TaxTMI 
TaxTMI 
2021 (9) TMI 757
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....018 delay in filing. To this effect, the ld. 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/-, w....
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...., as the business has not commenced during the assessment year under consideration. In response, the 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 ....
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....onsidering the submissions of the assessee, the CIT(A) confirmed the addition made by the Assessee. 9. Before us, the ld. AR of 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 20....
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.... whether the investment of borrowed funds prior to commencement of business, resulting in earning of interest by the assessee, would amount to the assessee earning any income. This Court held that 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 in....
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.... "In the present case, the assessee had deposited money to open a Letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the 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 ....
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.... of order enclosed). It is also pertinent to note that recently in [2019] 175 ITD 347 (Kolkata - Trib.) ITO, Ward - 2(3), Kolkata v. Kolkata Metro Rail Corpn. Ltd. relying the Supreme Court decisions stated supra has held that: (Copy of 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 so....
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.... assessment order observed that "Though the assessee has made deposits as per the decision of the consortium bankers" which clearly states that there is a compulsion on assessee as per Escrow agreement entered with bankers and as such the ratio laid down in Bokaro Steels Limited case is applicable. Thus, 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) o....
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....rial. 5. In the case of Tuticorin Alkali Chemicals & Fertilizers Ltd., the Apex Court held as under: "If the capital of a company is fruitfully utilised instead of keeping it idle, the income thus generated will be of the revenue nature and not accretion of capital Whether the company raised the capital by issue of shares or debentures or by borrowing 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 t....
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....and falls within the charge of section 4 is a question of law which has to be decided by the Court on the basis of the provisions of the Act and the interpretation of the term 'income' given in a large number of decisions of the High Courts, the Privy Council and also this Court. It is well-settled that income attracts tax as soon as it accrues. The application or destination of the 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 inco....
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.... scheduled banks which yielded interest income. The source of interest income earned from short term deposits taken from scheduled banks was the contract with the banks to advance the money on interest which was a conscious decision taken by the assessee. 10. The Hon'ble Special Bench also held that: "In fact once the funds contributed by way of share capital or the loan granted by the Government of India reached the 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 accounta....
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.... from NHAI that it is inextricably linked with the business operations. The appellant has not been able to prove that earning of FDR interest in its case is inextricably linked to the setting up of its business. Therefore, the same is not a capital receipt and purely in the nature of revenue receipt. It may be mentioned here that, in the case of Bokaro Steels Ltd. the assessee had earned interest on advance paid to contractors during pre-commencement 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 appell....
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....t interest income earned by the assessee-company on bank deposits made out of share capital received by it from Reserve Bank of India could not be taxed as "income from other sources". Clearly, facts of the case are different than that of the appellant. 2. I PI. CIT and Another v. Bank Note Paper Mill India Pvt., 412 ITR 415 (Karn.) - Held that interest income earned by the assessee-company on bank deposits made out of share capital received by it Ltd., from Reserve Bank of India could not be taxed as "income 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 Wes....
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....with parity to the Escrow account, then, the assessee is liable to tax on income received in the year in which the assessee is eligible to utilize the disputed amount. In view of the above observations, we remit the issue back to the file of the AO with a direction to examine the issue as per pages 8 to 14 of the paper book filed by the assessee before us. Thus, the ground raised by the assessee on this issue is treated as allowed for statistical purposes. 12. As regards ground No. 3 relating to disallowance of interest on late 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 inte....
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....y expenses not being in capital nature laid out or expended wholly and exclusively for the purpose of business carried shall be allowable to the assessee subject to explanation 1 which provide that expenditure which is offence or prohibited by law shall not be deemed to have been incurred for business and no deduction shall be made. The interest on delay deposit of TDS are incurred wholly and exclusively for the purpose of business carried on by the assessee. The interest payment is neither an offence or nor prohibited under Income Tax Act, 1961. The interest on TDS is not in penal nature 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 ....
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....We have heard the ld. counsel for both the parties and we have also perused the materials placed on record, judgements cited by the parties as well as the orders passed by the Revenue authorities. From the facts available before us, we noticed that the AO had disallowed the interest and made an addition of Rs. 18,315/- on account of late deposit of TDS by the assessee. We have gone through the judgements relied by both the parties and also we are of the view that the facts pari materia contained in the present case are distinguishable from the facts contained in the judgements/orders relied on by the assessee. In the case of Lachmandas 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 fac....
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....the ld. CIT(A) which is confirmed. Thus Ground No. 2 of the assessee is dismissed." 15.1. In the case on hand, as per paragraph 15, out of the bifurcation 6 of the amount of Rs. 17,03,927/-, Sl. No. 1 to 4, is related to interest on TDS, to which, the assessee has not remitted the TDS amounts within stipulated time and paid interest on TDS, which is not allowable expenditure u/s. 37(1) of the Income Tax Act, 1961. At Sl. No. 5 i.e. the income tax paid by the assessee of an amount of Rs. 10,47,225/- is also not allowable as per section 37(1) of the Act. Therefore, following the said decision of the Jaipur bench, we uphold the order of the CIT(A) in confirming the disallowance of Rs. 17,03,927/- made by the AO on account of interest paid by the assessee on TDS/Income-tax. Thus, this ground of appeal of the assessee is dismissed. 16. In ITA No. 547 & 548/Hyd/2018, the assessee has raised four grounds of appeal, out of which 1 & 4 are general in nature, hence, need no adjudication. 17. As regards ground No. 2 in both the appeals, relating to interest earned as 'other source of income' is similar to ground No. 2 raised in ITA No. 2122/Hyd/2018. Therefore, following the ....