc. under DBFOT system. 'It is also submitted that originally the work was allocated to the Consortium of BSCPL Infrastructure Limited and C&C Construction Limited and later on the SPV was formed by the consortium member as was required by the NHAI, the SPV is specifically formed to ensure that the funds are utilized exclusively for the stated purpose. Since, the appellant's operations are in work in progress and also using the funds as per the terms of agreement with NHAI as there is a time gap between the supply of material put to use for construction and the payment schedule as such temporarily deposited in banks and earned interest of Rs. 29,60,558/- for AY 2013-14 & Rs. 23,60,589/- for AY 2014-15 as stipulated under mandate as per the terms of the agreement with NHAI as there is no discretion/....
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....hat if a person borrows money for business purposes, but utilises that money to earn interest, however, temporarily, the interest so generated will be his income. This income can be utilised by the assessee whichever way he likes. Merely because he utilised it to repay the interest on the loan taken will not make the interest income as a capital receipt. The department relied upon the observations made in that judgment (at page 179) to the effect that if the company, even before it commences business, invests surplus funds in its hands for purchase of land or house property and later sells it at profit, the gain made by the company will be assessable under the head 'Capital gains'. Similarly, if a company purchases rented house and gets rent, such rent will be assessable to tax under section 22 as income from house property. Likewise, the company may have income from other sources. The company may also, as in that case, keep the surplus funds in short-term deposits in order to earn interest. Such interest will be chargeable under section 56 of the Act. This Court also emphasized the fact that the company was not bound to utilise the interest so earned to adjust it against t....
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....e supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is Lying idle has been deposited in the bank for the purpose of earning interest. The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is Incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio Laid down by this Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172, will not be attracted. The more appropriate decision in the factual situation in the present case is in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC). The appeal is dismissed. There will be no order as to costs." 2.4 The position of capitalizing interest income was further comprehensively analyzed in the recent decision of Hon'ble Supreme Court in [2018] 403 ITR 426 CIT Vs. Shree Rama Multi Tech Ltd., where in while dismissing the appeal held as under: (Copy of order enclosed) "The common rationale that is followed in all these judgment is that if there is any surplus money ....
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....f order enclosed) "Section 56 of the Income-tax Act, 1961 - Income from other sources - Chargeable as (Interest) - Assessment years 2010-11 and 2011-12 - Assessee-company was engaged in construction work for metro rail under metro project in capacity of joint venture of Central Government and State Government - Assessee obtained money from Central Government and State Government for execution of construction work for project Assessee parked money so received in bank during unutilized period and interest was earned - Assessing Officer treated interest so earned to be an income of assessee under head 'income from other sources' and brought same to tax - Whether entire fund entrusted and interest accrued therefrom on deposits in bank though in name of assessee had to be applied only for purpose of welfare of State - Held, yes - Whether, therefore, interest earned on bank deposit could not be brought to tax under head income from other sources in hands of assessee - Held, yes [Para 8]" 2.6 A digest of the above case laws reveals that if: i) if the income accrued is merely incidental and not the prime purpose of doing the act in question which resulted into accrual of some....
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.... the interest income earned is rightly deducted from the work in progress and cannot be treated as taxable income from other sources U/s. 56 of the act. 2. As per recent apex court decision in the case of [2018] 403 ITR 426 (SC) CIT v Shree Rama Multi Tech. Ltd. wherein clearly held that interest accrued on account of deposit of share application money is not taxable income. Copy of order is already part of record in Paper book Page No. 15 to 19. Further similar views was upheld by various high courts in (2020) 422 ITR, Pg:-244 (P & H) order Dt-03.02.2020, CIT v. PUNJAB POLICE HOUSING CORPORATION; (2009) 355 ITR, Pg:-255 (Del) order Dt-26.02.2009, INDIAN OIL PANIPAT POWER CONSORTIUM LTD v. ITO and (2016) 380 ITR, Pg:-474 (Del) order Dt-07.01.2016, PCIT v. FACOR POWER LTD (Copies of orders enclosed) along with other recent Tribunal judgments in (2020) 189 DTR, Pg:-46 (Mum) order Dt-05.02.2020, ACIT v. LOOP TELECOM LTD; (2019) 178 ITO, Pg:-659 (Mum) order Dt-20.03.2019, KARANJA TERMINAL & LOGISTICS (P) LTD. V. DCIT and (2016) 158 ITO, Pg:-909 (Luck) order Dt:-26.02.2016, PRAYAGRAJ POWER GENERATION CO LTD V. ITO copies of which are enclosed as paper book. 3. Further in all the jud....
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....orrowing will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something 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 utilising 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 utilising the borrowed funds as its income. The interest earned by the assessee was clearly its income and unless it could be shown that any provision like section 10 had exempted it from tax, it will be taxable. The fact that the source of income was borrowed money did not detract anything 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 bus....
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....he income has nothing to do with its accrual or taxability. It is also well-settled that interest income is always of a revenue nature unless it is received by way of damages or compensation. In the case of Berco Underwritings (India) Pvt. Ltd. (decision dated 17/06/2013 in ITA.. 0: 1678/Hyd/2012), the jurisdictional Bench of Hon'ble IT AT examined the matter in detail. In the said decision, Hon'ble ITAT discussed on the order of preference of binding precedents and followed the decisions of Hon'ble AP High Court in the cases of Sponge Iron India Ltd. and Raasi Cement Ltd. 8. In the case of Consolidated Fibres and Chemicals Ltd. (273 ITR 353), the Hon'ble Calcutta High Court examined the issue of deduction of interest incurred by the assessee from the interest income at length and held as under: "until the business commences the interest paid on the borrowed capital for acquiring asset is includible in the actual cost within the meaning of Explanation 8 to Section 43(1) and it would not be a business expenditure till the asset is first put to use and until the business commences the interest received on investment of unutilised funds will not be a business inc....
