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2023 (4) TMI 640

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.... ITA No.97/Gau/2018 for the Assessment Year 2014-2015. ITA No. 13 of 2022 22.10.2020 ITA No. 89/(Gau)/2018 & ITA No. 94/Gau/2018 for the Assessment Year 2011-2012. ITA No. 16 of 2022 22.10.2020  ITA No. 101/(Gau)/2018 & ITA No. 200/(Gau)/2018 for the  Assessment Year 2015-2016. 3. The common issue involved in all these three appeals is whether the interest earned by the assessee from borrowed funds (short-term/temporary deposits) can be capitalized or not. In other words, whether these amounts of interest would be liable to be taxed or would be exempted income. 4. Mr. S.C. Keyal, learned Senior Standing Counsel, Income Tax Department has proposed the following questions of law seeking admission of these appeals:- "a. Whether the Ld. Tribunal is correct in law and facts and circumstances of the case in concluding that the interest income earned from the short term deposits in banks from unutilized capital subsidy be treated as capital receipt and not to be treated as income from other sources? b. Whether the Ld. Tribunal is correct in law and on facts holding that the interest earned from short term deposits of unutilized borrowed funds was a capital? ....

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....ed that the assessee received capital subsidy from the MoCF for setting up the Project. The MoCF specifically prescribed the purposes and the manner in which the subsidy was to be utilized and the assessee was under an obligation to utilize the capital subsidy as specified by the MoCF. A separate Bank Account was maintained by the assessee for such capital subsidy and any excess amount not being utilized was temporarily parked in short-term deposits in Banks and interest was earned thereupon. These deposits were made in accordance with the guidelines of the Department of Public Enterprises. The unutilized amounts from equity capital and borrowed funds garnered for setting up the project were also parked in short term deposits in Banks and interest income was derived. Clarifications were received from the MoCF on 11.08.2010 and 15.02.2012 indicating that the interest earned from the temporary parking of such capital subsidy shall be treated as part of capital subsidy and it will correspondingly reduce the amount of capital subsidy sought from the Government. The assessee respondent accordingly claimed such interest income as capital receipts i.e. a part of capital subsidy itself. ....

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....als Pvt. Ltd., reported in 2022 0 Supreme (SC)307, the High Court dismissed the appeal simply observing that none of the questions proposed by the Revenue could be termed as involving substantial questions of law and that all the proposed questions were on factual aspects of the matter. However, no reasoning was assigned by the High Court to support this conclusion. Accordingly, the Hon'ble Supreme Court accepted the appeal of the Revenue and reversed the order of High Court. The matter was remanded to the High Court for fresh consideration. Thus, the said judgment traverses on its own factual territory inasmuch as the High Court did not assign reasons for dismissing the appeal by simply observing that no substantial question of law was involved therein. Thus the Hon'ble Apex Court interfered in the Revenue's appeal and remanded the matter to the High Court for fresh consideration. 14. In the case of Commissioner of Income Tax, Trivandrum Vs. Autokast Limited (supra) referred by Mr. S.C. Keyal, in the peculiar facts and circumstances, Hon'ble Supreme Court did not enter into the factual aspects of the matter and accepted the appeal of Revenue by placing reliance on the judgment r....

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....orary parking of capital subsidy will be treated to be a part of capital subsidy and it will be correspondingly reduced from the amount of capital subsidy sought from the Government. Consequently, as held by the Hon'ble Supreme Court in the case of Bokaro Steel Ltd. (supra), relied upon by learned counsel for the respondent, interest received from short-term deposits/from the unutilized amounts of capital subsidy, equity, debt and borrowed funds during the formative period when the project was still under construction phase and had not yet been set up was rightly claimed by the respondent assessee as capital receipt and could not have been brought under the purview of revenue receipts. The ITAT, whilst dismissing the appeals of the Revenue took into account the fact that the assessee's own case for the accounting years 2009-2010 and 2010-2011 was considered in the same manner. The relevant extracts from the judgment of the Tribunal are extracted hereinbelow for the sake of ready reference. "...............The Ld. AR drew our attention the fact that all the issues raised by both the parties are covered by the decision of the Tribunal in asessee's own case for AY 2009-10 and 2010....

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.... assessee would amount to the assessee earning any income. This Court held that if a person borrows money for business purposes, but utilizes that money to earn interest, however temporarily, the interest so generated will be his income. This income can be utilized by the assessee whichever way he likes. Merely because he utilized it to re-pay 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 SCC pp. 122-123: ITR p. 179) to the effect that it 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 Income-tax Act. This Court also emphasise....