M/s. Jaipur Tax Weaving Park Ltd., Jaipur V. INCOME TAX OFFICER, JAIPUR

ITA 31/JPR/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9102 (ITAT-JAIPUR)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 09-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI
• Keywords: Capital asset; Business income; Depreciation; Question of law; Capital receipt; Reassessment proceedings
• Section: 143(3); 148; 56

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S-A, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 31/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2009-10 M/S JAIPUR TEXWEAVING PARK LTD., 37-38, YARNWALA CHAMBERS, RAMGANJ BAZAR, JAIPUR CUKE VS. INCOME TAX OFFICER, WARD-7 (2) JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCJ6286B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI MUKESH KHANDELWAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI J. C. KULHARI (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 19/09/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 13/12/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-1, JODHPUR DATED 19.09.2017 FOR A.Y. 2009-10 WHEREIN THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL. 1. THAT THE LD. CIT(A) HAS ERRED IN LAW IN SUSTAI NING THE ACTION OF THE LD. AO IN TAXING A SUM OF RS. 17,85,356/- EA RNED BY THE APPELLANT COMPANY AS INTEREST ON FDR DURING PRE OPE RATION PERIOD BY IGNORING THE DOCUMENTS AND VALID EXPLANATIONS SU BMITTED BEFORE HER. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPING TEXTILE PA RK NEAR KISHANGANJ AND FOR THE PURPOSES, LAND HAS BEEN ALLOTTED BY RIICO A ND A GRANT OF RS. 23.23 CRORES HAS BEEN SANCTIONED BY THE MINISTRY OF TEXTI LE, GOVERNMENT OF INDIA. THE ASSESSEE FILED ITS RETURN OF INCOME U/S 139(1) DISCLOSING TOTAL INCOME AT. NIL, SUBSEQUENTLY NOTICE U/S 148 OF THE ACT WAS ISSUED ON 11.02.2013 AS THE AO NOTICED THAT THE ASSESSEE HAS NOT OFFERED INTEREST INCOME EARNED ON FDR DURING PRE-OPERATION PERIOD FO R TAX PURPOSES AND HAD REDUCED ITS PRE OPERATIVE EXPENSES TO THAT EXTE NT. 3. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER OBSERVED THAT DEVELOPMENT ACTIVITIES WERE I N PROGRESS AND THE ASSESSEE HAS SHOWN CAPITAL WORK IN PROGRESS AND PRE OPERATIVE EXPENSES. FURTHER, THE AO OBSERVED THAT THE ASSESSEE HAS EARN ED INTEREST OF RS. 17,57,653/- AS PER FORM 26AS DURING THE YEAR, WHICH WAS RECEIVED ON TEMPORARY DEPOSITS WITH BANK AS FDRS AND THEREAFTER A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY THE INTEREST I NCOME SHOULD NOT BE ASSESSED AS INCOME FROM OTHER SOURCES IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI C HEMICALS FERTILIZERS LTD REPORTED IN 227 ITR 172. THE REPLY OF THE ASSESSEE WAS CONSIDERED BUT NOT FOUND ACCEPTABLE AND THE ASSESSING OFFICER RECORDED HIS FINDING AS UNDER:- FOR APPLYING PARTICULAR JUDICIAL DECISION RATIO DE CIDENDI OF DECISION IS RELEVANT. THE ESCROW ACCOUNT IS JUST AN ARRANGEMENT WHEREBY AN INDEPENDENT TRUSTED THIRD PARTY I.E. BANK IN THIS C ASE, RECEIVES AND DISBURSES MONEY FOR THE TRANSACTING PARTIES, WITH T HE TIMING OF SUCH DISBURSEMENT BY THE THIRD PARTY. IN THE ASSESSEE IN STANT CASE THE ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 3 INTEREST WAS EARNED ON FDRS WITH BANKS WHICH WERE A T RS. 17,85,356/- AS AT 31/03/2009. THE INTEREST EARNED O N SURPLUS FUNDS DURING PRE OPERATION PERIOD IS A FACT WHICH IS SIMI LAR WITH THE TUTICORIN ALKALI CHEMICALS LTD. THE HON'BLE APEX CO URT IN THIS CASE HELD THAT WHERE SURPLUS FUNDS HAVE BEEN INVESTED IN TEMPORARY DEPOSIT, THE INTEREST INCOME SO ACCRUING IS LIABLE FOR TAX AS INCOME FROM OTHER SOURCES. THE HON'BLE APEX COURT IN THE C ASE OF BOKARO STEEL 236 ITR 315(SC) ALSO UPHELD THE SAME VIEW AND HELD THAT INTEREST INCOME EARNED ON ADVANCES WHICH ARE INTRIN SICALLY CONNECTED WITH BUSINESS IS ASSESSIBLE AS BUSINESS INCOME. THE DOCUMENTS FILED BY THE ASSESSEE INDICATE THAT T HE INTEREST EARNED ON THE FIXED DEPOSITS MADE AGAINST THE GRANT RECEIVED FROM GOVT. OF INDIA ARE TO BE RECOVERED /ADJUSTED FROM T HE FINAL GRANT AND THAT THE INCOME EARNED FROM INTEREST WILL BE REDUCE D FROM THE TOTAL GRANT THUS REDUCING THE GRANT OF ASSESSEE BUT THE S AME WILL NOT EFFECT THE INTEREST INCOME EARNED BY THE ASSESSEE WHICH IS TAXABLE IN VIEW OF DECISION IN THE CASE OF TUTICORIN ALKALI CHEMICA LS LTD. THE INTEREST INCOME WHICH ARISES ON INVESTMENT OF SURPLUS FUND I S LIABLE TO TAX AS INCOME FROM OTHER SOURCES. THE RATIO OF THESE CASES IS SQUARELY APPLICABLE IN THE INSTANT CASE. HENCE, INTEREST INC OME ON FIXED DEPOSIT AMOUNTING TO RS. 17,85,356/- IS TREATED AS INCOME F ROM OTHER SOURCES. THEREAFTER, THE ASSESSMENT WAS COMPLETED U/S 143(3) /147 OF THE ACT ON 10.03.2014 DETERMINING THE TOTAL INCOME AT R S. 17,85,360/- WHEREIN INTEREST ON FDR WAS BROUGHT TO TAX UNDER TH E HEAD INCOME FROM OTHER SOURCES. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 4 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ACTION OF THE AO AND THE RELEVANT FINDINGS ARE CONTAINED AT PARA 5.2 WHICH ARE REPROD UCED AS UNDER:- 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER, APPELLANT'S SUBMISSIONS AND CASE-LAWS RELIED ON BY THE AO AS WELL AS THE APPELLANT. THE AO NOTED THAT THE APPELLANT C OMPANY HAD NOT OFFERED INCOME EARNED BY IT AS INTEREST ON FDR DURI NG PRE OPERATION PERIOD FOR TAX PURPOSES AND HAD ONLY REDUCED ITS PR E OPERATIVE EXPENSES BY THIS AMOUNT. THE AO, NOT BEING SATISFIE D WITH THE ASSESSEE'S SUBMISSIONS, TAXED SUCH INTEREST RECEIVE D AT RS. 17,85,360/- AS 'INCOME FROM OTHER SOURCES'. WHI LE DOING SO, THE AO RELIED ON THE DECISION OF THE APEX COURT IN THE CASES OF TUTICORIN ALKALI CHEMICALS LTD.(SUPRA) AND BOKARO STEEL 236 I TR 315 (SC). THE APPELLANT HAS CONTESTED THIS ACTION OF THE AO BY ST ATING THAT THIS ARRANGEMENT WAS MADE BY THE ASSESSEE COMPANY TO KEE P SECURITY OF THE MONEY OF GRANT ON ONE HAND AND TO MAINTAIN LIQUIDIT Y ON THE OTHER, THE ASSESSEE COMPANY WAS DUTY BOUND TO UTILIZE THE AMOU NT OF GRANT AS PER THE SCHEME OF THE CENTRAL GOVERNMENT AND COULD NOT HAVE DEVIATED SO AS TO AVOID ANY SORT OF PENAL ACTION. BY PLACING RE LIANCE UPON VARIOUS JUDICIAL DECISIONS, THE APPELLANT REQUESTED THAT IN TEREST INCOME MAY BE ALLOWED TO BE SET OFF FROM PRE OPERATION EXPENSES A ND SHOULD NOT BE TAXED SEPARATELY AS HELD BY THE AO. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM NOT INCLINED TO AGR EE WITH THE APPELLANT'S CONTENTIONS. IT MAY BE NOTED THAT THERE IS NO DISPUTE ON THE FACT THAT SUCH INTEREST INCOME OF RS. 17,85,360/- W AS EARNED BY THE ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 5 APPELLANT FROM THE AVAILABLE FUNDS RECEIVED BY WAY OF SUBSIDY FROM GOVT OF INDIA. THE A.O.'S CASE IS THAT SUBSIDY AMOUNT WA S KEPT BY WAY OF FDRS IN THE BANK ON WHICH SUCH INTEREST INCOME WAS EARNED AND THAT MAKING OF FDRS WAS NOT AT ALL DUE TO ANY COMPELLING CIRCUMSTANCES WHICH MAY HAVE BEEN IMPOSED BY THE GOVT. OF INDIA A ND THAT IN SUCH CIRCUMSTANCES SUCH INTEREST INCOME IS TO BE TAXED A S INCOME FROM OTHER SOURCES IN THE LIGHT OF DECISION OF THE HON'BLE APE X COURT'S DECISION IN THE CASE OF TUTICORIN ALKARI CHEMICALS LTD. IN THIS CONNECTION, IT MAY BE MENTIONED THAT AS PER SETTLED LAW THE INTEREST INCO ME FROM FDRS BEFORE COMMENCEMENT OF BUSINESS WILL ALWAYS BE TAXED AS IN COME FROM OTHER SOURCES EXCEPT IN THE CIRCUMSTANCES WHEN SUCH FDRS WERE NECESSITATED DUE TO BUSINESS NEEDS OR BUSINESS EXPEDIENCY OF THE APPELLANT. IT CAN FORM PART OF THE CAPITAL COST, IF IT IS ESTABLISHED CONCLUSIVELY THAT MAKING OF SUCH BANK FDRS WAS ESSENTIALLY REQUIRED F OR EXECUTION OF THE ONGOING PROJECT OF THE APPELLANT. THERE ARE PLE THORA OF DECISIONS WHEREIN IT HAS BEEN LAID DOWN THAT INTEREST ON FIXE D DEPOSITS AND OTHER DEPOSITS BEFORE THE COMMENCEMENT OF THE BUSIN ESS WILL ALWAYS BE TAXED AS INCOME FROM OTHER SOURCES. 