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....he hands of the assessee they become the property of the assessee and the assessee was at liberty to utilise and hold those in the manner it liked prior to their being finally utilised for the main object of setting up of thermal power plants. The fact that funds were borrowed initially lost its importance when the issue to be considered was the manner in which these funds were utilized and the taxability of the income resulting therefrom. There are a number of authorities of the High Courts to show that in the case of a business yet to be set up, interest earned by placing surplus funds in short-term deposits with the banks, arises from an independent source, i.e., a source independent from the business to be set up. There is an established accountancy practice about the capitalisation of expenditure like payment of interest towards the cost of assets and for showing the income earned during the construction period separately in the accounts and also of making tax provision for such income and, further, for setting off income against related items of expenditure so that only the net amount of the expenditure is capitalised However, it is a thing quite different from the set off of....
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.... period which was found to be inextricably linked to the setting up of the plant of the assessee and hence was a capital receipt which was permitted to be set off against pre-operative expenses. 13. In this case, it is the appellant's contention that, it is bound by the Escrow Agreement to mandatorily invest the idle funds in the permitted investments and income from such investments shall be utilized towards reducing the project cost and not for any other purpose. The appellant has submitted that it is not at liberty to spend these funds and this income accrued is only incidental to the prime purpose, i.e. complying with terms of the escrow agreement without which business cannot be functioned. The contention of the appellant is clearly not borne out be facts. Kind attention of the Bench is drawn to Pages 8 to 10 of the Paper Book dated: 02.5.2019 submitted on 03.5.2019 submitted by the appellant wherein; copy of the Concession Agreement of NHAI stating Article 31 of the said agreement on 'Escrow Account' has been submitted. Article 31.2 of the Agreement talks of 'Deposits into Escrow Account' and Article 31.3 discussed 'Withdrawals during Concession Peri....
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....from other sources". Clearly, facts of the case are different than that of the appellant. 3. Income-tax Officer, Ward- 2(3), Vs Kolkata Metro Rail Corpn. Ltd. 102 Taxmann.com 419 (Kol-Trib) Assessee here is a government company in the form of v. Kolkata joint venture of Government of India and Government of West Bengal. It has been pointed out that the funds from the Central and State Govts. Flow directly to the assessee company as equity and Subordinate Debt/Loans. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and therefore the assessee is a SPV formed by the Govt. of India and Govt. of West Bengal as per the guidelines; there is no profit motive as the entire fund entrusted and interest accrued therefrom on deposits in bank through in the name of the assessee has to be applied only for the purpose of welfare of State as provided in the guidelines. The facts of the case are totally different to that of the appellant. " In addition to above, he relied on the orders of lower authorities and written submissions, he vehemently argued the case and submitted that the case laws relied by the ld. AR is distinguishable....
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....payments of TDS amounting to Rs. 17,03,927/-, during the assessment proceedings, the AO noticed that the assessee had claimed expenditure on the following: 1. Interest on TDS (Professional) Rs. 804/- 2. Interest on TDS (194A) Rs. 68,399/- 3. Interest on TDS (Civil work) Rs. 5,84,769/- 4. Interest on TDS (Salaries) Rs. 2,730/- 5. Income Tax Rs. 10,47,225/- Total Rs. 17,03,927/- 12.1. According to the AO, since the above expenses were not an allowable expenditure u/s. 37 of the Act, disallowed Rs. 17,03,927/- : and added to the total income of the assessee 13. Before the CIT(A), the appellant submitted that the interest on TDS is nothing but a compensatory nature for delay payment of TDS termed as Interest on TDS and not in the nature of penal interest or penalty and is not a prohibited expenditure as envisaged under the ambit of explanation section 37(1). The appellant submitted that the question of disallowing this expenditure and levying tax on it does not arise as it was not at all claimed. 14. The CIT(A) after considering the submissions of the assessee, confirmed the disallowance by observing as under: "7.3 The submissions of the appellant have been caref....
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....ture but it's a compensating in the nature for delay deposit of TDS to the credit of Govt. ii) The Hon'ble Apex Court in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799 held that the interest on arrears of tax is compensatory in nature and not penal. The relevant extract of the judgment is reproduced below:- "The High Court has proceeded on the basis that the interest on an-ears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench's decision in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.) The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732 (All.) (FE), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is a....
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....das Mathura vs CIT, 254 ITR 799 and the decision of IT AT Kolkata Bench in the case of DCIT, Circle 3(1), Kolkata vs Narayani Ispat Pvt. Ltd(ITA No. 2127/Kol/2014) wherein facts were relating to liabilities of interest on arrears of Sales Tax, however, on the contrary we rely on the decision of IT AT Mumbai Bench in the case of DNV GL AS (Formerly known as DET Norske Veritas AS) vs ADIT (International Taxation) (ITA No. 4687/Mum/2016 dated 31-05-2017) wherein it was held as under:- "3. We have heard the rival contentions and gone through the facts and circumstances of the case. Brief facts are that me (sic).-\.0 perusing the profit and loss account noticed that the assessee bas paid an amount of Rs. 73,913/- being interest on delayed payment of TDS and he required the assessee to explain as to why the same should nor be disallowed. The assessee claimed that the TDS relates to payment to various traders and the same in connection and for the purpose of business. The AO noted that this amount is incurred on delayed payment of TDS and TDS being tax on income and same cannot be allowed as business expenditure under section 37(1) of the Act. Accordingly, the same was disallowed. Aggri....