AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (12) TMI 715
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....t amounting to Rs. 55.16 crores was taxable under the head "income from other sources". 5. In an appeal preferred by the respondent/assessee, the Commissioner of Income Tax (Appeal) [in short, "CIT(A)"] sustained the view of the AO and thus dismissed the appeal. Strangely, the CIT(A), while dismissing the appeal, made the following observations: "I discussed the matter him and persuaded him to accept the Supreme Court decision in the case of Tuticorin Alkali chemicals and Fertilizers Ltd. [1997] 227 ITR 172 which is the latest case law of the apex court and this is the rule of law as on today. Therefore, I confirm the addition made by AO of Rs. 3,40,52,432/- as interest income from FDRs under the head "income from other sources"." 6. The respondent/assessee had a different understanding of what had been contended on its behalf in the hearing held by the CIT(A) and therefore, went on to prefer an appeal before the Tribunal. The Tribunal, as noted hereinabove, ruled in favour of the respondent/assessee and while doing so, applied the ratio of the judgment rendered by a coordinate bench of this court in Indian Oil Panipat Power Consortium Ltd. v. ITO, (2009) 315 ITR 255 (Del). ....
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....ch short-term FDs were created amounting to Rs. 55.16 crores. 6.5 Furthermore, on these FDs, the respondent/assessee earned interest during the relevant AY, amounting to Rs. 3,40,52,432/-. The respondent/assessee had credited the interest on FDs amounting to Rs. 3,40,52,432/- to an account titled as, "Incidental Expenditure During Construction Pending Allocation." 6.6 It was the respondent/assessee's stand before the Assessing Officer (AO) that the aforementioned amount received on FDs was capital receipt. 6.7 The AO, however, viewed it otherwise and arrived at a conclusion that the interest earned on FDs was "income from other sources"." 10. As noticed hereinabove, the CIT(A) upheld the order of the AO, which was then, on appeal, reversed by the Tribunal. It is against this backdrop counsel for the parties have addressed arguments in the matter. 11. The appellant/revenue is represented by Mr Shailendera Singh, learned senior standing counsel. Mr Singh has, broadly, submitted that the judgment rendered by the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers' case would apply to the facts that arise in the instant case. 11.1 According to Mr Singh, the respo....
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....secure loan from the banks referred to above and to regulate their use to achieve the primary object of setting up of a power transmission system. 16. It was also Mr Kantoor's submission that the temporary investment of funds was closely linked to the need to use the funds for the execution of the project i.e., setting up of the power transmission system. 16.1 In this regard, our attention was drawn, by both Mr Singh as well as Mr Kantoor, to Clause 15.1 of the TRA Agreement. Mr Kantoor, however, in addition to Clause 15.1, also drew our attention to sub-clauses (ii) and (iii) of Clause 15.2, Clauses 15.3 and 15.6. 17. We have heard learned counsel for the parties at some length. We are of the view that given the issue at hand, the test for deciding as to whether the interest earned on the fixed deposit should be treated as "capital receipt" or "income from other sources" is dependent on whether the invested funds were inextricably linked with setting up of the power transmission system. 18. The facts in this case, as noticed on 26.07.2023, disclosed that the project was funded via two sources, i.e., equity and loans. Through equity capital, the respondent/assessee gathered Rs.....
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.... such next anticipated cash withdrawal or transfer from such Account in accordance with this Agreement. Upon the occurrence and during the continuance of an Event of Default or Potential Event of Default, investment of such funds, such investments and reinvestment shall be made by the Facility Agent. Section 20 of the Indian Trusts Act, 1882 shall not apply to investments of amounts in the Trust and Retention Accounts." [Emphasis is ours] 24. The fact that permitted investments had a linkage with the amounts that were credited to the TRA sub-accounts, and provided a security for liquidation of the debt, is evident upon the perusal of sub-clauses (ii) and (iii) of Clause 15.2. For convenience, the same are extracted hereafter: "(ii) All documents of title or other documentary evidence of ownership with respect to Permitted Investments made out of any Account will be held in the custody of the Account Bank under the name and for the account of the Borrower. (iii) The Borrower shall at all times procure that there are maintained a spread of Permitted Investments (which, in the determination of the Facility Agent from time to time, are prudent) and shall match the maturiti....
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.... 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 setting up of the business. See Mazagaon Dock Ltd vs CIT & Excess Profits Tax; (1958) 34 ITR 368 (SC), and Narain Swadeshi Weaving Mills vs Commissioner of Excess Profits Tax; (1954) 26 ITR 765 (SC). Once it is held that the assessee's income is an income connected with business, which would be so in the present case, in view of the finding of fact by the CIT(A) that the monies which were inducted into the joint venture company by the joint venture partners were primarily infused to purchase land and to develop infrastructure - then it cannot be held that the income derived by parking the funds te....
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....ncome Tax v/s Sasan Power Ltd., 2012 (1) TMI 25, and Principal Commissioner of Income Tax, Jaipur-II vs Road Infrastructure Development Corporation of India, D.B. IT Appeal No. 144 of 2017. 32. We may note that Mr Singh has relied upon a more recent judgment of the Supreme Court, rendered in The Commissioner of Income Tax-IV, Ahmedabad v. Shree Rama Multi Tech Ltd., (2018) 16 SCC 744. A careful perusal of the ratio of the judgment would show that it supports the view taken by us hereinabove. The issue that came up for consideration before the Supreme Court in the said matter was whether interest accrued on account of deposit of share application money in a fixed deposit would be taxable in the hands of the assessee. The Supreme Court applied the test of inextricable linkage and went on to rule that the respondent/assessee could set off the interest earned against the expenses incurred on public issue. 32.1 We may also note that the court cited in its judgment, Bokaro Steel Ltd.'s case and the decision in Commissioner of Income Tax v. Karnal Cooperative Sugar Mills Ltd., (2000) 243 ITR 2 (SC). 32.2 The following observations made in Shree Rama Multi Tech Ltd.'s case would be ap....