5. FURTHER, THE LD. CIT(A) REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS FERTILIZERS LTD (SUPRA), THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CAS E OF CIT VS. RAJASTHAN LAND DEVELOPMENT CORPORATION [1995] 211 ITR 597 (RA J.), AND DECISION OF DELHI HIGH COURT IN CASE OF CIT VS. MODI RUBBER LTD . [1994] 73 TAXMAN 337 (DELHI) AND RELYING ON THE SAME CONFIRMED THE A CTION OF AO IN TAXING INTEREST ON FDR AS INCOME FROM OTHER SOURCES. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 6 6. AGAINST THE SAID FINDING OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. DURING THE COURSE OF HEARING, THE LD. AR SUBMITTED AS UNDER: 1. AS PER POLICY OF THE GOVT., THE INTEREST EARNED ON SURPLUS FUNDS OUT OF SUBSIDY DURING PRE OPERATION PERIOD IS TO BE REF UNDED TO THE GOVERNMENT OR TO BE ADJUSTED IN THE LAST INSTALLMEN T OF GRANT. (APB 5) IS A LETTER ISSUED BY IL & FS (PROJECT IMPLEMENTATION AG ENCY APPOINTED BY THE CENTRAL GOVERNMENT AND WHO PLAYED A MAJOR ROLE IN F RAMING THE SCHEME OF THE GOVT. FOR INTEGRATED TEXTILE PARKS) VIDE WHI CH THE SAID AGENCY HAD FORWARDED MINUTES OF PROJECT APPROVAL COMMITTEE HEL D ON 21ST MARCH, 2007 WHEREIN DECISION WAS TAKEN THAT INTEREST ACCRU ED ON THE GRANTS RELEASED WOULD BE ACCOUNTED FOR AT THE TIME OF RELE ASE OF FINAL INSTALLMENT OF THE GRANT. ON APB 7 SUCH DECISION OF THE PROJECT APPROVAL COMMITTEE IS APPEARING AT POINT NO.(D). IT CLEARLY MENTIONS THAT INTEREST ON GRANTS RELEASED SHALL BE ACCOUNTED FOR AT THE TIME OF RELE ASE OF FINAL INSTALLMENT. MEANING THEREBY THAT THE GOVT. WOULD DEDUCT THE INT EREST EARNED OUT OF THE FINAL INSTALLMENT OF GRANT AND HENCE SUCH INTER EST PARTAKES THE CHARACTER OF CAPITAL RECEIPT. NEITHER THE LD. AO NO R THE LD. CIT(A) GAVE PROPER ATTENTION ON THIS PAGE. RELIANCE IS PLACED O N GUJARAT MUNICIPAL FINANCE BOARD V.S DCIT (ASSESSMENT) (221 ITR 317) ( GUJ): IN THIS CASE, THE BOARD EARNED SOME INCOME IN THE FORM OF INTERES T BY UTILIZING ITS SURPLUS AMOUNT. HOWEVER AS PER STIPULATIONS OF THE GOVT. FOR TREATING THE INTEREST INCOME AT PAR WITH GRANT IN AID, THE INTER EST SO EARNED WAS HELD NOT TAXABLE AND WAS CAPITAL RECEIPT ONLY. 2. APB 11 IS ANOTHER COMMUNICATION OF IL & FS ADDRE SSED TO THE APPELLANT WHEREIN THE REAL SPIRIT OF THE GOVERNMENT IS CLARIFIED THAT INTEREST ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 7 EARNED ON GRANTS RELEASED PENDING UTILIZATION SHALL BE ADJUSTED OUT OF FINAL INSTALMENT OF THE GRANT. AGAIN NO ATTENTION WAS GIV EN BY THE ID. AO OR THE ID. CIT (A) ON THIS PAPER. 3. APB 12 IS A NOTIFICATION ISSUED BY MINISTRY OF T EXTILES, GOVT. OF INDIA WHEREIN AGAIN THE SPIRIT OF THE GOVERNMENT STANDS C LARIFIED THAT THE INTEREST EARNED ON RELEASED GRANTS WAS TO BE SURREN DERED/ ADJUSTED TO THE GOVERNMENT. AGAIN THIS DOCUMENT WAS NOT PROPERLY AP PRECIATED BY THE ID. AO OR THE ID. CIT (A). 4. APB 13 TO 22 IS A PRINTOUT OF THE GUIDELINES OF THE SCHEME FOR INTEGRATED TEXTILE PARKS OBTAINED FROM THE OFFICIAL WEBSITE OF THE MINISTRY OF TEXTILES, GOI WHEREIN AT PAGE 17 AND 18 THE CLAUSE ABOUT SURRENDERING/ ADJUSTING THE INTEREST SO EARNED TO THE GOI WHILE R ELEASING SUBSEQUENT INSTALLMENTS IS DULY MENTIONED. THIS CLARIFIED THE WHOLE POSITION ABOUT THE INTENTION OF THE GOVERNMENT. HENCE THE INTEREST ON THE GRANTS RELEASED IS OF CAPITAL IN NATURE AND THE TREATMENT DONE BY THE APPELLANT IS ABSOLUTELY JUSTIFIED. 5. THE ID. AO HAS STATED ON PAGE 5 THAT SUCH SURREN DERING/ ADJUSTING OF THE INTEREST AMOUNT OUT OF FINAL INSTALMENT SHALL N OT AFFECT THE TAXABILITY OF INTEREST INCOME IN VIEW OF JUDGMENT OF THE HON.BLE SC IN THE CASE OF TUTICORIN ALKALI CHEMICALS LTD. IT IS BEYOND UNDERS TANDING AS TO ON WHAT BASIS THE ID. AO HAS MENTIONED LIKE THIS. THE REASO NING SO GIVEN BY THE ID. AO IS WITHOUT UNDERSTANDING THE REAL NATURE OF SUCH INTEREST INCOME. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 8 6. THE ID. CIT (A) HAS NOT STATED ANYTHING ABOUT AB OVE CONTENTION OF THE APPELLANT AND SHE HAS NOT EVEN DEALT WITH THIS PART ICULAR ASPECT OF THE CLAIM OF THE APPELLANT. 7. THE SUBSIDY WAS SANCTIONED BY THE MINISTRY OF TE XTILES, GOVT. OF INDIA FOR MEETING OUT LAND DEVELOPMENT COST, COMMON INFRASTRUCTURE AND BUILDING FOR COMMON FACILITIES ETC. AS STIPULATED I N THE SCHEME FOR INTEGRATED TEXTILES PARK. THE INTEREST EARNED ON SU CH FUNDS DURING PRE OPERATION PERIOD ARE REQUIRED TO BE HELD AS CAPITAL RECEIPT. RELIANCE IS PLACED ON ADANI POWER LTD. V/S ACIT 1, AHMEDABAD (155 ITD 239) (AHMEDABAD ITAT): THE HON'BLE COURT IN THIS CASE EX AMINED THE PURPOSE FOR WHICH FUNDS WERE RECEIVED BY IT. IF THE FUNDS W ERE OBTAINED FOR THE PURPOSE OF ACQUIRING ANY CAPITAL ASSET THE INTEREST EARNED ON TEMPORARY USE OF SUCH FUNDS IS ONLY A CAPITAL RECEIPT. IT WAS OBSERVED THAT SINCE FUNDS WERE RAISED FOR SPECIFIC PURPOSE OF SETTING U P OF POWER PLANTS AND HENCE INTEREST EARNED ON SUCH FUNDS DURING PRE OPER ATION PERIOD IS ONLY A CAPITAL RECEIPT. THE FACTS OF THIS CASE ARE SIMILAR TO THAT OF THE PRESENT APPELLANT. HERE ALSO THE SUBSIDY WAS GRANTED FOR ME ETING OUT LAND DEVELOPMENT COST, COMMON INFRASTRUCTURE, BUILDINGS FOR COMMON FACILITIES ETC. AND HENCE THE INCOME EARNED FOR TEMPORARY PARK ING OF FUNDS IS CLEARLY OF CAPITAL IN NATURE. FURTHER RELIANCE IS ALSO PLAC ED ON NTPC SAIL POWER CO. P LTD. V/S CIT (210 TAXMAN 0358) (DELHI): IN THIS C ASE THE ISSUE WAS TAXABILITY OF INTEREST EARNED ON TEMPORARY PARKING OF FUNDS IN DEPOSITS WHICH WERE TAKEN BY IT FOR SETTING UP NEW POWER PLA NT AND THE HON'BLE COURT HELD THAT INTEREST SO EARNED IS INEXTRICABLY LINKED WITH SETTING UP OF PLANT AND HENCE HAS TO BE TREATED AS CAPITAL RECEIP T GOING TO REDUCE THE CAPITAL COST OF SUCH SETTING UP. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 9 8. THE SUBSIDY WAS REQUIRED TO BE UTILIZED ONLY FOR THE PURPOSE FOR WHICH IT WAS SANCTIONED AND WITHIN THE TIME FRAME ALSO. 9. THEREFORE IT WAS THE RESPONSIBILITY OF THE MANAG EMENT OF THE APPELLANT COMPANY TO KEEP SECURITY OF THE MONEY ON ONE HAND A ND TO MAKE AVAILABLE THE REQUISITE FUNDS AS AND WHEN REQUIRED SO THAT DELAY MUST NOT TAKE PLACE IN EXECUTION OF THE PROJECT. 10. ACCORDINGLY, THE MONEY WAS KEPT DEPOSITED INTO BANK ACCOUNT OF THE APPELLANT COMPANY WITH PUNJAB NATIONAL BANK WHE REIN DIRECTIONS WERE GIVEN TO THE BANK FOR TRANSFERRING SUM OVER AND ABO VE A STIPULATED MINIMUM BALANCE IN THE ACCOUNT IN TEMPORARY FIXED D EPOSITS ON DAY TO DAY BASIS. THE BANK PROVIDES THE FACILITIES IN SUCH A W AY THAT AS AND WHEN FUNDS ARE REQUIRED MONEY LYING IN FDR IS TRANSFERRE D INTO REGULAR ACCOUNT. THE BANK CREDITS INTEREST ON SUCH TEMPORARY DEPOSIT S. DURING THIS RELEVANT YEAR THE BANK GIVEN A NET INTEREST OF RS. 17,57,653 (GROSS INTEREST RS. 17,85,356 AND REDUCED BY INTEREST DEBITED FOR WITHD RAWAL OF FDR PRIOR TO MATURITY DATE FOR RS. 27,703). 