TaxTMI 
TaxTMI 
2022 (8) TMI 563
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of Gujarat each holding 50% share. The main object of the company to carry on the business to setup, manage, operate and maintain a Rail Based Mass Rapid Transport System around and between Ahmedabad and Gandhinagar. For the Assessment year 2016-17, the assessee filed its original Return of Income on 15.09.2016 showing "income from other sources" of Rs. 36,80,03,235/- as taxable income. Subsequently, the assessee filed Revised Return of income on 28.03.2018 declaring total taxable income at Nil and claimed refund of Rs. 4,88,47,210/-. For the reason that in the original return, the assessee treated interest income as revenue receipt and offered under the head 'Income from other sources". Subsequently, the assessee company has changed the treatment of interest income and treated the same as capital receipt in view of decision dated 22.12.2017 in ITA No. 1362/Kol/2015 and 49/Kol/2016 for the Assessment Year 2010-11 & 2011-12 in the case of Kolkata Metro Rail Corporation Ltd. Accordingly, the assessee company has filed revised return and treating the interest income as capital receipt and claimed refund of Rs. 4,88,47,210/-. The above revised return was not accepted by the Assessing....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Gandhinagar and Ahmedabad. 2) During the year under consideration i.e. for the financial year ending on 31.03.2016, the appellant has shown the other incomes as under(Source: profit & loss account- note no. 14 to the accounts);- (Figures in lakhs) Interest income............................ Rs.3679.76 Misc. income............................... Rs. 0.27 Profit on sale of assets.................. Rs. 0.05 Rs.3680.08 After debiting various expenses, the net profit before tax has been worked out to Rs.3677.71 lakhs and the surplus of profit after tax of Rs.2404.12 lakhs has been carried over to the balance-sheet. While doing so, the appellant has capitalized the expenses to the extent of Rs.2913.68/- lakhs with the following narration:- "Less: Expenses capitalized and transferred to Incidental expenses : Pending Capitalization" Thus, the profit before tax was on account of capitalizing of the expenses (not claimed as revenue expenses). 3) As per the accounting policies, the interest income was treated as revenue receipts and the expenses were capitalized and carried over to the statement showing the incid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ucture in and around Ahmedabad-Gandhinagar. Both the centra! and the state governments are supposed to provide requisite finances for implementation of the said project. The funds from the central and state governments flow directly to the appellant 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 appellant is a SPV formed by the governments of India and that of Gujarat as per the guidelines. There has been no profit motive as the entire fund entrusted and the interest accrued there from on deposits in bank though in the name of the appellant has to be applied only for the purpose of welfare of the state as provided in the guidelines. Further, if the interest receipts are capitalized even though they were credited in the Profit & Loss Account as per the accounting standards, the appellant can treat the same as capital receipts which are further required to be adjusted against the project cost and the same has also been found to be done in the subsequent years as mentioned above. 4.8 In view of the above facts and following the observations and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,80,03,325/- as capital receipt and thereby deleting the addition. In view of the above, the appellant humbly submits that the contention of the learned A.O. is bad in law and hence the same should be deleted. II. The respondent reserves its right to add, amend, alter, substitute or modify all or any of the grounds stated hereinabove as the facts and circumstances of the case may justify. 5. The ld. Sr. D.R. Shri V.K. Singh appearing for the Revenue supported the order passed by the Assessing Officer and held that the interest income is to be treated as revenue in nature and liable to be taxable under the "income from other sources" and relied upon Supreme Court judgment in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. 227 ITR 172 (SC). However he could not produce any judgment in favour of the Revenue. 5.1. Per contra Ld. Senior Counsel Shri S.N. Soparkar appearing for the assessee placed on record a Paper Book of case laws, which are as follows: (1) ITO vs. Kolkata Metro Rail Corporation Ltd. [2019] 102 taxmann.com 419 (Kolkata-Trib.) (2) DCIT vs. M/s. Rohtak Panipat Tollway Pvt. Ltd. in ITA NO. 1938/Ahd/2016 (Ahmedbad - Trib.) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee has to be applied only for the purpose of welfare of the State as provided in the guidelines. Even though they were credited in the Profit and Loss account as per the accounting standards, the assessee can treat the same as capital receipts which are further required to be adjusted against the project cost and the same has also been found to be done in the subsequent years. Therefore the claim made by the assessee is allowable in favour of the assessee and case laws relied by the ld. D.R. namely Tuticorin alkali Chemicals clearly distinguished in the decision of Kolkata Metro Rail Corporation Ltd. case as if the funds have been borrowed for setting up of a plant and if the funds are 'surplus' and then by virtue of that circumstances they are invested in fixed deposits the income earned in the form of interest will be taxable under the head 'Income from other sources". 5.4. The Hon'ble supreme Court of India in the case of Bokaro Steel Ltd. 236 ITR 315 held that, if income is earned, whether by way of interest or in any other manner on funds which are otherwise 'inextricably linked' to the setting up of the plant, such income is required to be capitalized to be set o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... exclusively for the purpose of construction of the project. The interest income earned on such Short Term deposits during construction period was fully utilized for the construction of the project and resulted in reduction of project costs. We note that the Assessee does not have any other source of income, as such, treatment of interest income is accounted for as Capital Receipt and adjusted with pre-operative expenditure during the construction period, that, the net off expenditure is carried over to balance Sheet under the head Capital-Work-in Progress. We are of the view that the Ld CIT (A) has rightly dealt with the issue and reversed the findings of the AO who had treated the interest earned at Rs. 54,86,324/- as "income from other sources".We note that 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 & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502. is that if funds have been borrowed for setting up of a plant and if the funds are 'surplus&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lt in the character of the funds being changed, in as much as the interest earned from the bank would have a huge difference than that of business and be brought to tax under the head 'Income from other sources'. It is well-settled that an income received by the assessee can be taxed under the head "Income from other sources" only if it does not fall under any other head of income as provided in section 14 of the Act. The head "Income from other sources" is a residuary head of income. 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 & Fertilizers Ltd. (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 case (supra) where the assessee had earned interest on advance paid to contractors during pre-commencement period was found to be 'inextricably ....