RICHTER THEMIS MEDICARE (I) P. LTD, MUMBAI V. ITO 9(3)(4), MUMBAI

ITA 3157/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49330 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 09-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBACHAN RAM
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Capital asset; Depreciation; Wrong claim; Capital receipt
• Section: 32; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D,MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) & SMT. ASHA VIJAYARAGHAVAN (JM) I.T.A.NO. 3157/MUM/2010 (A.Y. 2006-07) M/S. RICHTER THEMIS MEDICARE (I) P.LTD., 11/12, UDYOG NAGAR, S.V.ROAD, GOREGAON (W), MUMBAI- 400 0-104. PAN: AACCR8735L VS. INCOME-TAX OFFICER-9(3)(4), AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. APPELLANT RESPONDENT APPELLANT BY SHRI VIJAY KOTHARI. RESPONDENT BY SHRI S UBACHAN RAM. O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JM: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDE R PASSED ON 08-03-2010 BY THE CIT(A). 2. THE ASSESSEE IS SUBSIDIARY OF A FOREIGN COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING ACTIVE PHARMA INGREDIENT INTERMEDIATES IN ITS PLANT SITUATED AT VAPI. 3. THE AO COMPLETED THE ASSESSMENT AT A TOTAL INCO ME OF RS.1,33,29,542/-. WHILE DOING SO, HE DISALLOWED THE CLAIM OF DEPRECIA TION OF RS.1,17,10,955/-. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL B EFORE THE CIT(A) AGAINST THE DISALLOWANCE OF DEPRECIATION AND ALSO ON THE ISSUE THAT THE ASSESSEE WAS NOT ASSESSABLE TO TAX ON INTEREST INCOME OF RS.1,34,41, 497/- EVEN THOUGH IT HAD OFFERED IT TO TAX IN THE RETURN OF INCOME. THE ASS ESSEE HAD ALSO CLAIMED ITA NO.3157/M/10 RICHTER THEMIS MEDICARE (I) P.LTD. 2 DEPRECIATION ON FIXED ASSETS. HOWEVER, IT CLAIMED T HAT THOUGH IT COMMENCED COMMERCIAL PRODUCTION ON 26-05-2006, IT HAD BEGUN THE TRIAL PRODUCTION EARLIER ON 30-03-2006 I.E. THE PENULTIMATE DATE OF THE CURR ENT FINANCIAL YEAR. 4. THE AO OBSERVED FROM THE NOTES TO THE ACCOUNTS F ORMING PART OF THE FINANCIAL STATEMENTS THAT THE ASSESSEE COMPANY HAD OBTAINED A LOAN FROM GEDEON RICHTER LTD. UNDER AN AGREEMENT WHEREBY SEC URITY WAS REQUIRED TO BE CREATED ON ALL REAL ESTATE PROPERTIES WHEN THE CAPI TAL ASSETS WERE READY FOR USE. HE FURTHER OBSERVED THAT THE COMMERCIAL PRODUCTION COULD COMMENCE ONLY ON 26-05-2006 WHICH FELL IN THE SUBSEQUENT ACCOUNTING YEAR WHICH SHOWED THAT THE FIXED ASSETS COULD NOT BE PUT TO USE DURING THE CUR RENT FINANCIAL YEAR. THE AO, THEREFORE, ASKED THE ASSESSEE TO FURNISH THE DETAIL S TO ESTABLISH THAT THE ASSETS WERE PUT TO USE DURING THE CURRENT YEAR. 5. ON PERUSAL OF THE DETAILS, THE AO OBSERVED THA T THE ASSESSEE HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE ASS ETS WERE ACTUALLY PUT TO USE. THE AO, THEREFORE, CONCLUDED THAT THE ASSESSEE FAIL ED TO DISCHARGE THE ONUS CAST UPON IT TO PROVE THE USAGE OF THE FIXED ASSETS AND DISALLOWED THE DEPRECIATION CLAIM OF RS.1,17,10,955/-. 6. BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASSE SSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT IT HAD SET UP THE PROJECT AND TRIAL PRODUCTION HAD COMMENCED ON 30-03-2006. THE ASSESSE E CONTENDED BEFORE HIM THAT THE NECESSARY DISCLOSURES HAD BEEN MADE IN THE ANNUAL ACCOUNTS REGARDING THE SETTING UP OF PROJECT, TRIAL PRODUCTION AND COM MERCIAL PRODUCTION. THE ASSESSEE CONTENDED BEFORE HIM THAT THE TRIAL PRODUC TION HAD COMMENCED DURING THE PREVIOUS YEAR WHICH ESTABLISHED THAT THE ASSET S WERE USED FOR ITS BUSINESS. BEFORE THE CIT(A), RELIANCE WAS PLACED ON THE DECIS ION OF ACIT VS. ASHIMA SINTEX LTD. (251 ITR 133) (GUJ) AND CIT VS. UNION CARBIDE LTD. (254 ITR 488 (GUJ). IT ITA NO.3157/M/10 RICHTER THEMIS MEDICARE (I) P.LTD. 3 WAS SUBMITTED BEFORE HIM THAT HAVING USED THE ASSET S FOR THE PURPOSES OF BUSINESS, DEPRECIATION WAS ALLOWABLE U/S.32 OF THE ACT. THE ASSESSEE MADE WRITTEN SUBMISSIONS AND ALSO FILED COPY OF AUDITORS REPORT ALONG WITH COPY OF STATEMENT OF COMPUTATION OF INCOME BEFORE THE CIT(A ). THE CIT(A), AFTER GOING THROUGH THE AUDITORS REPORT AND OTHER FINANCIAL S TATEMENT/MATERIAL SUPPLIED BY THE ASSESSEE, PASSED A DETAILED ORDER AND FINALLY C ONCLUDED AS FOLLOWS: 5.6 I, THEREFORE, HOLD THAT AS THE APPELLANT HAS N EITHER ERECTED THE FACTORY BUILDING NOR INSTALLED THE PLAN T & MACHINERIES. IT HAS NOT SET UP ITS BUSINESS OF MANUFACTURE OF ACTIVE PHARMA INGREDIENT INTERMEDIAT ES (API). IT HAS MADE A FALSE CLAIM THAT THE TRIAL PRO DUCTION COMMENCED ON 30-03-2006 AND THE FIXED ASSETS WERE PUT TO USE ENTITLING IT TO DEPRECIATION ON SUCH ASS ETS. AS THE APPELLANT HAS NOT SET UP THE BUSINESS NO BUSIN ESS INCOME OR LOSS CAN BE COMPUTED IN THE YEAR UNDER CONSIDERATION AND QUESTION DOES NOT ARISE TO CONSID ER THE CLAIM OF DEPRECIATION. THE APPELLANT IS NOT ENTITLE D TO THE BUSINESS LOSS OF RS.1,11,955 AS COMPUTED BY THE AO. THE SAME IS ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT. THE ASSESSED TOTAL INCOME IS, THEREFORE, ENHANCED TO RS.1,34,41,497 AS AGAINST RS.1,33,29,54 2 COMPUTED BY THE AO. THE ISSUE IS DECIDED AGAINST TH E APPELLANT. 7. WITH RESPECT TO THE SECOND ISSUE REGARDING INT EREST RECEIVED ON FIXED DEPOSIT WITH BANK OF RS.1,34,41,497/-, THE CIT(A) HAS OBSERVED THAT THE AO HAD ASSESSED IT AS INCOME UNDER THE HEAD INCOME FROM O THER SOURCES AND THE ASSESSEE HAD CLAIMED INTEREST TO BE REDUCED FROM TH E COST OF PLANT & MACHINERY AND OTHER FIXED ASSETS. THE ASSESSEE CLAIMED THAT I NTEREST WAS RECEIVED FROM FIXED DEPOSIT WHICH REPRESENTED THE UNUTILIZED LOAN RECEIVED FROM M/S. GEDEON RICHTER LTD. FOR CONSTRUCTION OF THE FACTORY AND TH E UNUTILIZED AMOUNT WAS SO DEPLOYED IN TERMS OF THE LOAN AGREEMENT WITH M/S.GE DEON RICHTER LTD. IT WAS, THEREFORE, CONTENDED THAT AS INTEREST PAID DURING T HE PRE-COMMENCEMENT PERIOD WAS REQUIRED TO BE CAPITALIZED, THE INTEREST RECEIV ED SHOULD ALSO BE CAPITALIZED