11. IN THE ABOVE WAY, THE NECESSITY OF KEEPING THE AMOUNT INTO FDR STANDS ESTABLISHED AS THIS MODE OF INVESTMENT PROVI DES SECURITY AS WELL AS LIQUIDITY AND THEREFORE THE EARNING OF INTEREST ON SUCH SUBSIDY IS INTRINSICALLY LINKED UP WITH THE SUBSIDY AND HENCE INTEREST EARNED THEREON CANNOT BE EQUATED WITH THE FACTS AND CIRCUMSTANCES IN THE TWO CASES CITED BY THE LD. AO AS WELL AS BY LD. CIT(A). ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 10 12. IT IS ALSO FURTHER STATED THAT TREATMENT OF SUC H INTEREST EARNED ON SURPLUS FUNDS DURING PRE OPERATION PERIOD IS TAX NE UTRAL I.E. WHETHER IT IS CHARACTERIZED AS CAPITAL RECEIPT OR AS A REVENUE RE CEIPT. THERE WOULD BE DIFFERENCE IN TIME OF LEVY OF TAX. IN CASE THE RECE IPT IS CHARACTERIZED AS CAPITAL RECEIPT IT IS GOING TO REDUCE PRE OPERATION COST AND SUCH PRE OPERATION COST IS ALLOCATED INTO VARIOUS ASSETS AT THE TIME OF STARTING OF PROJECT ON WHICH THE ASSESSEE WOULD BE CLAIMING DEP RECIATION AND BY CHARACTERIZING IT AS CAPITAL RECEIPT THE ULTIMATE D EPRECIATION ALLOWABLE TO THE ASSESSEE WOULD ALSO BE LOWER. WHEREAS IF SUCH R ECEIPT IS CHARACTERIZED AS REVENUE RECEIPT THEN THE PRE OPERATION COST WOUL D GO UP RESULTING INTO ALLOWING HIGHER DEPRECIATION IN FUTURE YEARS. 13. IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FER TILZERS LTD. V/S CIT (227 ITR 172) (SC), THERE WAS NO ISSUE BEFORE THE H ON'BLE SC REGARDING CONNECTION OF THE INCOME EARNED INEXTRICABLY WITH T HE BORROWED FUNDS AND HENCE IT WAS VERDICTED THAT INTEREST ON SURPLUS FUN DS DURING PRE OPERATION PERIOD IS LIABLE TO BE TAXED SEPARATELY. 14. IN THE CASE OF CIT V/S BOKARO STEEL LTD. (236 I TR 315) (SC) THE HON'BLE COURT EXAMINED THE RELATION BETWEEN THE SOU RCE OF INCOME AND ITS CONNECTION WITH THE ACTIVITY FOR WHICH IT HAD BORRO WED FUNDS AND BASED THEREON IT WAS HELD THAT INTEREST ON ADVANCES MADE TO CONTRACTORS, RENT CHARGED FROM CONTRACTORS FOR LETTING QUARTERS FOR T HE USE OF EMPLOYEES OF CONTRACTORS AND RENT OF MACHINERY LET TO THE CONTRA CTORS FOR CONSTRUCTION OF BUILDING WERE CAPITAL RECEIPT AND WOULD GO TO REDUC E THE COST OF CONSTRUCTION. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 11 15. IN THE CASE OF CIT V/S KARNATAKA POWER CORPORAT ION (247 ITR 268) (SC) THE ISSUE WAS WITH REFERENCE TO TREATMENT OF I NTEREST RECEIPTS AND HIRE CHARGES FROM CONTRACTORS AS TO WHETHER SUCH RE CEIPTS ARE REVENUE IN NATURE OR CAPITAL SO AS TO REDUCE ITS CAPITAL COST. THE HON'BLE COURT BY FOLLOWING THE THEORY ENUNCIATED IN THE CASE OF BOKA RO STEEL LTD. HELD IN FAVOUR OF THE ASSESSEE. 16. IN THE CASE OF BONGAIGAON REFINERY & PETROCHEMI CALS LTD. V/S CIT (251 ITR 329) (SC) ALSO JUDGEMENT OF THE HON'BLE SC IN THE CASE OF BOKARO STEEL LTD. WAS FOLLOWED. IT IS THEREFORE SINCERELY SUBMITTED THAT THE ACTION OF THE ID. AO AND ID. CIT (A) MAY KINDLY BE REVERSED AND APPEAL MAY PLEASE BE ALLOWED. 7. THE LD DR IS HEARD WHO HAS VEHEMENTLY ARGUED TH E MATTER. HE HAS TAKEN US THROUGH THE FINDINGS OF THE AO AND THE LD CIT(A) WHICH WE HAVE ALREADY NOTED ABOVE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE COMPANY WAS ESTA BLISHED FOR THE PURPOSE OF DEVELOPING AN INTEGRATED PARK AT SILORA, KISHANGARH, DISTT. AJMER (RAJASTHAN) AND FOR THIS PURPOSE, NECESSARY L AND WAS ALLOTTED BY RIICO LTD., GOVT. OF RAJASTHAN AND UNDER THE SCHEME FOR INTEGRATED TEXTILE PARK OF THE MINISTRY OF TEXTILES GOVERNMENT OF INDIA, THE ASSESSEE WAS SANCTIONED A CAPITAL GRANT OF RS. 38.72 CRORES OUT OF WHICH THE ASSESSEE HAD RECEIVED A SUM OF RS. 23.23 CRORES UPT ILL THE END OF THE RELEVANT PREVIOUS YEAR. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 12 9. HERE, IT WOULD BE RELEVANT TO EXAMINE THE NATURE AND PURPOSE FOR WHICH THE GRANT HAS BEEN GIVEN BY THE MINISTRY OF T EXTILE, GOVT. OF INDIA. IN THIS REGARD, WE REFER TO THE GUIDELINES FOR THE SCHEME FOR INTEGRATED TEXTILE PARK DURING THE 12 TH FIVE YEAR PLAN WHEREIN IT HAS BEEN STATED THAT PRIMARY OBJECTIVE OF THE SCHEME FOR INTEGRATED TEXT ILE PARK (SITP) LAUNCHED IN 2005 IS TO PROVIDE THE INDUSTRY WITH ST ATE OF ART WORLD CLASS INFRASTRUCTURE FACILITIES FOR SETTING UP THEIR TEXT ILE UNITS. THE SCHEME WOULD FACILITATE TEXTILE UNITS TO MEET INTERNATIONAL ENVI RONMENT AND SOCIAL STANDARDS. THE TOTAL PROJECT COST SHALL BE FUNDED T HROUGH A MIX OF EQUITY/GRANT FROM THE MINISTRY TEXTILES, STATE GOVT ., STATE INDUSTRIAL DEVELOPMENT CORPORATION, INDUSTRY, PROJECT MANAGEME NT CONSULTANT AND LOAN FROM BANKS FROM FINANCIAL INSTITUTIONS. THE GO VERNMENT OF INDIA SUPPORT UNDER THE SCHEME BY WAY OF GRANT OR EQUITY WILL BE LIMITED TO 40% OF THE PROJECT COST SUBJECT TO A CEILING OF RS. 40 CRORE FOR PARKS. THE GOVT. OF INDIA SUPPORT UNDER THE SCHEME WILL BE GENERALLY IN THE FORM OF GRANT TO THE SPV UNLESS SPECIFICALLY DECIDED BY THE PAC TO B E EQUITY. 10. THE PROJECT COST WILL COVER COMMON INFRASTRUCTU RE AND BUILDING FOR PRODUCTION/ SUPPORT ACTIVITIES (INCLUDING TEXTILE E NGINEERING, ACCESSORIES, PACKAGING) DEPENDING ON THE NEEDS OF THE ITP. A PAR T OF THE PROJECT COST WILL BE MET THROUGH THE GOVT. GRANT AND THE PURPOSE OF THE GRANT IS SETTING UP THE REQUISITE INFRASTRUCTURE AND SUPPORT FACILIT IES FOR ITP AND IS THUS CLEARLY ON CAPITAL ACCOUNT. 11. IN TERMS OF RELEASE OF GOVT. GRANT TO THE SPV I S CONCERNED, IT HAS BEEN STATED AS UNDER: ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 13 5.5 RELEASE OF FUNDS: THE FOLLOWING SCHEDULE WILL BE ADOPTED FOR RELEASE OF GOI ASSISTANCE TO THE SPV: (I) IST INSTALLMENT 1. INSTALLMENT REPRESENTING 10% OF THE TOTAL GOI SH ARE WILL BE PAID TO THE SPV SUBJECT TO SPV FURNISHING A BANK GUARANTEE OF E QUAL AMOUNT TO THE MINISTRY AND FULFILLING OF THE FOLLOWING CRITERIA:- (A) ESTABLISHMENT OF SPV. (B) INCLUSION OF ONE REPRESENTATIVE OF GOVERNMENT OF IN DIA AND ONE REPRESENTATIVE OF THE PMC ON THE BOARD OF DIRECTORS . (C) LAND TO BE IN THE POSSESSION OF SPV. (D) ISSUANCE OF SHARES BY SPV TO MEMBERS IN PROPORTION OF AREA ALLOCABLE TO THEM. (E) EXECUTION OF SHARE HOLDERS' AGREEMENT. (F) ESTABLISHMENT OF ESCROW ACCOUNT IN A NATIONALIZED BANK. (G) RECOMMENDATION OF PMC CONFIRMING THE ABOVE POINTS ( A) TO (F). (H) DPR DULY VALIDATED BY PMC, AND APPROVED BY PROJECT APPROVAL COMMITTEE. (II) IIND INSTALLMENT IIND INSTALLMENT REPRESENTING 15% OF THE TOTAL GOI SHARE WILL BE PAID TO THE SPV SUBJECT TO SPV INCURRING THEIR PROPORTIONAT E CONTRIBUTION (I.E. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 14 25% OF THE TOTAL SPV SHARE FROM ALL THE SOURCES) OF THE GRANT RELEASED AND FULFILLMENT OF FOLLOWING CRITERIA: (A) UTILISATION CERTIFICATE FOR THE 1ST INSTALLMENT (B) DETAILS OF EQUITY CONTRIBUTION (C) SANCTION LETTER FOR LOAN COMPONENT, IN CASE SPV IS TAKING TERM LOANS. (D) AWARD OF CONTRACTS WORTH EQUIVALENT TO AT LEAST 30% OF THE TOTAL PROJECT COST EXCLUDING THE LAND COST. (E) AVAILABILITY OF ALL STATUTORY CLEARANCES NECESSARY FOR COMMENCEMENT OF THE PROJECT AS CERTIFIFED BY PMC, I NCLUDING WATER AND ELECTRICITY. (F) THE BANK GUARANTEE GIVEN BY THE SPV WILL BE RETURNE D UPON SANCTION OF 2 ND INSTALLMENT OF GRANT BY THE MINISTRY. (G) INTEREST, IF ANY EARNED ON THE GOI GRANT WILL BE RETURNED/ADJUSTED WHILE CLAIMING THE INSTALLMENT. A CERTIFICATE FROM THE BANK SHALL BE SUBMITTED ALONG WITH THE CLAIM III) IIIRD INSTALLMENT (H) III INSTALLMENT REPRESENTING 25% OF THE TOTAL G OI SHARE SHALL BE RELEASED AFTER THE UTILISATION OF THE 2 ND INSTALLMENT AND AFTER THE PROPORTIONATE EXPENDITURE (I.E. 50% OF THE TOTAL SP V SHARE FROM ALL THE SOURCES) HAS BEEN INCURRED BY THE SPV. UTILISATION CERTIFICATE (UC) OF THE 2 ND INSTALLMENT SHALL BE SUBMITTED BY THE SPV AT THE T IME OF MAKING CLAIM FOR THE 3 RD INSTALLMENT. INTEREST, IF ANY EARNED ON THE GOI ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 15 GRANT WILL BE RETURNED/ADJUSTED WHILE CLAIMING THE INSTALLMENT. A CERTIFICATE FROM THE BANK SHALL BE SUBMITTED ALONGW ITH THE CLAIM (IV) IVTH INSTALLMENT (A) IV INSTALLMENT REPRESENTING 25% OF THE TOTAL G OI SHARE AFTER THE UTILIZATION OF THE 3 RD INSTALLMENT AND AFTER THE PROPORTIONATE EXPENDITURE (I.E. 75% OF THE TOTAL SPV SHARE FROM A LL THE SOURCES) HAS BEEN INCURRED BY THE SPV. UTILIZATION CERTIFICATE (UC) OF THE III INSTALLMENT SHALL BE SUBMITTED BY THE SPV A T THE TIME OF MAKING CLAIM FOR THE IVTH INSTALLMENT. INTEREST, IF ANY EARNED ON THE GOI GRANT WILL BE RETURNED/ADJUSTED WHILE CLAIM ING THE INSTALLMENT. A CERTIFICATE FROM THE BANK SHALL BE S UBMITTED ALONGWITH THE CLAIM (V) VTH INSTALLMENT (A) V INSTALLMENT REPRESENTING 25% OF THE TOTAL GOI SHARE WILL BE RELEASED AFTER SUCCESSFUL COMPLETION OF THE PROJECT AND AFTER 33% OF THE UNITS IN ITP(OR A HIGHER PERCENTAGES DE TERMINED BY PAC FOR SUCCESSFUL COMPLETION OF THE SPECIFIC PROJE CT) START THEIR PRODUCTION. UTILIZATION CERTIFICATE (UC) OF THE IV INSTALLMENT SHALL BE SUBMITTED BY THE SPV AT THE TIME OF MAKING CLAM, FOR THE FINAL INSTALLMENT. INTEREST, IF ANY EARNED ON THE GOI GRANT WILL BE RETURNED/ADJUSTED WHILE CLAIMING THE INSTALLMENT. A CERTIFICATE FROM THE BANK SHALL BE SUBMITTED ALONGWITH THE CLAIM. 5.7. SEPARATE ACCOUNTS SHALL BE KEPT BY SPV FOR THE FUN DS RELEASED BY GOI, WHICH SHALL BE SUBJECT TO AUDIT BY THE COMPTROLLER & AUDITOR GENERAL OF INDIA. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 16 5.8. IN THE EVENT OF AN SPV WITHDRAWING FROM EXECU TING A PROJECT BEFORE COMPLETION OF THE PROJECT, THE SPV SHOULD IMMEDIATE LY RETURN THE GOVERNMENT ASSISTANCE TOGETHER WITH INTEREST ACCRUE D. PAYMENT OF PENAL INTEREST BY THE SPV SHALL BE DECIDED BY THE PROJECT APPROVAL COMMITTEE (PAC) ON CASE TO CASE BASIS. ANY REVISION IN THE PE RIOD OF IMPLEMENTATION MUST HAVE THE APPROVAL OF THE PAC. I N CASE OF DELAYS IN IMPLEMENTATION OF THE PROJECT BEYOND THE AGREED TIM E SCHEDULE AS APPROVED BY PAC. THE MINISTRY OF TEXTILES SHALL HAV E THE RIGHT TO IMPOSE PENALITIES ON THE SPV AS GIVEN BELOW. (I) DELAY OF UPTO 3 MONTHS IN THE COMPLETION OF THE PROJECT WOULD REDUCE THE GRANT AMOUNT BY 1% (II) FURTHER DELAY IN THE IMPLEMENTATION OF THE PRO JECT WOULD REDUCE THE GRANT AMOUNT BY AN ADDITIONAL 1% FOR EVERY 1 MONTH OF DELAY. (III) IN THE EVENT OF PROJECT IMPLEMENTATION GETTING DELA YS BEYOND 12 MONTHS, THEN THE PAC COULD CONSIDER CLOSURE OF T HE PROJECT AT THE CURRENT LEVEL OF GRANT ASSISTANCE AND CANCEL THE BA LANCE UNDRAWN GRANT AMOUNT. (IV) IN THE EVENT THE GRANT AMOUNT IS REDUCED AS INDICAT ED ABOVE, THE SPV SHOULD MEET THE CONSEQUENT GAP THROUGH ITS OWN SOURCES.(V) IF IT IS FOUND THAT THE GRANT HAS BEEN UTILIZED BY THE SPV F OR NON ELIGIBLE COMPONENTS OF THE PROJECT, MOT SHALL HAVE THE RIGHT TO LEVY PENALTIES ON THE SPV AS MAY BE DECIDED BY THE PAC. (VI) IN THE EVENT THE PARK IS CANCELLED BY PAC FOR ANY R EASON WHATSOEVER THEN THE SPV SHALL IMMEDIATELY RETURN TH E GOVERNMENT ASSISTANCE TOGETHER WITH THE INTEREST ACCRUED THERE ON, IF ANY. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 17 PAYMENT OF PENAL INTEREST BY THE SPV @ 10% OR AS DE CIDED BY THE PROJECT APPROVAL COMMITTEE (PAC) ON CASE TO CASE BA SIS TO BE RETURNED BY THE SPV. (VII) THE DECISION OF THE PAC WOULD BE FINAL AND BINDING ON THE SPV. 5.9 IN EVENT OF TERMINATION OF PROJECT, MISUTILISAT ION OF THE GRANT OR UNJUSTIFIED UNTOWARD DELAY IN COMPLETION OF THE PAR K THE SPV WILL BE LIABLE TO RETURN THE GRANT WITH INTEREST THEREON AN D/OR PENALTY AS DECIDED BY THE PAC AND MOT SHALL BE WITHIN ITS RIGH TS TO RECOVER THE MONEYS AS ARREAR OF LAND REVENUE. 12. IT IS THUS OBSERVED THAT THE SCHEME ENVISAGES O PENING A SEPARATE BANK ACCOUNT UNDER AN ESCROW ARRANGEMENT WHERE THE GRANTS SO DISBURSED BY THE GOVT. OF INDIA SHALL BE CREDITED. FURTHER, THERE ARE MECHANISM PUT IN PLACE TO CLOSELY MONITOR THE UTILIZATION OF THE GRANT FOR THE PURPOSES IT HAS BEEN GIVEN I.E, SETTING UP OF THE INFRASTRUCTUR E FACILITIES AND ALSO THE PENAL MECHANISM HAS BEEN PUT IN PLACE IN CASE OF MI SUTILISATION AT EACH STAGE OF DISBURSEMENTS. 13. FURTHER, IT HAS BEEN SPECIFICALLY PROVIDED THAT THE INTEREST EARNED ON THE GOVT. GRANT WILL BE RETURNED/ADJUSTED WHILE CLA IMING THE NEXT INSTALLMENT OF GRANT. IN THIS REGARD, THERE HAVE BE EN SUBSEQUENT COMMUNICATION ISSUED BY THE PROJECT MANAGEMENT COMP ANY TO THE ASSESSEE COMPANY DATED 3 RD JUNE, 2013 AND 2 ND JULY, 2013 AND THE TEXT THEREOF READS AS UNDER:- LETTER DATED 3 RD JUNE, 2013: ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 18 AS DISCUSSED RECENTLY, WE ARE FORWARDING HEREWITH THE MINUTES OF THE MEETING OF THE PROJECT APPROVAL COMMITTEE HELD ON M ARCH 21, 2007, WHEREIN IT WAS DECIDED THAT THE INTEREST ACCRUED ON THE GRANT RELEASED TO THE SPVS WOULD BE ACCOUNTED FOR AT THE TIME OF RELE ASE OF FINAL INSTALLMENT OF THE GRANT. PLEASE REFER TO PARA (D) UNDER AGENDA ITEM NO. 1 ON PAGE 1 OF THE MINUTES. THEREFORE, IT IMPLIES THAT INTEREST EARNED OUT OF THE FIXED DEPOSITS CREATED OUT OF THE GRANT MONIES IS REFUNDA BLE TO THE GOVT. OF INDIA. ACCORDINGLY, WHILE RELEASING THE FINAL INSTA LLMENTS OF GRANT TO THE PARKS, THE MINISTRY HAS BEEN DEDUCTING THE INTEREST EARNED FROM THE FINAL REMITTANCE TO THE SPVS. WE ALSO CONFIRM THAT THE ABOVE IS APPLICABLE TO JAI PUR TEXWEAVING PARK LIMITED, AND THE SAID PARK IS PART OF THE 22 PARKS CONSIDERED FOR REVIEW AT THE ABOVE MENTIONED PAC MEETING. LETTER DATED 2 ND JULY, 2013: PLEASE REFER TO OUR LETTER DATED JUNE 3, 2013 AND YOUR LETTER DATED JULY, 2013 ON THE ABOVE SUBJECT. YOU HAVE SOUGHT CLARIFIC ATIONS ON THE FOLLOWING PARA: INTEREST ACCRUED, IF ANY, ON THE GRANT RELEASED BY THE GOVERNMENT TO THE SPVS MAY BE ACCOUNTED FOR AT THE TIME OF RELEASE OF FINAL INSTALLMENT OF GRANT. THE SPVS MAY BE SUITABLY INFORMED. WE MAY CLARIFY THAT THE GOVERNMENT GRANT IS DISBURS ED INTO A SEPARATE ACCOUNT OPENED BY THE SPV WITH A BANK. AS THESE GRA NT DISBURSEMENTS ARE RECEIVED IN ADVANCE WITH EXPENDITURE YET TO BE INCU RRED, THE FUNDS ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 19 NORMALLY LIE IN THE ACCOUNT UNUTILIZED FOR VARYING PERIODS OF TIME. THEREFORE, SEVERAL SPVS CONVERT THE UNUTILIZED BALA NCES IN THE ACCOUNT INTO FIXED DEPOSITS WITH THE BANK, WHICH YIELD INTEREST TO THE SPVS. THE ABOVE DECISION OF THE PAC WAS AS A RESULT OF THE SAME AND THEREFORE THE INTEREST ON SUCH WAS TO BE ADJUSTED WHILE RELEASING THE FINA L INSTALLMENT OF GRANT. WE HOPE THIS CLARIFIES THE MATTER. WE THUS FIND THAT WHERE THE GRANT FUNDS ARE KEPT TE MPORARY IN FIXED DEPOSITS, THE INTEREST EARNED ON SUCH FUNDS BELONG TO THE GOVT. AND THE MECHANISM WHICH HAS BEEN DEVISED IS THAT THE INTERE ST SHALL BE ADJUSTED WHILE RELEASING THE FINAL INSTALLMENT AND TO THAT E XTENT, THE FINAL INSTALLMENT OF GRANT SHALL BE REDUCED. IN OTHER WO RDS, THE INTEREST PARTAKE THE