2023 (9) TMI 1617

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....JUSTICE) The writ petition is filed against an assessment order passed under Section 143(3) of the Income Tax Act (hereinafter referred to I.T. Act) dated 26.03.2021. The statutory remedy by way of an appeal was not availed of. The question raised is also one which can be considered in appeal; as to whether the income earned on the deposits made by the assessee, is liable to be computed in the total income of the assessee; when the interest earned is from the funds received as grants from the Government, for construction of buildings of the Police Department. It is also contended that Annexure-3 government circular has stipulated that the grants for the successive years would be reduced to the extent of the interest earned from the un-uti....

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....The department, on the other hand, points out that the assessee, is engaged in the construction of buildings for the Police Department. The decisions cited are not applicable since they were with respect to borrowed funds, as distinguished from the grants received from the Government. The decisions clearly were on the interest on borrowed funds, parked in fixed deposits for short terms, while the expansion of the business or construction activities for the purpose of business are going on. It was only in that circumstance the interest earned on short term deposits were allowed set-off as against the interest paid on such borrowed funds. 5. As far as the facts are concerned, the assessee receives grants from the State Government for the pur....

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....pany to keep the surplus funds in short-term deposits, where interest is earned; which would normally be chargeable under Section 56 of the Income Tax Act, in which event the company was not bound to utilize the interest earned to adjust it against the interest paid as borrowed capital. However, when borrowed capital is kept in short-term deposits and the interest income earned, though an independent source of income, not connected with the construction activities or business activities of the assessee; the same being inextricably connected with the setting up of a steel plant of the assessee; it could be viewed as capital receipts after commencement of business. We find no application for the dictum in the instant case. 7. In Bokaro Steel....

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....terest earned on the deposits and advances can be added in the computation of total income instead of being set off against the interest on borrowed funds, utilized for the new unit. The High Court of Delhi also followed the principle laid down by the Hon'ble Supreme Court of there being an inextricable link to the setting up of a project which makes it a capital receipt not liable to tax but, ultimately used in the reduction of the cost of the project. In that case also, the funds invested by the assessee company and the interest earned were found to be inextricably linked with the setting up of power plant and hence, liable to be treated as capital receipts. 9. In the present case, we have to notice that the interest earned is not of bor....