TO REDUCE THE CAPITAL COST. IT WAS FURTHER CONTENDED THAT INTEREST RECEIVED WAS ITA NO.3157/M/10 RICHTER THEMIS MEDICARE (I) P.LTD. 4 CAPITAL IN NATURE AND COULD NOT BE TAXED AS INCOME. IT WAS ALSO CONTENDED THAT EVEN OTHERWISE THE INTEREST RECEIVED WAS REQUIRED T O BE ADJUSTED AGAINST THE INTEREST PAID ON THE LOAN FROM M/S. GEDEON RICHTER LTD. THE CIT(A) HELD AT PARAS 7.3, 7.4 AND 7.5 OF HIS ORDER AS FOLLOWS : 7.3 EVEN IF IT ASSUMED FOR THE SAKE OF ARGUMENT TH AT THE FIXED DEPOSIT WAS MADE OUT OF THE SURPLUS LOAN FUND , THE SAME CANNOT BE CAPITALIZED SO AS TO REDUCE THE COST OF CAPITAL ASSETS. THE APPELLANTS RELIANCE ON THE DEC ISION OF APEX COURT IN CIT VS BOKARO STEEL LTD. (SUPRA) IS MISPLACED. IN THAT CASE ALSO THE APEX COURT HELD T HAT INTEREST EARNED BY INVESTING BORROWED CAPITAL IN SH ORT-TERM DEPOSITS IS AN INDEPENDENT SOURCE OF INCOME NOT CON NECTED WITH THE CONSTRUCTION ACTIVITIES OR BUSINESS ACTIVI TIES OF THE ASSESSEE. THE APEX COURT, HOWEVER, HELD THAT THE SA ME CANNOT BE SAID ABOUT RECEIPTS WHICH ARE INEXTRICABL Y LINKED WITH THE PROCESS OF SETTING UP PLANT AND MACHINERY AS SUCH RECEIPTS ARE CAPITAL IN NATURE AND WOULD GO TO REDU CE THE COST OF THE CAPITAL ASSETS. THIS HAS BEEN CLARIFIED AGAIN IN BONGAIGAON REFINERY AND PETROCHEMICALS LTD. VS. CIT 251 ITR 329 (SC) WHICH IS ALSO RELIED UPON BY THE APPEL LANT. IN THAT CASE THE APEX COURT UPHELD THE DECISION OF HIG H COURT THAT THE INTEREST INCOME DERIVED BY THE ASSESSEE DU RING ITS FORMATIVE PERIOD WAS TAXABLE INCOME AND HELD FURTHE R, WHAT REMAINS FOR CONSIDERATION IS THE INCOME WHICH THE ASSESSEE DERIVED FROM HOUSE PROPERTY, ITS GUEST HOU SE, CHARGES FOR EQUIPMENT AND RECOVERIES FROM THE CONTR ACTORS ON ACCOUNT OF WATER AND ELECTRICITY SUPPLY. THESE I TEMS ARE COVERED, BY THE DECISION IN BOKARO LTD.S CASE [19 99] 236 ITR 315 (SC). TO THE EXTENT THAT IT RELATES TO THES E ITEMS, I.E., ITEMS EXCLUDING INTEREST, THE QUESTION MUST B E ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE AS SESSEE. THE APEX COURT ALSO OBSERVED THAT THE DECISION CIT V. BOKARO STEEL LTD. (1999) 236 ITR 315 (SC) HAS BEEN FOLLOWED BY A TWO JUDGE BENCH IN CIT VS KARNAL CO- OPERATIVE SUGAR MILLS LTD. [2000] 243 ITR 2 (SC) AN D BY A THREE JUDGE BENCH IN CIT VS KARNATAKA POWER CORPORA TION [2001] 247 IR 266 (SC). THE CASE OF THE APPELLANT I S CLEARLY DISTINGUISHABLE. INTEREST IS NOT A RECEIPT EARNED ON UTILIZATION OF A CAPITAL ASSET. NO QUESTION, THEREF ORE, ARISES TO CONSIDER THE INTEREST EARNED AS A CAPITAL RECEIP T. 7.4 IN ANY CASE INTEREST IS ALWAYS A REVENUE RECEIP T AS THE ACT ITSELF PROVIDES FOR IS TAXATION EITHER AS B USINESS INCOME OR INCOME FROM OTHER SOURCES. IT HAS BEEN LO NG SETTLED THAT INTEREST, WHETHER IT IS STATUTORY OR C ONTRACTUAL, REPRESENTS THE PROFIT THE CREDITOR MIGHT HAVE IF HE HAD THE USE OF THE MONEY OR THE LOSS HE SUFFERED BECAUSE HA D HAD NOT THAT USE. IT IS SOMETHING IN ADDITION TO THE CA PITAL