TaxTMI 
TaxTMI 
2009 (2) TMI 32
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....t the Judgment dated 22.04.2007 passed by the Income Tax Appellate Tribunal (hereinafter referred to as the „Tribunal") in ITA No. 2349/Del/03 and ITA No. 1573/Del/04 pertaining to Assessment Years 2001-02 and 2002-03 respectively. 2. The only issue which arose for consideration of the authorities below was as to the treatment which was to be accorded to the interest earned on monies received as share capital by the assessee which were temporarily put in a fixed deposit awaiting acquisition of land which had run into legal entanglements on account of title. The Assessing Officer had treated the interest received by the assessee in respect of the aforementioned two years as "income from other sources", whereas the Commissioner of Income....
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....als (supra). Therefore, in these circumstances it would be incumbent to note the following brief facts as recorded by the authorities below: 3.1 The assessee company was incorporated on 06.10.1999 in pursuance of a joint venture entered into between Indian Oil Corporation and Marubeni Corporation of Japan. The joint venture was conceived to set up a power project at Panipat in the state of Haryana. It was expected that the project would be set up by the end of the financial year 2000-01. In order to effectuate the purpose for which joint venture was conceived, share capital was contributed by Indian Oil Corporation and Marubeni Corporation of Japan which included Rs 20 crores by way of additional share capital. 3.2 To be noted that th....
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.... on this line of reasoning the CIT(A) applied the judgment of the Supreme Court in Bokaro Steel Ltd. (supra) and allowed the claim of the assessee by directing the Assessing Officer to delete the addition and consider the same for capitalization towards pre-operative expenses. 3.5 The Tribunal in an appeal preferred by the Revenue, by virtue of the impugned judgment, has reversed the decision of the CIT(A). 4. It is important to note that the Tribunal without holding that the finding of fact of the CIT(A), that the interest earned was „inextricably linked" with the setting up of the power plant reversed the decision of the CIT(A) by making a bald observation that the "deposit of share capital has no or very remote connection with se....
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...., as per the provision of Section 4 of the Act which is the charging Section income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under Section 14 in Chapter IV of the Act. For an income to be classified as income under the head "profit and gains of business or profession" it would have to be an activity which is in some manner or form connected with business. The word "business" is of wide import which would also include all such activities which coalesce into se....
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.... Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. 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 (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 (supra) where the assessee had earned interest on advance paid to contractors during pre-....
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....to defray expenses of the construction of any work or building or the provision of any plant in contingencies mentioned in that section even though such money constitutes share capital. The same principle, in our opinion, should hold good if interest is paid on money not raised by way of share capital but taken on loan for the purpose of defraying the expenses of the construction of any work or building or the provision any plant. The reason indeed would be stronger in case such interest is paid on money taken on loan for meeting the above expenses." 6.1 In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought i....