CHARACTER OF GRANT-IN-AID AS PER THE SCHEME NOT IFIED BY THE GOVERNMENT WHICH IS GIVEN FOR SETTING UP THE REQUIS ITE INFRASTRUCTURE FOR INTEGRATED TEXTILE PARK. 14. IN TERMS OF TREATMENT OF SUCH INTEREST INCOME, THE ASSESSEE HAS SHOWN THE SAME BY CREDITING THE ACCOUNT OF PRE-OPE RATIVE EXPENSES IN ITS BOOKS OF ACCOUNTS AND HAS NOT OFFERED THE SAME TO TAX. THE TAXABILITY OF INTEREST EARNED ON DEPOSITS DURING THE PRE-OPERA TIVE STAGE HAS BEEN A SUBJECT MATTER OF DISPUTE AND JUDICIAL SCRUTINY. I N THIS REGARD, WE REFER TO THE DECISION OF THE COORDINATE BENCH IN CASE OF ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHAN LTD VS DCIT (ITA NO. 628/JP/2014 DATED 11.08.2016) WHEREIN VARIOUS JUDICIAL AUTHORITIES INCLUDING THE DECISIONS CITED AT THE BAR BY BOTH TH E PARTIES HAVE BEEN EXAMINED IN DETAIL: ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 20 2.10 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSU ED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT BOTH THE PARTIES HAVE RELIED UPON THE DECISIONS OF THE HON'BLE SUPREME COURT AND IN ADDIT ION, THE ASSESSEE HAS RELIED UPON THE DECISIONS OF HON'BLE DELHI HIGH COU RT. THEREFORE, IT WOULD BE APPROPRIATE TO FIRST REFER TO THESE DECISIONS AN D SOME OF THE OTHER RECENT DECISIONS OF HONBLE HIGH COURTS AND COORDIN ATE BENCH DECISIONS. 2.11 IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FE RTILIZERS LTD. (SUPRA), THE HON'BLE SUPREME COURT HELD AS UNDER: THE FACTS OF THIS CASE WERE NOT IN DISPUTE. IN THE USUAL COURSE, INTEREST RECEIVED BY THE COMPANY FROM BANK DEPOSITS AND LOANS WOULD BE TAXABLE AS INCOME UNDER THE HEAD INCOME FR OM OTHER SOURCES' UNDER SECTION 56. IT WAS ARGUED ON BEHALF OF THE COMPANY THAT IT HAD NOT YET COMMENCED ITS BUSINESS AND IN A NY EVENT IF THE INCOME WAS DERIVED FROM FUNDS BORROWED FOR SETTING UP THE FACTORY OF THE COMPANY, IT SHOULD BE ADJUSTED AGAINST THE I NTEREST PAYABLE ON THE BORROWED FUNDS. NEITHER OF THE TWO FACTORS CAN AFFECT TAXABILITY OF THE INCOME EARNED BY THE COMPANY THE TOTAL INCOME OF THE COMPANY IS C HARGEABLE TO TAX UNDER SECTION 4. THE TOTAL INCOME HAS TO BE COM PUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. SECTION 14 LAYS DOWN THAT FOR THE PURPOSE OF COMPUTATION, INCOME OF AN ASSESS EE HAS TO BE CLASSIFIED UNDER SIX HEADS. IN THE INSTANT CASE, THE COMPANY HAD CHOSEN NOT TO KEEP ITS SURPLUS CAPITAL IDLE, BUT HAD DECIDED TO INVEST IT FRUITFUL LY. THE FRUITS OF SUCH INVESTMENT WILL CLEARLY BE OF THE REVENUE NATURE. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 21 IF THE CAPITAL OF A COMPANY IS FRUITFULLY UTILISED INSTEAD OF KEEPING IT IDLE, THE INCOME THUS GENERATED WILL BE OF THE REVE NUE NATURE AND NOT ACCRETION OF CAPITAL WHETHER THE COMPANY RAISED THE CAPITAL BY ISSUE OF SHARES OR DEBENTURES OR BY BORROWING WILL NOT MAKE ANY DIFFERENCE TO THIS PRINCIPLE. IF BORROWED CAPITAL I S USED FOR THE PURPOSE OF EARNING INCOME, THAT INCOME WILL HAVE TO BE TAXED IN ACCORDANCE WITH LAW. INCOME IS SOMETHING WHICH FLOW S FROM THE PROPERTY. SOMETHING RECEIVED IN PLACE OF THE PROPER TY WILL BE CAPITAL RECEIPT. THE AMOUNT OF INTEREST RECEIVED BY THE COM PANY FLOWS FROM ITS INVESTMENTS AND IS ITS INCOME AND IS CLEARLY TA XABLE EVEN THOUGH THE INTEREST AMOUNT IS EARNED BY UTILISING BORROWED CAPITAL. IT IS TRUE THAT THE COMPANY WILL HAVE TO PAY INTERE ST ON THE MONEY BORROWED BY IT. BUT THAT CANNOT BE A GROUND FOR EXE MPTION OF INTEREST EARNED BY THE COMPANY BY UTILISING THE BOR ROWED FUNDS AS ITS INCOME. THE COMPANY WAS AT LIBERTY TO USE THE INTEREST INCO ME AS IT LIKED IT WAS UNDER NO OBLIGATION TO UTILISE THIS INTEREST IN COME TO REDUCE ITS LIABILITY TO PAY INTEREST TO ITS CREDITORS. IT COUL D RE-INVEST THE INTEREST INCOME IN LAND OR SHARES, IT COULD PURCHASE SECURIT IES, IT COULD BUY HOUSE PROPERTY, IT COULD ALSO SETUP ANOTHER LINE OF BUSINESS, IT MIGHT EVEN PAY DIVIDENDS OUT OF THIS INCOME TO ITS SHAREH OLDERS. THERE WAS NO OVERRIDING TITLE OF ANYBODY DIVERTING THE IN COME AT SOURCE TO PAY THE AMOUNT TO THE CREDITORS OF THE COMPANY. IT IS WELL-SETTLED THAT TAX IS ATTRACTED AT THE POINT WHEN THE INCOME IS EARNED TAXABILITY OF INCOME IS NOT DEPENDENT UPON ITS DEST INATION OR THE MANNER OF ITS UTILISATION. IT HAS TO BE SEEN WHETHE R AT THE POINT OF ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 22 ACCRUAL, THE AMOUNT IS OF THE REVENUE NATURE AND IF SO, THE AMOUNT WILL HAVE TO BE TAXED. IT IS TRUE THAT THE SUPREME COURT HAS VERY OFTEN RE FERRED TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MAD E BY A COMPANY OR VALUE OF THE ASSETS OF A COMPANY. BUT WHEN THE Q UESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHE THER CERTAIN DEDUCTIONS FROM THAT RECEIPT ARE PERMISSIBLE IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRINCIP LES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. ACCOUN TING PRACTICE CANNOT OVERRIDE SECTION 56 OR ANY OTHER PROVISION O F THE ACT. WHETHER A PARTICULAR RECEIPT IS OF THE NATURE OF IN COME AND FALLS WITHIN THE CHARGE OF SECTION 4 IS A QUESTION OF LAW WHICH HAS TO BE DECIDED BY THE COURT ON THE BASIS OF THE PROVISIONS OF THE ACT AND THE INTERPRETATION OF THE TERM 'INCOME' GIVEN IN A LARGE NUMBER OF DECISIONS OF THE HIGH COURTS, THE PRIVY COUNCIL AND ALSO THIS COURT. IT IS WELL-SETTLED THAT INCOME ATTRACTS TAX AS SOON AS IT ACCRUES. THE APPLICATION OR DESTINATION OF THE INCOME HAS NOTHIN G TO DO WITH ITS ACCRUAL OR TAXABILITY. IT IS ALSO WELL-SETTLED THAT INTEREST INCOME IS ALWAYS OF A REVENUE NATURE UNLESS IT IS RECEIVED BY WAY OF DAMAGES OR COMPENSATION. 2.12 IN THE CASE OF BOKARO STEEL LTD. (SUPRA), THE HON'BLE SUPREME COURT, AFTER CONSIDERING THE DECISION OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA), HELD AS UNDER: THE ACTIVITIES OF THE ASSESSEE IN CONNECTION WITH FIRST THREE RECEIPTS WERE DIRECTLY CONNECTED WITH OR WERE INCIDENTAL TO THE WORK OF ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 23 CONSTRUCTION OF ITS PLANT UNDERTAKEN BY THE ASSESSE E. BROADLY SPEAKING, THESE PERTAINED TO THE ARRANGEMENTS MADE BY THE ASSESSEE WITH ITS CONTRACTORS PERTAINING TO THE WOR K OF CONSTRUCTION. TO FACILITATE THE WORK OF THE CONTRACTOR, THE ASSES SEE PERMITTED THE CONTRACTOR TO USE THE PREMISES OF THE ASSESSEE FOR HOUSING ITS STAFF AND WORKERS ENGAGED IN THE CONSTRUCTION ACTIVITY OF THE ASSESSEE'S PLANT. THIS WAS CLEARLY TO FACILITATE THE WORK OF C ONSTRUCTION. HAD THIS FACILITY NOT BEEN PROVIDED BY THE ASSESSEE, THE CONTRACTORS WOULD HAVE HAD TO MAKE THEIR OWN ARRANGEMENTS AND THIS WOULD HAVE BEEN REFLECTED IN THE CHARGES OF THE CONTRACTORS FO R THE CONSTRUCTION WORK. INSTEAD, THE ASSESSEE HAD PROVIDED THESE FACI LITIES. THE SAME WAS TRUE OF THE HIRE CHARGES FOR PLANT AND MACHINER Y WHICH WAS GIVEN BY THE ASSESSEE TO THE CONTRACTOR FOR THE ASS ESSEE'S CONSTRUCTION WORK. THE RECEIPTS IN THIS CONNECTION ALSO WENT TO COMPENSATE THE ASSESSEE FOR THE WEAR AND TEAR ON TH E MACHINERY. THE ADVANCES WHICH THE ASSESSEE MADE TO THE CONTRAC TOR TO FACILITATE THE CONSTRUCTION ACTIVITY OF PUTTING TOG ETHER A VERY LARGE PROJECT WAS AS MUCH TO ENSURE THAT THE WORK OF THE CONTRACTORS PROCEEDED WITHOUT ANY FINANCIAL HITCHES AS TO HELP THE CONTRACTORS. THE ARRANGEMENTS WHICH WERE MADE BETWEEN THE ASSESS EE- COMPANY AND THE CONTRACTORS PERTAINING TO THESE THR EE RECEIPTS WERE ARRANGEMENTS WHICH WERE INTRINSICALLY CONNECTE D WITH THE CONSTRUCTION OF ITS STEEL PLANT. THE RECEIPTS HAD B EEN ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRACTORS AND HAD GONE TO REDUCE THE COST OF CONSTRUCTION. THEY HAD, THEREFOR E, BEEN RIGHTLY HELD AS CAPITAL RECEIPTS AND NOT INCOME OF THE ASSE SSEE FROM ANY INDEPENDENT SOURCE. ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 24 IN CASE MONEY IS BORROWED BY A NEWLY-STARTED COMPAN Y WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT, THE INTEREST INCURRED BEFORE THE COMMENCEMENT OF PRODUCTION ON S UCH BORROWED MONEY CAN BE CAPITALISED AND ADDED TO THE COST OF T HE FIXED ASSETS CREATED AS A RESULT OF SUCH EXPENDITURE. BY THE SAM E REASONING IF THE ASSESSEE RECEIVED ANY AMOUNTS WHICH WERE INEXTR ICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHIN ERY, SUCH RECEIPTS WOULD GO TO REDUCE THE COST OF ITS ASSETS. THESE WE RE RECEIPTS OF A CAPITAL NATURE AND COULD NOT BE TAXED AS INCOME. THE SAME REASONING WOULD APPLY TO ROYALTY RECEIVED BY THE ASSESSEE- COMPANY FOR STONES, ETC., EXCAVATED FROM THE ASSESSEE- COMPANY'S LAND. THE LAND HAD BEEN ALLOWED TO BE UTI LISED BY THE CONTRACTORS FOR THE PURPOSE OF EXCAVATING STONES TO BE USED IN THE CONSTRUCTION WORK OF THE ASSESSEE'S STEEL PLANT. TH E COST OF THE PLANT TO THE EXTENT OF SUCH ROYALTY RECEIVED, WAS REDUCED FOR THE ASSESSEE. IT WAS, THEREFORE, RIGHTLY TAKEN AS A CAP ITAL RECEIPT. 2.13 THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), AFTER CONSIDERING TH E DECISIONS IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (S UPRA) AND BOKARO STEEL LTD. (SUPRA) AT LENGTH, HELD AS UNDER: 5 . IN OUR OPINION THE TRIBUNAL HAS MISCONSTRUED THE R ATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TUTICO RIN ALKALI CHEMICALS & FERTILIZERS LTD.'S CASE (SUPRA) AND THA T OF BOKARO STEEL LTD. (SUPRA). THE TEST WHICH PERMEATES THROUGH THE JUDGMENT OF THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTI LIZERS LTD.'S CASE (SUPRA ) IS THAT IF FUNDS HAVE BEEN BORROWED FOR SE TTING UP OF A PLANT ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 25 AND IF THE FUNDS ARE 'SURPLUS' AND THEN BY VIRTUE O F THAT CIRCUMSTANCE THEY ARE INVESTED IN FIXED DEPOSITS THE INCOME EARN ED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE HEAD 'INCOME FRO M OTHER SOURCES'. ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JU DGMENT IN BOKARO STEEL LTD.'S CASE (SUPRA) TO OUR MIND IS THA T IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE 'INEXTRICABLY LINKED' TO THE SE TTING UP OF THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. 5.1 THE TEST, THEREFORE, TO OUR MIND IS WHETHER THE AC TIVITY WHICH IS TAKEN UP FOR SETTING UP OF THE BUSINESS AND THE FUN DS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETTING UP OF THE PLANT. THE CLUE IS PERHAPS AVAILABLE IN SECTION 3 OF THE A CT WHICH STATES THAT FOR NEWLY SET-UP BUSINESS THE PREVIOUS YEAR SH ALL BE THE PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINE SS. THEREFORE, 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 CHARGE ABLE TO TAX DEPENDING ON WHETHER IT IS OF A REVENUE NATURE OR C APITAL RECEIPT. THE INCOME OF A NEWLY SET-UP BUSINESS, POST THE DAT E 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 A ND GAINS OF BUSINESS OR PROFESSION' IT WOULD HAVE TO BE AN ACTI VITY WHICH IS IN SOME MANNER OR FORM CONNECTED WITH BUSINESS. THE WO RD 'BUSINESS' IS OF WIDE IMPORT WHICH WOULD ALSO INCLU DE ALL SUCH ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 26 ACTIVITIES WHICH COALESCE INTO SETTING UP OF THE BU SINESS. SEE MAZAGAON DOCK LTD. V. CIT & EPT [1958] 34 ITR 368 (SC) , AND NARAIN SWDESHI WEAVING MILLS V. CEPT [1954] 26 ITR 765 (SC) . ONCE IT IS HELD THAT THE ASSESSEE'S INCOME IS AN IN COME CONNECTED WITH BUSINESS, WHICH WOULD BE SO IN THE PRESENT CAS E, 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 I NFRASTRUCTURE - THEN IT CANNOT BE HELD THAT THE INCOME DERIVED BY P ARKING THE FUNDS TEMPORARILY WITH TOKYO MITSUBISHI BANK, WILL RESULT IN THE CHARACTER OF THE FUNDS BEING CHANGED, INASMUCH AS, THE INTERE ST EARNED FROM THE BANK WOULD HAVE A HUE DIFFERENT THAN THAT OF BU SINESS AND BE BROUGHT TO TAX UNDER THE HEAD 'INCOME FROM OTHER SO URCES'. IT IS WELL-SETTLED THAT AN INCOME RECEIVED BY THE ASSESSE E CAN BE TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' ONLY IF IT DOES NOT FALL UNDER ANY OTHER HEAD OF INCOME AS PROVIDED IN SECTI ON 14 OF THE ACT. THE HEAD 'INCOME FROM OTHER SOURCES' IS A RESI DUARY HEAD OF INCOME. SEE S.G. MERCANTILE CORPN. (P.) LTD. V. CIT [1972] 83 ITR 700 (SC) AND CIT V. GOVINDA CHOUDHURY & SONS [1993] 203 ITR 881 (SC) . 5.2 IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUND BY THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL W ERE INFUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPM ENT OF INFRASTRUCTURE. THEREFORE, THE INTEREST EARNED ON F UNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CLASSIFIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EAR NED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS IT WAS IN THE NAT URE OF CAPITAL ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 27 RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINS T PRE-OPERATIVE EXPENSES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. (SUPRA) IT WAS FOUND BY THE AUTHORITIES THAT THE FU NDS AVAILABLE WITH THE ASSESSEE IN THAT CASE WERE 'SURPLUS' AND, THERE FORE, THE SUPREME COURT HELD THAT THE INTEREST EARNED ON SURPLUS FUND S WOULD HAVE TO BE TREATED AS 'INCOME FROM OTHER SOURCES' . ON THE OTH ER HAND IN BOKARO STEEL LTD.'S CASE (SUPRA) WHERE THE ASSESSEE HAD EA RNED INTEREST ON ADVANCE PAID TO CONTRACTORS DURING PRE-COMMENCEMENT PERIOD WAS FOUND TO BE 'INEXTRICABLY LINKED' TO THE SETTING UP OF THE PLANT OF THE ASSESSEE AND HENCE WAS HELD TO BE A CAPITAL RECEIPT WHICH WAS PERMITTED TO BE SET OFF AGAINST PRE-OPERATIVE EXPEN SES. 6. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE PRES ENT ISSUE CAN BE EXAMINED. UNDER SECTION 208 OF THE COMPANIES ACT, 1 956 A COMPANY CAN PAY INTEREST ON SHARE CAPITAL WHICH IS ISSUED F OR A SPECIFIC PURPOSE TO DEFRAY EXPENSES FOR CONSTRUCTION OF ANY WORK AND WHICH CANNOT BE MADE PROFITABLE FOR A LONG PERIOD SUBJECT TO CERTAI N RESTRICTIONS CONTAINED IN SUB-SECTIONS (2) TO (7) OF SECTION 208 . THIS SECTION WAS SPECIFICALLY NOTED BY THE SUPREME COURT IN CHALLAPA LLI SUGARS LTD. V. CIT [1975] 98 ITR 167 . 6.1 IN OUR VIEW THE SITUATION IN THE INSTANT CASE I S QUITE SIMILAR EXCEPT HERE INSTEAD OF PAYING INTEREST ON FUNDS BROUGHT IN FOR SPECIFIC PURPOSE INTEREST IS EARNED ON FUNDS BROUGHT IN BY WAY OF SH ARE CAPITAL FOR A SPECIFIC PURPOSE. COULD IT BE SAID THAT IN THE FORM ER SITUATION INTEREST COULD HAVE BEEN CAPITALIZED AND IN THE LATER SITUAT ION IT CANNOT BE CAPITALIZED. TO TEST THE PRINCIPLE WE COULD EXTEND THE EXAMPLE, THAT IS, WOULD OUR ANSWER BE ANY DIFFERENT HAD ASSESSEE PASS ED ON THE INTEREST TO THE RESPECTIVE SHAREHOLDERS. IF NOT, THEN IN OUR VIEW THE ONLY CONCLUSION POSSIBLE IS THAT INTEREST EARNED IN THE PRESENT CIRCUMSTANCES OUGHT TO BE CAPITALIZED. 7. IN VIEW OF THE DISCUSSION ABOVE, IN OUR OPINION TH E TRIBUNAL MISDIRECTED ITSELF IN APPLYING THE DECISION OF THE SUPREME COURT IN ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 28 TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD.'S CAS E (SUPRA ) IN THE FACTS OF THE PRESENT CASE. IN OUR OPINION ON ACCOUNT OF THE FINDING OF FACT RETURNED BY THE CIT(A) THAT THE FUNDS INFUSED IN TH E ASSESSEE BY THE JOINT VENTURE PARTNER WERE INEXTRICABLY LINKED WITH THE S ETTING UP OF THE PLANT, THE INTEREST EARNED BY THE ASSESSEE COULD NO T BE TREATED AS INCOME FROM OTHER SOURCES. IN THE RESULT WE ANSWER THE QUESTION AS FRAMED IN FAVOUR OF THE ASSESSEE AND AGAINST THE RE VENUE. THESE APPEALS ARE ALLOWED AND THE IMPUGNED JUDGMENT IS SE T ASIDE. 2.14 THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF SASAN POWER LTD (SUPRA ) FOLLOWING THE DECISION IN CASE OF INDIAN OIL PANIP AT POWER CONSORTIUM LTD. (SUPRA), HAS HELD AS UNDER: 14. IT IS CLEAR FROM THE FACTS STATED ABOVE THAT COMMI SSIONER OF INCOME TAX (APPEALS) AND TRIBUNAL HAVE SPECIFICALLY HELD THAT THE INTEREST INCOME WAS ON CAPITAL ACCOUNT. WE HAVE GON E THROUGH THE GROUNDS OF APPEAL AND DO NOT FIND ANY REASON OR JUS TIFICATION TO UPSET THE SAID FINDING. THE FACTUAL FINDINGS RECORDED BY THE CIT(APPEALS) AND TRIBUNAL ARE NOT UNDER CHALLENGE. THE CIT(APPEA LS) AND THE TRIBUNAL HAVE HELD THAT IN VIEW OF THE FACTUAL POSI TION QUOTED ABOVE THE DECISION OF THE SUPREME COURT IN CIT V. BOKARO STEEL LTD. [1999] 236 ITR 315 / 102 TAXMAN 94 WAS APPLICABLE AS THE COMMITMENT ADVANCE, WHICH HAD BEEN PAID TO PFC. THIS IS NOT A CASE OF SURPLUS FUNDS, WHICH WERE AVAILABLE AND INVESTMENT WERE MAD E IN FIXED DEPOSITS TO EARN INTEREST. THE INTEREST PAID TO THE POWER PROCUREMENT UTILITIES ON COMMITMENT ADVANCES WAS CAPITALIZED. I NTEREST PAID AND INTEREST RECEIVED WERE INEXTRICABLY LINKED AND HAVE A COMMONALITY ABOUT THEIR NATURE AND CHARACTER. THE APPELLANT CAN NOT TREAT THEM DIFFERENTLY. COMMITMENT ADVANCES AND INTEREST PAID AND RECEIVED HAD REFERENCE TO BIDDING PROCESS AND LINKED TO THE PROJECT/PURPOSE FOR WHICH THE RESPONDENT WAS SET UP. IN VIEW OF THE FACTUAL MATRIX, INTEREST RECEIVED ON UNUTILIZED COMMITMENT ADVANCES CANNOT BE TAXED AS REVENUE INCOME AND INTEREST PAID ON COMMIT MENT ADVANCE ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 29 TREATED AS A CAPITAL EXPENSE. THIS WILL BE CONTRADI CTORY. THE ENTIRE EXPENDITURE FOR INVITING BIDS ETC. AND EVEN DOCUMEN TATION WAS PAID TO PFC. THE AMOUNTS RECEIVED FROM THE PROSPECTIVE B IDDERS ON ACCOUNT OF SALE OF TENDER DOCUMENTS WAS ALSO TRANSF ERRED TO PFC. AS NOTICED ABOVE, REVENUE HAS NOT CHALLENGED AND HAS A CCEPTED THE ORDER OF THE TRIBUNAL DELETING ADDITION OF RS. 1,35 ,81,234/-PAID BY THE RESPONDENT-ASSESSEE TO PFC FOR PREPARATION OF TENDE R DOCUMENTS. IN VIEW OF THE FACTUAL MATRIX, THE TRIBUNAL HAS RIGHTL Y FOLLOWED THE RATIO IN INDIAN OIL PANIPAT POWER CONSORTIUM LTD.'S CASE (SUPRA). 2.15 IN A RECENT DE CISION, THE DELHI HIGH COURT IN CASE OF PR. COMMISSIONER OF INCOME-TAX V. FACOR POWER LTD. [2016] 66 TAXMANN.COM 178 (DELHI) FOLLOWING THE DECISION IN CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), HAS HELD AS UNDER: 11. FROM THE ABOVE EXTRACT, IT IS EVIDENT THAT THE TEST THAT IS REQUIRED TO BE EMPLOYED IS WHETHER THE ACTIVITY WHICH IS TAKEN UP FOR SETTING UP OF THE BUSINESS AND THE FUNDS WHICH ARE GARNERED ARE I NEXTRICABLY CONNECTED TO THE SETTING UP OF THE SAME. IN THE PRE SENT CASE, FINDINGS O F FACT HAVE BEEN RETURNED BY THE COMMISSIONER OF INCO ME TAX (APPEALS) AND HAVE BEEN CONFIRMED BY THE INCOME TAX APPELLATE TRIBUNAL TO THE EFFECT THAT THE FUNDS WERE INEXTRICABLY CONNECTED W ITH THE SETTING UP OF THE POWER PLANT OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE REVENUE HAS ALSO NOT BEEN ABLE TO POINT OUT ANY PERVERSITY IN S UCH FINDING AND, THEREFORE, THE FACTUAL FINDINGS HAVE TO BE TAKEN AS THOSE ACCEPTED BY THE INCOME TAX APPELLATE TRIBUNAL WHICH IS THE FINAL FA CT FINDING AUTHORITY IN THE INCOME TAX REGIME. THAT BEING THE CASE, THE DECISION OF TH E DIVISION BENCH IN INDIAN OIL PANIPAT POWER CONSORTIUM LTD. ( SUPRA ) WOULD SQUARELY APPLY TO THE FACTS OF THE PRESENT CASE AND THE TRIBUNAL WAS RIGHT ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 30 IN APPLYING THE SAME. 13. IN THE PRESENT CASE, THERE IS A FINDING OF FACT THAT THE MONEY PLACED IN THE FIXED DEPOSIT WAS INEXTRICABLY LINKED WITH T HE SETTING UP OF THE POWER PLANT. THUS, THE REVENUE GENERATED ON ACCOUNT OF INTEREST ON THE SAID FIXED DEPOSITS WOULD BE IN THE NATURE OF A CAP ITAL RECEIPT AND NOT A REVENUE RECEIPT. THIS CASE HAS BEEN DECIDED ON THE BASIS OF THIS PRINCIPLE AND NOT ON THE BASIS THAT THE SOURCE OF THE FUNDS W AS THROUGH RAISING OF SHARE CAPITAL AND NOT THROUGH BORROWINGS. 2.16 THE COORDINATE BENCH IN CASE OF ADANI POWER L TD. V. ASSISTANT COMMISSIONER OF INCOME-TAX, RANGE- 1, AHMEDABAD [2015] 61 TAXMANN.COM 355 (AHMEDABAD - TRIB.) HAS HELD AS UNDER: 2.16 FROM THE ABOVE, IT IS EVIDENT THAT THE HON'BL E DELHI HIGH COURT HAS CONSIDERED AND INTERPRETED THE DECISIONS OF HON'BLE APEX COURT I N THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LT D. (SUPRA) AS WELL AS BOKARO STEEL LTD. (SUPRA). THE CONCLUSION OF THE DE LHI HIGH COURT IS IN FACT THE LAW WHICH EMERGES AS PER THE DECISION OF H ON'BLE APEX COURT. THEREFORE, IN OUR OPINION, THE CIT( A) WAS NOT JUSTIFIED IN IGNORING THE DECISION OF HON'BLE DELHI HIGH COURT BY SIMPLY MENT IONING THAT THE ISSUE IS COVERED BY THE DECISION OF HON'BLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA). AFTER CONSIDERING THESE TWO DECISIONS OF THE HON'BLE APEX COURT AND ALSO SOME O THER DECISIONS OF THE HON'BLE APEX COURT, THEIR LORDSHIPS OF THE DELHI HI GH COURT ARRIVED AT THE CONCLUSION 'IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUND BY THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR THE SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 31 INFRASTRUCTURE. THEREFORE, THE INTEREST EARNED ON F UNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CL ASSIFIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PR IOR TO COMMENCEMENT OF BUSINESS, IT WAS IN THE NATURE OF C APITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST THE PRE- OPERATIVE EXPENSES.' THAT, THE RATIO OF THE ABOVE FINDING OF THE HON'BLE DELHI HIGH COURT WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEE 'S CASE, BECAUSE ADMITTEDLY IN THE CASE UNDER APPEAL BEFORE US THE S HARE CAPITAL AS WELL AS LOANS WERE RAISED FOR THE SPECIFIC PURPOSE OF SETTI NG UP OF THE POWER GENERATION PLANTS. THE BU SINESS OF THE ASSESSEE HAS NOT BEEN COMMENCED AND THEREFORE, AS PER ABOVE DECISION, THE INTEREST RECEIVED IN THE PERIOD PRIOR TO COMMENCEMENT OF BUSINESS WAS IN THE NATURE OF CAPITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OF F AGAINST THE PRE- OPERATIVE EX PENSES. THE ASSESSEE HAS ALREADY SET OFF THE INTERE ST INCOME AGAINST THE PRE- OPERATIVE EXPENSES WHICH IS TITLED AS 'PROJECT DEVELOPMENT EXPENDITURE'. IN VIEW OF ABOVE, WE ARE OF THE OPINION THAT THE INTEREST INCOME OF RS.1,35,87,158/- AS WELL AS RS.1,64,07,481/- WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX DURING THE YE AR UNDER CONSIDERATION. ACCORDINGLY, GROUND NOS. 1 OF THE ASSESSEE'S APPEAL IS ALLOWED. 