ITA NO.3157/M/10 RICHTER THEMIS MEDICARE (I) P.LTD. 5 ACCOUNT, THOUGH IT ARISES OUT OF IT AND THEREFORE, IS A REVENUE RECEIPT LIABLE TO TAX UNDER THE INCOME-TAX ACT [SEE DR. SHAM LAL NARULA VS. CIT 53 ITR 151 (SC). RAMANA THAN CHETTIAR VS. CIT 63 ITR 458 (SC), T.N.K. GOVINDARAJ U CHETTY VS CIT 66 ITR 465 (SC), CHANDROJI RAO VS CIT 77 ITR 743 (SC), K.S. KRISHNA RAO VS CIT 181 ITR 408 ( SC) AND BIKRAM SINGH VS LAND ACQUISITION COLLECTOR 224 ITR 551 (SC). ADMITTEDLY INTEREST HAS BEEN EARNED DURIN G THE PRE-COMMENCEMENT PERIOD OF THE BUSINESS. THE APEX COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS L TD. VS CIT 227 ITR 172 (SC) HELD THAT THAT IF A PERSON BORROWS MONEY FOR BUSINESS PURPOSES BUT UTILIZES THE SAME TO EARN INTEREST, HOWEVER TEMPORARILY, THE INTEREST SO GENE RATED WILL BE HIS INCOME AND SUCH INTEREST WILL BE CHARGE ABLE UNDER SECTION 56 OF THE INCOME-TAX ACT. THE APEX C OURT IN THAT CASE DISTINGUISHED ITS EARLIER DECISION IN CHE LLAPALLI SUGARS LTD. VS CIT 98 ITR 167 (SC) WHICH HAS ALSO B EEN RELIED UPON BY THE APPELLANT. INTEREST IS AN INDEPE NDENT INCOME. THE AO HAS RIGHTLY BROUGHT IT TO TAX AS INC OME FROM OTHER SOURCES. 7.5 THIS LEAVES THE LAST CONTENTION THAT EVEN OTHER WISE THE INTEREST RECEIVED IS REQUIRED TO BE ADJUSTED AG AINST THE INTEREST PAID ON THE LOAN FROM GEDEON RICHTER LTD. THE INTEREST INCOME HAS BETWEEN ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LOAN WAS TAKEN FOR PUTTING UP THE TURN KEY PROJECT. NO PORTION OF LOAN IS FOUND INVESTED IN THE FIXED DEPOSIT. THE INTEREST PAID ON SUCH LOAN IS, THEREFORE, NOT AN EXPENDITURE INCURRED IN EARNING THE IMPUGNED INTEREST INCOME. THEREFORE, INTEREST P AID ON LOAN CANNOT BE ALLOWED AS DEDUCTION FROM THE INTERE ST INCOME. AGGRIEVED ON THIS ISSUE ALSO, THE ASSESSEE IS IN AP PEAL BEFORE THE TRIBUNAL. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, SHR I VIJAY KOTHARI, WITH RESPECT TO THE 1 ST GROUND, REITERATED THE CONTENTIONS AS MADE BEFOR E THE CIT(A). HE TOOK US THROUGH PAGE-7 OF THE PAPER BOOK CONTAINING THE ANNUAL REPORT, PAGE-10 CONSISTING OF PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31-03- 2006, DETAILS OF CAPITAL WORK IN PROGRESS AT PAGE-1 1 ETC. WE HAVE PERUSED PAGE-10, PAGE-16 & SCHEDULES CONTAINING THE DETAILS OF CONSUMPTION OF RAW MATERIALS FOR WHICH THE BREAK-UP HAS BEEN GIVEN AT PAGE 22. AT PAGE-13, THE ITA NO.3157/M/10 RICHTER THEMIS MEDICARE (I) P.LTD. 6 INVENTORIES OF RAW MATERIALS IN RESPECT OF TRIAL PR ODUCTION AS ON 31-03-2006 ARE SHOWN AT RS.3,52,10,589/-. 9. THE LD. D.R., ON THE OTHER HAND, POINTED OUT TO PAGES 72 & 73 OF THE PAPER BOOK AND SUBMITTED THAT THE PROCESS OF COMMEN CEMENT OF BUSINESS WAS GOING ON AS MATERIALS LIKE CEMENT ETC. WERE PURCHA SED, FENCING WORK WAS IN PROGRESS, WHICH CLEARLY SHOWED THAT THE BUSINESS HA D NOT COMMENCED. THE LD. D.R. ALSO RELIED ON THE DECISION IN CIT V. RAMARAJU SURGICAL COTTON MILLS LTD. (63 ITR 478) AND RELIED ON THE ORDER OF THE CIT(A) BROUGHT OUT AT PARA 7.2 AT PAGE 11. 