MIS.IPITATA SPONGE IRON LTD V. COMMNR. OF INCOME TAX

SJC/88/1992

AI Insights

The case involves a dispute between the assessee and the Income Tax Department regarding the taxability of interest earned on short-term deposits during the pre-production period of a business. The Income Tax Appellate Tribunal had previously ruled that such interest constitutes income and is taxable. The assessee challenged this decision, citing precedents that support the view that such income should be capitalized and set off against pre-operative expenses. The High Court of Rajasthan supported the assessee's view, which the Department has appealed to the Supreme Court. The Supreme Court's decision in this case will determine the final outcome, but currently, the High Court's decision stands.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 761792 (HC-CUTTACK)
• Appeal Type: Others
• Pronouncement Date: 13-11-2019
• Assessment Year: misc
• Other Referred Cases: Barmer Lignite Mining Co. Ltd. vs. The DCIT, Central Circle-6, Commissioner of Income Tax vs. Bokaro Steel Ltd., Commissioner of Income Tax vs. V.P. Gopinathan, Tuticorin Alkali Chemicals and Fertilizers Ltd, Madras vs. Commissioner of Income Tax, Madras
• Laws Referred To: Income Tax Act
• Result in Favour of: Applicant
• Court: HIGH COURT
• Keywords: Capital expenses; Income Tax; Interest on deposits; Pre-production Period
• Section: 336; 337; 335

Judgement Text

" 13. 13.11.2019 Heard learned counsel for the assessee and Mr. T.K. Satapathy, learned Senior Standing Counsel for the Income Tax Department. 2. The aforementioned S.J.C. Nos.88, 89 & 90 of 1992 and S.J.C. Nos.91, 92 & 93 of 1992 have been preferred by the assessee and the Department respectively challenging the judgment and order dated 11.04.1991 passed by the learned Income Tax Appellate Tribunal, Cuttack Bench, Cuttack in I.T.A. Nos.335, 336 & 337 (CTK) of 1987. 3. The assessee in S.J.C. Nos.88, 89 & 90 of 1992 has raised the following questions of law: (1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the interest received on short term deposits during the pre-production period constitutes the income of the assessee and is liable to be taxed as income and could not be set off against the capital expenses incurred during the period prior to commencement of production including interest on borrowings? 4. Learned counsel for the assessee has relied upon a decision of High Court of Rajasthan in the case of Barmer Lignite Mining Co. Ltd. vs. The DCIT, Central Circle-6 (D.B. Income Tax Appeal No.54 of 2018, decided on 24.07.2018) wherein taking into consideration the decision of Supreme Court in the case of Commissioner of Income Tax vs. Bokaro Steel Ltd., reported in (1999) 236 ITR 315 (SC) and other decisions, it has been held that the income which has been earned from the amount which was invested in FDR during the business is not to be interpreted from other sources. It is categorically held as follows: “5. In our opinion the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case S.J.C. Nos.88, 89, 90, 91, 92 & 93 of 1992 -2- of Tuticorin Alkali Chemicals (supra) and that of Bokaro Steel Ltd. (supra). The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals (supra) is that if funds have been borrowed for setting up of a plant and if the funds are ‘surplus’ and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head ‘income from other sources’. On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd. (supra) to our mind is 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 off against pre- operative expenses.” 5. Learned Senior Standing Counsel for the Department has relied upon the decisions of the Supreme Court in the cases of Commissioner of Income Tax vs. V.P. Gopinathan, reported in AIR 2001 SC 1390 and Tuticorin Alkali Chemicals and Fertilizers Ltd, Madras vs. Commissioner of Income Tax, Madras (Decided on 08.07.1997) and has submitted that the judgment and order of High Court of Rajasthan in the case of Barmer Lignite Mining Co. Ltd. (supra) has been challenged by the Department before Supreme Court of India in SLP (C) Diary No.7790 of 2019 wherein notice is issued, but such judgment and order of High Court of Rajasthan is not stayed. 6. In the above view of the matter, we are of the considered opinion that the parties will be governed by the decision of High Court of Rajasthan in the case of Barmer Lignite Mining Co. Ltd. (supra). Further, no separate order in each of the SJCs is required to be passed in the facts situation of the case. 7. With the aforesaid observation, the aforementioned S.J.Cs. stand disposed of and decided in favour of the -3- assessee. However, if the view taken by the High Court of Rajasthan in the case of Barmer Lignite Mining Co. Ltd. (supra) is reversed/modified by the Supreme Court in the aforesaid SLP (C), it will be open for the Department to act accordingly. Issue urgent certified copy of this order as per Rules. SKG .……..........………… ( K.S. Jhaveri ) Chief Justice ……………….…….. ( K.R. Mohapatra ) Judge "