2.17 FURTHER, WE DRAWN GUIDANCE FROM THE DECISION O F HONBLE RAJASTHAN HIGH COURT IN CASE OF COMMISSIONER OF INCOME-TAX-I V. KA NSARA MODLER LTD. [2012] 20 TAXMANN.COM 641 (RAJ.) WHEREIN IT WAS HELD THAT: '13. IN THAT VIEW OF THE MATTER, WHAT WE ARE REQUIR ED TO CONSIDER IS, AS TO WHETHER THE TRIBUNAL WAS LEGALLY JUSTIFIED IN NOT A PPLYING THE JUDGMENT RENDERED IN TUTICORIN'S CASE (SUPRA ), OR THAT, THE TRIBUNAL WAS JUSTIFIED IN APPLYING THE JUDGMENTS GIVEN IN BOKARO STEEL, AND K ARNAL COOPERATIVE ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 32 SUGAR MILL'S CASE. IF THIS QUESTION WERE TO COME OR IGINALLY BEFORE US, PERHAPS WE MIGHT HAVE TAKEN A TASK OF UNDERT AKING THE EXERCISE, AS TO WHICH OF THE VIEWS IS REQUIRED TO BE FOLLOWED, AND MAY BE, THAT WE MIGHT HAVE COME TO ANY CONCLUSION, EITHER WAYS. IN SUCH C IRCUMSTANCES, WHEN THE LEARNED TRIBUNAL, AFTER EXAMINING ALL THE THREE JUDGMENTS, IN TUTICORIN'S CASE (SUPRA), KARNAL COOPERATIVE SUGAR MILL'S CASE (SUPRA ), AND BOKARO STEEL'S CASE (SUPRA), HAS EXAMINED THE QUESTION, AND FOUND KARNAL COOPERATIVE'S CASE (SUPRA ) TO BE THE NEAREST, AND LATEST CASE, ON FACTS, IN OUR VIEW, IT CANNOT BE SAID, THAT THE TRI BUNAL WAS W HOLLY WRONG IN ADOPTING THIS COURSE. IT WOULD HAVE BEEN EQUALLY THE SAME SITUATION, IF THE LEARNED TRIBUNAL WOULD HAVE ADOPTED THE OTHER L INE OF REASONING, FOLLOWING THE JUDGMENT IN TUTICORIN'S CASE (SUPRA). 14. THEREFORE, WHEN THERE ARE TWO SETS OF JUDGME NTS OF HON'BLE SUPREME COURT, PROCEEDING ON DIFFERENT LINES OF REASONINGS , AND BOTH STAND ON THEIR OWN LOGICAL FOOTING, AND IN THAT EVENT, IF TH E LEARNED TRIBUNAL HAS ACCEPTED ONE LINE OF REASONING, SUPPORTED BY ONE SE T OF JUDGMENTS, IT CANNOT BE SAID, TH AT THE LEARNED TRIBUNAL WAS LEGALLY NOT JUSTIFIED I N FOLLOWING THE DECISION, AS FOLLOWED BY IT, SIMPLY B ECAUSE IT MIGHT HAVE BEEN POSSIBLE, OR MIGHT BE MORE APPROPRIATE TO FOLL OW THE OTHER SET OF JUDGMENT, BY FOLLOWING THE OTHER LINE OF REASONING. 2.18 FROM THE ABOVE, IT IS EVIDENT THAT THERE ARE TWO SETS OF JUDGMENTS OF HON'BLE SUPREME COURT, PROCEEDING ON DIFFERENT LINE S OF REASONINGS . THE HONBLE DELHI HIGH COURT IN CASE OF INDIAN OIL PANI PAT CONSORTIUM LTD (SUPRA) HAS CONSIDERED AND INTERPRETED THE DE CISIONS OF HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS (SUPRA) AS WELL AS BOKARO STEEL LTD (SUPRA). AFTER ANALYZING BOTH THE DECISIONS OF HON BLE SUPREME COURT, IT HELD ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 33 THAT THE TEST WHICH PERMEATES THROUGH THE JUDGMENT OF T HE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD.'S CAS E (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 I NCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABLE UNDE R THE HEAD 'INCOME FROM OTHER SOURCES'. ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JUDGMENT IN BOKARO STEEL LTD.'S CASE (SUPRA ) TO OUR MIND IS THAT IF INCOME IS EARNED, WHETHER BY WAY OF INTERE ST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE 'INEXTRICABLY LINKED' TO THE SETTING UP O F THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PR E-OPERATIVE EXPENSES. 2.19 THE FACTS IN THE INSTANT CASE ARE PARI MATERIA WITH THE FACTS OF THE INDIAN OIL PANIPAT (SUPRA) AND THE RATIO DECIDENDI OF HON BLE DELHI HIGH COURT IN THAT CASE WILL SQUARELY APPLY TO THE FACTS OF THE ASSESS EE. IN THE INSTANT CASE, UNDISPUTEDLY, THE FUNDS HAVE BEEN BORROWED FOR THE SPECIFIC PURPOSE OF EXECU TION OF THE MEGA ROAD PROJECTS AND AS PER THE LOAN AGREEMENT EXECUTED BETWEEN THE CONSORTIUM OF BANKERS AND THE ASSESSEE DATED 23.11.2005, ALL THE DISBURSEMENTS SHALL BE DEPOSITED IN THE TRUST AND R ETENTION ACCOUNT WHICH SHALL BE SUBJECT TO STRICT CONTROL AND VERIFICATION BY THE SENIOR LENDERS AND ALL DISBURSEMENTS SHALL BE UTILISED SOLELY FOR THE PURP OSES OF IMPLEMENTATION OF THE PROJECT AND NO OTHER PURPOSE. THE FUNDS ARE THUS INEXTRICABLY LINKED TO THE SETTING UP OF THE MEGA ROAD PROJECTS AND INTEREST E A RNED ON SUCH BORROWED FUNDS INFUSED IN THE BUSINESS COULD NOT BE CLASSIFI ED AS INCOME FROM OTHER SOURCES. WE ALSO NOTE A DISTINGUISHING FEATURE IN THE INSTANT CASE THAT THE ASSESSEE IS NOT AT LIBERTY TO USE THE INTEREST SO E ARNED AS PER ITS WILL AND DISCR ETION UNLIKE THE CASE IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS (SUPRA) AND THE INTEREST HAS TO BE USED SOLELY FOR THE PURPOSES OF IMPLEMENTATION OF THE ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 34 SPECIFIED PROJECTS ONLY. THE IMPUNGED INTEREST REC EIPT OF RS. 35,39,479/- ON SUCH BORROWED FUNDS RELATES TO THE MEGA ROAD PROJECTS/STRETCHES WHICH WERE UNDER CONSTRUCTION AND THE COMPLETED ROAD PROJECTS/ STRETCHES UPTO THE DATE OF COMMENCEMENT OF COMMERCIAL OPERATIONS. THEREFORE, T HE INTEREST RECEIVED PRIOR TO COMMENCEMENT OF COMMERCIAL OPERATIONS OF T HE SPECIFIED MEGA ROAD PROJECTS WILL BE IN THE NATURE OF CAPITAL RECEIPT A ND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE- OPERATIVE EXPENDITURE CAPITALIZED UNDER THE HEAD C APITAL WORK IN PROGRESS AND THE SAME CANNOT BE BROUGHT TO TAX UNDER THE HEAD INCOM E FROM OTHER SOURCES. HENCE, GROUND NO. 1 OF THE AS SESSEE IS ALLOWED. 15. THE ABOVE DECISION OF THE COORDINATE BENCH HAS BEEN AFFIRMED BY THE HONBLE RAJASTHAN HIGH COURT IN DB APPEAL NO. 144 O F 2017 DATED 18.07.2017 REPORTED IN 96 TAXMAN.COM 155 (RAJ). 16. FOLLOWING THE SAME, IN THE INSTANT CASE, UNDIS PUTEDLY, THE GRANT HAS BEEN GIVEN BY THE MINISTRY OF TEXTILE, GOVERNMENT OF IND IA TO PART-FINANCE THE PROJECT COST FOR SETTING UP THE INTEGRATED TEXTILE PARK BY THE ASSESSEE COMPANY WHEREBY THE GRANTS SHALL BE UTILIZED FOR THE PURPOSES OF SETTING UP TH E COMMON INFRASTRUCTURE AND BUILDINGS FOR PRODUCTION/SUPPORT ACTIVITIES. THE ASSESSEE IS REQUIRED TO OPEN A SEPARATE ESCROW ACCOUNT WITH A B ANK WHERE THE GRANTS SHALL BE CREDITED AND THE UTILIZATION THER EOF SHALL BE CLOSELY MONITORED. THE FUNDS SO GRANTED BY THE GOVERNMENT ARE FOR THE SPECIFIC PURP OSE OF SETTING UP THE INTEGRATED TEXTILE PARKS. FURTHER, INTEREST EARNED ON TEMPORARY DEPOSITS OF SUCH GRANT FUNDS SHALL BE ADJUSTED WHILE DISBURSING THE FINA L INSTALLMENT OF THE GRANT AND THUS, PARTAKE THE CHARACTER OF GRANT-IN-A ID AND CAPITAL RECEIPT AS THE GRANT INITIALLY SANCTIONED WILL GET REDUCED TO THE EXTENT OF INTEREST R ECEIPT. THE SAID ADJUSTMENT IS NOT UNILATERAL RATHER IT IS FLOW ING FROM THE SCHEME UNDER ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 35 WHICH THE GOVERNMENT OF INDIA HAS GRANTED THE FUNDS TO THE ASSESSEE. IT IS THUS A BILATERAL AGREEMENT BETWEEN THE GOVERNMENT O F INDIA AND THE ASSESSEE AND THE ESSENCE OF SUCH AN AGREEMENT NEEDS TO BE G IVEN DUE COGNIZANCE WHILE INTERPRETATING THE SA ME. ANY INTERPRETATION DEVOID OF SUCH AN UNDERSTAN DING BETWEEN THE TWO PARTIES CANNOT BE A BASIS FOR BRING ING THE INTEREST RECEIPT TO TAX. THEREFORE, THE INTEREST RECEIPT WILL BE IN THE NATURE OF CAPITAL RECEIPT AND THE SAME CANNOT BE BROUGHT TO TAX UNDE R THE HEAD INCOME FROM OTHER SOURCES. HENCE, GROUND OF THE ASSESSEES APPEAL I S ALLOWED. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. PRONOUNCED IN THE OPEN COURT ON 13/12/2018. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 13/12/2018. * GANESH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S JAIPUR TEXWEAVING PARK LTD., JAI PUR 2. IZR;FKHZ@ THE RESPONDENT- ITO, WARD-7(2), JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 31/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR ITA NO. 31/JP/2018 M/S JAIPUR TEXWEAVING PARK LTD., JAIPUR VS. ITO, J AIPUR 36