10. WE HEARD BOTH PARTIES. WE HAVE PERUSED THE RECO RDS AND NOTED THE RELEVANT DETAILS SUCH AS CONSUMPTION OF RAW MATERIA LS WHICH HAVE BEEN PRODUCED IN THE PAPER BOOK. WE FIND THAT DEPRECIATI ON HAS BEEN CLAIMED WITH RESPECT TO THE ASSETS WHICH HAVE BEEN ACTUALLY PUT TO USE. WE ARE, THEREFORE, CONVINCED THAT THE ASSESSEE HAD STARTED THE TRIAL P RODUCTION. OUR DECISION IS SUPPORTED BY THE RATIO OF THE DECISION IN THE CASE OF ASHIMA SYNTEX LTD. (SUPRA) WHEREIN IT HAS BEEN HELD AS FOLLOWS : INSTALLATION OF MACHINERY OR PLANT AND MACHINERY I N THE BUILDING ITSELF IS NOT SUFFICIENT TO ATTRACT THE PR OVISIONS CONTAINED IN SECTION 32 OF THE INCOME-TAX ACT, 1961 . THERE MUST BE USE OF PLANT AND MACHINERY FOR THE PURPOSE OF BUSINESS AS CONTEMPLATED IN SECTION 32. THE TERM USE HAS A WIDE CONNOTATION. EVEN TRIAL PRODU CTION OF A MACHINERY WOULD FALL WITHIN THE AMBIT OF USED FOR THE PURPOSE OF BUSINESS. FURTHER, AS THE STATUTE DOES NOT PRESCRIBE A MINIMUM TIME LIMIT FOR USE OF THE MACHINERY, THE ASSESSEE CANNOT BE DENIED THE BENEFI T OF DEPRECIATION ON THE GROUND THAT THE MACHINERY WAS U SED FOR A VERY SHORT DURATION FOR TRIAL RUN. THEREFORE, IN VIEW OF THE UNDISPUTED FACT THAT THE ASSESSEE HAD ACQUIRED AND INSTALLED MACHINERIES, PURCHASED AND USED THE MACHI NERIES FOR TRIAL PRODUCTION ITA NO.3157/M/10 RICHTER THEMIS MEDICARE (I) P.LTD. 7 DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE IS ENTITLED TO DEPRECIATION U/S.32. THEREFORE, THE FIRST GROUND OF THE ASSESSEE IS ALLOWED. 11. WITH REFERENCE TO THE SECOND GROUND, THE LD. CO UNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE BEFORE THE CIT(A ). THE LD. COUNSEL ALSO FILED A GUIDANCE NOTE ON THE TREATMENT OF EXPENDITU RE AND POINTED TO PARA 11 AT PAGE 9941 THEREOF, WHICH IS AS UNDER : 11. EXPENDITURE ON START-UP AND COMMISSIONING OF THE PROJECT. 11.1 AFTER THE PLANT HAS BEEN CONSTRUCTED AND THE P ROJECT HAS BEEN COMPLETED IN ALL RESPECTS, IT IS USUALLY T ESTED AND ADJUSTED FOR COMMERCIAL PRODUCTION BEFORE IT IS FINALLY CONSTRUCTED. SEVERAL ITEMS OF EXPENDITURE ARE NECES SARILY INCURRED IN THE PROCESS OF STARTING THE PLANT, ADJU STING IT, AND EXPERIMENTING WITH AND ADJUSTING THE PLANT FOR COMMERCIAL PRODUCTION. THE EXPENDITURE INCURRED DUR ING THIS PERIOD AND IN THIS PROCESS WOULD INCLUDE THE S ALARIES OR FEES OF CONSULTING ENGINEERS, TRAVELLING EXPENSE S IN CONNECTION WITH VISITS BY ENGINEERS AND TECHNICIANS TO THE PLANT, AS WELL AS THE COST OF RAW MATERIALS AND STO RES CONSUMED IN THE PROCESS OF TEST RUNS. 11.2 AS A GENERAL RULE, IT WOULD BE CORRECT TO CAPI TALIZE AND EXPENSES INCURRED DURING THIS PERIOD AND IN CONNECTION WITH THE PROCESS OF START-UP AND COMMISSIONING OF THE PLANT, FOR TWO REASONS. IN THE FIRST PLACE, SUCH EXPENSES WOULD BE INCURRED IN ORDER TO BRING HE PLANT UP TO THE STAGE OF WHICH IT CAN COMMENCE COMMERCIAL PRODUCTION. IN THE SECOND PLACE, THIS EXPENDITURE WOULD NORMALLY BE INCURRED BEFORE THE P LANT IS TAKEN OVER. ON BOTH THESE CONSIDERATIONS, IT WO ULD BE FAIR AND CORRECT TO CAPITALISE THE EXPENDITURE INCU RRED ON START-UP AND COMMISSIONING THE PLANT. THE EXPENDITU RE SO INCURRED MAY BE CAPITALIZED IN THE SAME WAY AS OTHE R INDIRECT CONSTRUCTION EXPENDITURE. 12. THE LD. COUNSEL RELIED ON THE DECISION OF DELHI HIGH COURT IN INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO (315 ITR 255) , WHEREIN IT HAS BEEN HELD AS FOLLOWS : ITA NO.3157/M/10 RICHTER THEMIS MEDICARE (I) P.LTD. 8 THE ASSESSEE-COMPANY WAS INCORPORATED IN PURSUANCE OF A JOINT VENTURE ENTERED INTO BETWEEN INDIAN OIL CORPORATION AND M OF JAPAN TO SE UP A POWER PROJECT . IN ORDER TO EFFECTUATE THE PURPOSE FOR WHICH THE JOINT VENTURE WAS CONCEIVED, SHARE CAPITAL WAS CONTRIBUTE D BY THESE TWO CORPORATIONS WHICH INCLUDED RS.20 CRORES BY WAY OF ADDITIONAL SHARE CAPITAL. THE ASSESSING OFFI CER TREATED THE INTEREST EARNED ON MONIES RECEIVED AS S HARE CAPITAL BY THE ASSESSEE TEMPORARILY PLACED IN A FIX ED DEPOSIT AWAITING ACQUISITION OF LAND WHICH HAD RUN INTO LEGAL ENTANGLEMENTS O ACCOUNT OF TITLE AS INCOME F ROM OTHER SOURCES. THE COMMISSIONER (APPEALS) ACCEPTED THE STAND OF THE ASSESSEE THAT THE INTEREST WAS IN THE NATURE OF A CAPITAL RECEIPT WHICH WAS LIABLE TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. THE TRIBUNAL REVERSED THIS ORDER. ON APPEAL : HELD, ALLOWING THE APPEALS, THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR THE SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTUR E. THEREFORE THE INTEREST EARNED ON FUNDS PRIMARILY BO UGHT FOR INFUSION IN THE BUSINESS COULD NOT BE CLASSIFIE D AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINES S IT WAS IN THE NATURE OF A CAPITAL RECEIPT AND WAS REQU IRED O BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. 13. SIMILAR OBSERVATION HAS BEEN MADE IN THE CASE O F CIT VS VGR FOUNDATIONS (2008) 298 ITR 132 (MADRAS). THEREFORE, WE ARE OF OPINION THAT INTEREST EARNED PRIOR TO COMMENCEMENT OF BUSINESS O N FUNDS BROUGHT IN BY WAY OF SHARE CAPITAL IS CAPITAL RECEIPT LIABLE TO B E SET OFF AGAINST PRE-OPERATIVE EXPENSES. HENCE, THE SECOND GROUND OF THE ASSESSEE IS ALSO ALLOWED. 14. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . ORDER PRONOUNCED ON THE 24TH DAY OF JUNE, 2011. SD/- SD/- (PRAMOD KUMAR) (SMT. ASHA VIJAYARAGHAN) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI: 24TH JUNE , 2011. ITA NO.3157/M/10 RICHTER THEMIS MEDICARE (I) P.LTD. 9 NG: COPY TO : 1.ASSESSEE. 2.DEPARTMENT. 3 CIT(A)-20,MUMBAI. 4 CIT-9,MUMBAI. 5.DR,D BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA NO.3157/M/10 RICHTER THEMIS MEDICARE (I) P.LTD. 10 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 09-06-11 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 13-06-11 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER