HPCL-Mittal Pipelines Limited, Distt.Bathinda V. The Asstt. Commissioner of Income-tax, Bathinda

ITA 443/ASR/2013

• Counselvise Citation: 44320914 RSA 2013
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 16-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 19-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: JASWINDER SINGH SAINI
• Keywords: Business income; Source of fund; Question of law; Capital receipt; Revised return
• Section: 234B; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NOS.445 & 446 (ASR)/2013 ASSESSMENT YEARS: 2008-09 & 2009-10 PAN :AABCG5231F M/S. HPCL-MITTAL ENERGY LIMITED; VS. ADDL. COMMR. O F INCOME TAX, VILL. PHULLOKHARI TALWANDI SABOO, RANGE-1, BATHIND A. DISTRICT BATHINDA. (APPELLANT) (RESPONDENT) I.T.A. NOS.443 & 444 (ASR)/2013 ASSESSMENT YEARS: 2008-09 & 2009-10 PAN :AABCH9865Q M/S. HPCL-MITTAL PIPELINES LIMITED; VS. ADDL. COMMR . OF INCOME TAX, VILL. PHULLOKHARI TALWANDI SABOO, RANGE-1, BATHIND A. DISTRICT BATHINDA. (APPELLANT) (RESPONDENT) APPELLANTS BY:SH.JASWINDER SINGH SAINI, CA RESPONDENT BY:SH.TARSEM LAL, DR DATE OF HEARING:16/12/2013 DATE OF PRONOUNCEMENT:31/12/2013 ORDER PER BENCH ; 2 THESE FOUR APPEALS OF TWO DIFFERENT ASSESSEES FOR TWO DIFFERENT YEARS ARISE FROM FOUR DIFFERENT ORDERS OF CIT(BATHINDA) E ACH DATED 28.03.2013 FOR THE ASSESSMENT YEARS 2008-09 & 2009-10. 2. BOTH THE ASSESSEES IN DIFFERENT YEARS HAVE RAISE D FOLLOWING GROUNDS OF APPEAL: A) ITA NO.445(ASR)/2013, A.Y. 2008-09 HPCL MITTAL ENERGY LIMITED VS. ADDL. COMMR. OF INCOME TAX, RA NGE-1, BATHINDA. 1. THAT ON THE FACTS OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LD. CIT(A) IS BAD IN LAW. 2. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. C IT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO THAT THE I NTEREST AMOUNTING TO RS.23,61,52,102/- EARNED FROM SHORT TE RM DEPOSITS WITH BANKS AND HINDUSTAN PETROLEUM CORPORATIONS LIM ITED IS LIABLE TO INCOME TAX IN THE HANDS OF THE ASSESSEE U NDER THE HEAD INCOME FROM OTHER SOURCES DISREGARDING THE FACT T HAT THE SAID INTEREST WAS INEXTRICABLY LINKED WITH THE SETTING U P OF THE BUSINESS OF THE ASSESSEE AND THEREFORE, THE SAID IN TEREST BEING A CAPITAL IN NATURE WOULD GO TO REDUCE THE PROJECT CO ST. 3. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. C IT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO THAT THE I NTEREST AMOUNTING TO RS.72,99,696/- ON THE FIXED DEPOSITS M ADE BY THE DISTRICT COURT, BATHINDA IN THE NAME OF ADDITIONAL DISTRICT JUDGE, BHATINDA IN VIEW OF THE DIRECTIONS OF THE H ONBLE SUPREME COURT OF INDIA WAS LIABLE TO INCOME TAX IN THE HANDS OF THE APPELLANT UNDER THE HEAD INCOME FROM OTHER SOU RCES DISREGARDING THE FACT THAT NEITHER THE INVESTMENT I N FIXED DEPOSIT WAS MADE BY THE APPELLANT NOR INTEREST THEREON IS D UE TO THE APPELLANT AND THUS, SUCH INTEREST CANNOT BE SAID T O BE THE INCOME OF THE ASSESSEE. 3 3.1 WITHOUT PREJUDICE TO GROUND NO.3, EVEN ASSUMING (WITHOUT CONCEDING) THAT THE SAID INTEREST AMOUNTING TO RS. 72,99,696/- ON THE FIXED DEPOSITS IS AN INCOME OF THE APPELLANT, IT WOULD CONSTITUTE INCOME INEXTRICABLY LINKED WITH ACQUISI TION OF LAND OF THE APPELLANT AND THEREFORE, THE SAID INTEREST BEI NG A CAPITAL RECEIPT IN NATURE WOULD GO TO REDUCE THE COST OF L AND. 4. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. C IT(A) HAS ERRED IN HOLDING THAT THE MISCELLANEOUS RECEIPTS AM OUNTING TO RS.18,000/- BEING IN THE NATURE OF SUNDRY INCOME IS LIABLE TO INCOME TAX IN THE HANDS OF THE ASSESSEE UNDER THE H EAD INCOME FROM OTHER SOURCES DISREGARDING THE FACT THAT THE BUSINESS OF THE ASSESSEE IS YET TO COMMENCE AND SAID INCOME IS INEXTRICABLY LINKED TO THE CONSTRUCTION ACTIVITIES OF THE APPELL ANT AND WOULD GO TO REDUCE THE PROJECT COST. 5. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. C IT(A) HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)( C) OF THE ACT. 6. THAT THE AO HAS ERRED IN CHARGING INTEREST U/S 234B , 234D AND 244A(3) OF THE ACT. B) ITA NO.446(ASR)/2013, A.Y. 2009-10 HPCL MITTAL ENERGY LIMITED VS. ADDL. COMMR. OF INCOME TAX, RA NGE-1, BATHINDA. 1. THAT ON THE FACTS OF THE CASE AND IN LAW, THE O RDER PASSED BY THE LD. CIT(A) IS BAD IN LAW. 2. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO THAT THE INTEREST AMOUNTING TO RS.26,81,85,996/- EARNED FROM SHORT T ERM DEPOSITS WITH BANKS AND HINDUSTAN PETROLEUM CORPORATIONS LI MITED IS LIABLE TO INCOME TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES DISREGARDING THE FACT THAT THE SAID INTEREST WAS INEXTRICABLY LINKED WITH THE SETTING UP OF THE BUSINESS OF THE ASSESSEE AND THEREFORE, THE SAID I NTEREST BEING A CAPITAL IN NATURE WOULD GO TO REDUCE THE PROJECT C OST. 4 3. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO THAT THE INTEREST AMOUNTING TO RS.86,50,373/- ON THE FIXED DEPOSITS MADE BY THE DISTRICT COURT, BATHINDA IN THE NAME OF ADDITIONA L DISTRICT JUDGE, BHATINDA IN VIEW OF THE DIRECTIONS OF THE HONBLE SUPREME COURT OF INDIA WAS LIABLE TO INCOME TAX IN THE HANDS OF THE APPELLANT UNDER THE HEAD INCOME FROM OTHER SO URCES DISREGARDING THE FACT THAT NEITHER THE INVESTMENT IN FIXED DEPOSIT WAS MADE BY THE APPELLANT NOR INTEREST THEREON IS DUE TO THE APPELLANT AND THUS, SUCH INTEREST CANNOT BE SAID TO BE THE INCOME OF THE ASSESSEE. 3.1) WITHOUT PREJUDICE TO GROUND NO.3, EVEN ASSUMIN G (WITHOUT CONCEDING) THAT THE SAID INTEREST AMOUNTING TO RS. 86,50,373/- ON THE FIXED DEPOSITS IS AN INCOME OF THE APPELLANT, IT WOULD CONSTITUTE INCOME INEXTRICABLY LINKED WITH ACQUISI TION OF LAND OF THE APPELLANT AND THEREFORE, THE SAID INTEREST BEI NG A CAPITAL RECEIPT IN NATURE WOULD GO TO REDUCE THE COST OF L AND. 4. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT. 5. THAT THE AO HAS ERRED IN CHARGING INTEREST U/S 234 B, 234D AND 244A(3) OF THE ACT. C) ITA NO.443(ASR)/2013, A.Y. 2008-09 HPCL MITTAL PIPELINES LIMITED VS. ADDL. COMMR. OF INCOME TAX, RANGE- BATHINDA. 1. THAT ON THE FACTS OF THE CASE AND IN LAW, THE O RDER PASSED BY THE LD. CIT(A) IS BAD IN LAW. 2 THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO THAT THE INTEREST AMOUNTING TO RS.9,29,800/- EARNED FROM SHORT TERM DEPOSITS WITH BANKS AND HINDUSTAN PETROLEUM CORPORATIONS LI MITED IS LIABLE TO INCOME TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES DISREGARDING THE FACT THAT THE SAID INTEREST WAS INEXTRICABLY LINKED WITH THE SETTING UP OF THE 5 BUSINESS OF THE ASSESSEE AND THEREFORE, THE SAID I NTEREST BEING A CAPITAL IN NATURE WOULD GO TO REDUCE THE PROJECT C OST. 3. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD . CIT(A) HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT. 4. THAT THE AO HAS ERRED IN CHARGING INTEREST U/S 2 34B AND 234D OF THE ACT. D) ITA NO.444(ASR)/2013, A.Y. 2009-10 HPCL MITTAL PIPELINES LIMITED VS. ADDL. COMMR. OF INCOME TAX, RANGE- BATHINDA. 1. THAT ON THE FACTS OF THE CASE AND IN LAW, THE O RDER PASSED BY THE LD. CIT(A) IS BAD IN LAW. 2 THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO THAT THE INTEREST AMOUNTING TO RS.12,13,61,431/- EARNED FROM SHORT T ERM DEPOSITS WITH BANKS AND HINDUSTAN PETROLEUM CORPORATIONS LI MITED IS LIABLE TO INCOME TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES DISREGARDING THE FACT THAT THE SAID INTEREST WAS INEXTRICABLY LINKED WITH THE SETTING UP OF THE BUSINESS OF THE ASSESSEE AND THEREFORE, THE SAID I NTEREST BEING A CAPITAL IN NATURE WOULD GO TO REDUCE THE PROJECT C OST. 3. THAT ON THE FACTS OF THE CASE AND IN LAW, THE LD . CIT(A) HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT. 4. THAT THE AO HAS ERRED IN CHARGING INTEREST U/S 2 34B AND 234D OF THE ACT. 3. THE LD. COUNSEL FOR THE ASSESSEE, AT OUTSET, PRA YED THE BENCH TO TAKE UP THE APPEAL IN THE CASE OF M/S. HPCL MITTAL ENERG Y LIMITED IN ITA NO.446(ASR)/2013 FOR THE ASSESSMENT YEAR 2009-10, S INCE THE FACTS IN THE 6 PRESENT CASE ARE IDENTICAL IN OTHER APPEALS IN THE CASE OF ASSESSEE ITSELF AND IN THE CASE OF HPCL PIPELINES LIMITED, BATHINDA IN BOT H THE ASSESSMENT YEARS. ACCORDINGLY, WE TAKE UP THE APPEAL OF THE ASSESSEE IN ITA NO. 446(ASR)/2013 FOR THE ASSESSMENT YEARS 2009-10 IN T HE CASE OF HPCL MITTAL ENERGY LIMITED, FIRST AS UNDER: 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME ON 22.09.2009 SHOWING PROFIT OF RS.43,84,000 /- IN THE PROFIT AND LOSS ACCOUNT. THIS PROFIT WAS ADJUSTED AGAINST BROUGHT F ORWARD LOSS OF RS.5,68,18,000/- AND A CLAIM OF CARRY FORWARD OF BA LANCE LOSS OF RS.5,24,34,000/- WAS MADE. THE ASSESSEE DECLARED NI L INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THIS RETURN WAS REVI SED ON 18.01.2010 WHEREIN A REFUND OF RS.9,58,89,115/- WAS MADE AS AG AINST THE CLAIM OF REFUND OF RS.9,50,77,196/- MADE IN THE ORIGINAL RET URN OF INCOME. SUBSEQUENTLY, A SECOND REVISED RETURN OF INCOME WAS FILED ON 24.09.2010 WHEREIN THE CLAIM OF CARRY FORWARD OF LOSS WAS NOT MADE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD SURPLUS FUNDS WHICH WERE NOT IMMEDIATELY REQUIRED F OR SETTING UP OF THE REFINERY. THESE FUNDS WERE INVESTED IN SHORT TERM D EPOSITS IN THE BANKS AND HPCL ON WHICH INTEREST WAS EARNED. THIS WAS STATED TO HAVE BEEN DONE SO THAT LIQUIDITY OF FUNDS COULD BE ENSURED AND PROJE CT COST MAY BE REDUCED. 7 THE INTEREST EARNED AMOUNTING TO RS.26,81,85,996/- ON THE SHORT TERM DEPOSITS WITH HPCL AND BANKS WAS CLAIMED BY THE ASS ESSEE AS CAPITAL RECEIPT AND SET IT OFF AGAINST PRE-OPERATIVE EXPEN SES BEING INEXTRICABLY LINKED WITH THE SETTING UP OF THE BUSINESS. THE AO REFUSED TO ACCEPT THIS CONTENTION OF THE ASSESSEE AND HELD THAT THE AMOUNT OF INTEREST WAS CHARGEABLE U/S 56 OF THE INCOME TAX ACT, 1961. 5. THE LD. CIT(A) CONFIRMED THE ACTION OF THE LD. C OUNSEL FOR THE ASSESSEE. 6. THE LD. COUNSEL FOR THE ASSESSEE, SH.JASWINDER S INGH SAINI, CA ARGUED AND SUBMITTED THAT THE ASSESSEE WAS INCORPOR ATED IN THE YEAR 2000 FOR THE PURPOSE OF SETTING UP AN OIL REFINERY AT BHATIN DA. BETWEEN THE YEARS 2000 TO 2007, THE PROJECT COULD NOT GAIN MOMENTUM DUE TO LACK OF FUNDS FROM HPCL. DUE TO ITS INABILITY TO FUND THE FULL CAPITAL COST, SEARCH FOR A JOINT VENTURE PARTNER WAS MADE AND ULTIMATELY MITTAL ENER GY INVESTMENT PVT. LTD. SINGAPORE (MITTAL ENERGY) WAS SELECTED AS SUITABLE PARTNER. THEREAFTER, IN THE YEAR 2007, HPCL APPROACHED MINISTRY OF PETROLEU M AND NATURAL GAS, SEEKING APPROVAL FOR INDUCTION OF MITTAL INVESTMENT AS A JOINT VENTURE PARTNER. THE MINISTRY OF PETROLEUM AND NATURAL GAS APPROVED THE INDUCTION OF FOREIGN JOINT VENTURE PARTNER FOR 49% EQUITY STA KE. THE APPROVAL FOR JOINT 8 VENTURE WAS BASED ON THE PROJECT COST APPROVED BY T HE HPCL BOARD. THUS, THE ASSESSEE BECAME A JOINT VENTURE COMPANY AS UNDE R: NAME OF SHAREHOLDER EQUITY STAKE IN HMEL HPCL 49% MITTAL ENERGY 49% FINANCIAL INSTITUTIONS 2% 6.1. HE FURTHER SUBMITTED THAT THE AFOREMENTIONED E QUITY CONTRIBUTION WAS TO BE USED EXCLUSIVELY FOR THE PURPOSE OF PROJECT. IT WAS SUBMITTED BEFORE THE AO VIDE SUBMISSION DATED 14 TH DEC., 2010 THAT THE ESTIMATED PROJECT COST OF THE REFINERY PROJECT IS RS.14000 CRORES (APPROX.) W HICH HAS BEEN FUNDED BY 60.40 DEBT EQUITY RATIO. THE ASSESSEE HAS SUBMITTED BEFORE THE AO VIDE SUBMISSION DATED 3.2.2011 THAT IN ADDITION TO THE E QUITY FUNDING A RUPEE LOAN FACILITY AMOUNTING TO RS.7793/- CRORES WITH A CONSO RTIUM OF 26 BANKS AND FINANCIAL INSTITUTIONS WAS ENTERED INTO. IT WAS SUB MITTED THAT EVEN THE LOAN FACILITY WAS TAKEN SPECIFICALLY FOR EXECUTION OF TH E PROJECT. THE ASSESSEE ALSO SUBMITTED EXTRACT OF THE RUPEE LOAN FACILITY AGREEM ENT. IN CLAUSE 10 OF THE SAID AGREEMENT, IT IS SPECIFICALLY MENTIONED THAT T HE BORROWER ( THE ASSESSEE) SHALL USE THE FUNDS EXCLUSIVELY TO PAY THE PROJECT COST. THE TERM PROJECT HAS 9 BEEN DEFINED IN THE AGREEMENT TO MEAN SETTING UP OF THE REFINERY AND RELATED INFRASTRUCTURE. IT WAS SUBMITTED BEFORE THE AO IN THE SUBMISSION DATED 14 TH DEC., 2010 THAT SINCE THE UNDERLINE PURPOSE IS TIM ELY EXECUTION OF THE PROJECT, THE ESTIMATED EXPENSES FOR THE NEXT CY CLE OF PROJECT ARE PRE- FUNDED IN THE CURRENT ACCOUNT OF THE APPELLANT. FUN DING AT ANY STAGE REQUIRE MANDATORY DEBT EQUITY RATIO OF 60:40 IN OTHER WORDS IN CASE OF RS.100 TO BE SPENT IN THE NEXT CYCLE OF EXPENSE THEN RS.40 OF EQ UITY IS BROUGHT AND THEN LENDING INSTITUTIONS ALLOW DEBT FUNDING OF RS.60. F OR TIMELY EXECUTION OF THE PROJECT, FUNDING IS RECEIVED IN ADVANCE FOR NEXT C YCLED OF FUND REQUIREMENT. THIS ENSURES TWO PURPOSES, ONE THE PROJECT WORK IS NOT DELAYED OR STOPPED AND SECONDLY, SINCE MONEY IS BORROWED IN PARTS IT R EDUCES THE BORROWING COST. ALSO WHERE AS A TOOL OF EFFECTIVE CASH MANAGE MENT, THE FUNDS ARE DEPLOYED IN SHORT TERM DEPOSITS KEEPING IN VIEW T HE BASICS OBJECTIVE OF LIQUIDITY FOR THE PROJECT AND POSSIBLE INTEREST EAR NING TO REDUCE THE OVERALL COST OF THE PROJECT. FROM THE ABOVE, IT CAN BE CON CLUDED THAT THE FUNDS AVAILABLE TO THE ASSESSEE ARE STRICTLY TO BE EMPLOY ED FOR THE PURPOSE OF THE PROJECT ONLY AND FOR NO OTHER PURPOSE. THUS, THE FU NDS ARE INEXTRICABLY LINKED TO THE PROJECT OF THE ASSESSEE. DURING THE YEAR UND ER CONSIDERATION, THE ASSESSEE EARNED INTEREST FROM TEMPORARY DEPOSITS OF BORROWED FUNDS AND SHARE CAPITAL MONEY, PENDING ITS UTILIZATION IN THE PROJECT. THE DETAILS OF 10 DEPOSITS SHOWING THAT THE SAID DEPOSITS WERE FOR SH ORT PERIOD WERE SUBMITTED BEFORE THE AO VIDE SUBMISSION DATED 25.1.2011. THUS , THE ASSESSEE CLAIMED THAT SUCH INTEREST SHOULD GO ON TO REDUCE THE PROJE CT COST AND THEREFORE, DID NOT OFFER IT FOR TAXATION IN THE TAX RETURN. HOWEVE R, THE AO DURING THE ASSESSMENT PROCEEDINGS REJECTED THE CLAIM OF THE AS SESSEE AND TAXED SAID INTEREST AS INCOME FROM OTHER SOURCES BY RELYING ON THE DECISION OF THE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEM ICALS & FERTILIZERS LTD. VS. CIT (227 ITR 172) WHERE THE SUPREME COURT HELD THAT INTEREST EARNED ON THE SURPLUS FUNDS DEPOSITED WITH THE BANK IN REVENU E IN NATURE AND THEREFORE UNDER THE ACT AS INCOME FROM OTHER SOURCES. ON FUR THER APPEAL, THE LD. CIT(A) UPHELD THE ORDER OF THE AO. THE ASSESSEE CON TENDED THAT THE AMOUNT BORROWED FROM BANKS AND SHARE CAPITAL MONEY RAISED WHICH WAS TEMPORARILY DEPOSITED IN THE BANKS IS NOT SURPLUS FUNDS AS IN T HE CASE OF TUTICORIN ALKALI (SUPRA). THE WHOLE PROJECT HAS BEEN FUNDED IN THE D EBT-EQUITY RATIO OF 60:40 AS DISCUSSED ABOVE. ALL THE FUNDS ARE REQUIRED FOR THE PURPOSE OF THE PROJECT AND THERE IS NO QUESTION OF ANY SURPLUS FUNDS WHATS OEVER. THE FUNDS LYING TEMPORARILY IDLE AND NOT USABLE IMMEDIATELY FOR TH E PROJECT ARE KEPT IN SHORT TERM DEPOSITS FOR MAINTAINING LIQUIDITY AND TO REDU CE THE PROJECT COST. THE INTEREST EARNED BY THE ASSESSEE IS DEPLOYED FOR THE PURPOSE OF PROJECT ONLY AS THERE IS NO OTHER LINE OF ACTIVITY OF THE ASSESSEE AND THE INTEREST HAS BEEN 11 REDUCED FROM THE OVERALL PROJECT COST. AS THE FUNDS ARE INEXTRICABLY LINKED TO THE PROJECT AND THERE ARE NO SURPLUS FUNDS THE DECI SION OF TUTICORIN ALKALI (SUPRA) IS NOT APPLICABLE. IT IS SUBMITTED THAT THE INTEREST EARNED ON SHORT TERM DEPOSIT MADE WHICH IS INEXTRICABLY LINKED AND CONNE CTED WITH THE SETTING UP OF THE PROJECT IS CAPITAL IN NATURE AND HENCE NOT T AXABLE UNDER THE ACT, AS IT IS NOT AN INCOME OF THE ASSESSEE FROM AN INDEPENDENT S OURCE. SUCH INTEREST WOULD GO ON TO REDUCE THE OVERALL COST OF THE PROJE CT. THIS WAS SO HELD BY THE SUPREME COURT IN THE CASE OF BOKARO STEEL LTD. (10 2 TAXMAN 94) WHERE THE DECISION OF TUTICORIN ALKALI (SUPRA) WAS CONSIDERED BY THE SUPREME COURT. IT IS FURTHER SUBMITTED THAT THE JUDGMENTS OF TUTICORI N ALKALI (SUPRA) AND BOKARO STEEL (SUPRA) WERE ANALYZED BY THE DELHI HI GH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO (3 15 ITR 255). IN THIS CASE, THE FACTS WERE THAT THE ASSESSEE WAS A JOINT VENTURE TO SET UP A POWER PROJECT. FUNDS WERE INTRODUCED BY THE JOINT VENTURE PARTNERS FOR THE PURPOSE OF THE PROJECT. SUCH FUNDS WERE REQUIRED FOR PURCHA SE OF LAND AND DEVELOPMENT OF INFRASTRUCTURE, BUT DUE TO SOME LEGA L ENTANGLEMENTS WITH RESPECT OF TITLE OF LAND, THE FUNDS WERE TEMPORARIL Y IDLE AND WERE KEPT IN FIXED DEPOSIT WITH BANKS ON WHICH INTEREST WAS EARN ED. THE ASSESSEE CLAIMED THAT SAID INTEREST WAS CAPITAL RECEIPT AND THEREFORE SHOULD BE SET OFF AGAINST THE PRE-OPERATIVE EXPENSES. THE SAID CONTEN TION WAS REJECTED BY THE 12 AO AND THE INTEREST INCOME WAS TREATED AS TAXABLE I NCOME OF THE ASSESSEE. THE LD. CIT(A) HELD THAT THE FUNDS WERE PLACED ON F IXED DEPOSIT SO THAT LIQUIDITY WAS ENSURED AND MONEY WOULD REMAIN AVAILA BLE WHEN REQUIRED FOR THE PURPOSE OF THE PROJECT AND HENCE THE INTEREST E ARNED WAS INEXTRICABLY LINKED WITH THE SETTING UP OF THE PROJECT. THEREFOR E, THE CIT(A) APPLYING THE JUDGMENT IN THE CASE OF BOKARO STEEL (SUPRA), ALLOW ED THE CLAIM OF THE ASSESSEE. HOWEVER, THE TRIBUNAL FOLLOWING THE JUDGM ENT IN THE CASE OF TUTICORIN ALKALI (SUPRA) REVERSED THE DECISION OF T HE CIT(A). ON APPEAL, THE DELHI HIGH COURT OBSERVED AS UNDER: 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. (SUPRA) AND THAT OF B OKARI STEEL LTD (SUPRA). THE TEST WHICH PERMEATERS THROUGH THE JUDG MENT OF THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERT ILIZERS LTD. 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 CIRCUM STANCE THEY ARE INVESTED IN THE 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.S CASE (SUPRA) TO OUR MIND IS THAT IF INCOME I S EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHI CH ARE OTHERWISE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLAN T, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PR E-OPERATIVE EXPENSES. 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 IN FUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF IN FRASTRUCTURE. THEREFORE, THE INTEREST EARNED ON FUNDS PRIMARILY B ROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CLASSIFIED AS I NCOME FROM OTHER 13 SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD P RIOR TO COMMENCEMENT OF BUSINESS IT WAS IN THE NATURE OF CA PITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST PRE-OPERAT IVE EXPENSES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS L TD.(SUPRA) IT WAS FOUND BY THE AUTHORITIES THAT THE FUNDS AVAILABLE WITH THE ASSESSEE IN THAT CASE WERE SURPLUS AND THEREFORE, THE SUPREME COURT HELD THAT THE INTEREST EARNED ON SURPLUS FUNDS WOULD HAVE TO BE TREATED AS INCOME FROM OTHER SOURCES. ON THE OTHER HAND, IN BOKARO STEEL LTD.S CASE (SUPRA) WHERE THE ASSESSEE HAD EARNED I NTEREST ON ADVANCE PAID TO CONTRACTORS DURING PRE-COMMENCEMENT PERIOD WAS FOUND TO BE INEXTRICABLY LINKED TO THE SETTING UP OF THE P LANT OF THE ASSESSEE AND HENCE WAS HELD TO BE A CAPITAL RECEIPT WHICH WA S PERMITTED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES (EMPHASIS SU PPLIED). 6.2. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE FACTS OF THE CASE OF THE ASSESSEE ARE SIMILAR TO THE FACTS OF THE CASE O F INDIAN OIL (SUPRA). IN THE PRESENT CASE ALSO, THE FUNDS WERE RAISED FOR THE PU RPOSE OF THE PROJECT. THE FUNDS WERE TO BE UTILIZED FOR THE PROJECT ONLY AND THERE WERE NO SURPLUS FUNDS. THE FUNDS WERE TO TEMPORARILY INVESTED AS T HE SAME WERE NOT IMMEDIATELY USABLE FOR THE PROJECT WORK. THUS, SINC E THE FUNDS WERE PRIMARILY INFUSED IN THE BUSINESS THE SAME COULD NO T HAVE BEEN CLASSIFIED AS FOR PURPOSES OTHER THAN BUSINESS. THEREFORE, INTERE ST INCOME EARNED CANNOT BE CATEGORIZED AS INCOME FROM OTHER SOURCES BUT AS BUSINESS INCOME. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCE MENT OF BUSINESS IT WAS IN THE NATURE OF CAPITAL RECEIPT AND HENCE WAS REQU IRED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. 14 7. THE LD. DR. MR. TARSEM LAL, ON THE OTHER HAND S UBMITTED THAT THE FACTUAL MATRIX LEADING TO THE RAISING OF THIS GROUN D IS LIKE THAT THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOME FOR THE A.Y. 2008-09 DECLARING TOTAL INCOME AT RS.23,61,52,102/- UNDER THE HEAD INCOME FROM OTHER SOURCES ON 30.09.2008. THE RETURN WAS REVISED ON 09.09.2009 AN D THEREAFTER AGAIN ON 30.09.2009 DECLARING NIL INCOME. DURING THE YEAR UN DER CONSIDERATION THE ASSESSEE ENTERED INTO JOINT VENTURE WITH MITTAL ENE RGY INVESTMENTS, LUXEMBOURG WITH EQUAL JOINT EQUITY PARTICIPATION BY HINDUSTAN PETROLEUM CORPORATION LIMITED (IN HPCL). AS A RESULT OF THIS JOINT VENTURE, THE NEW PARTNER NAMELY MITTAL ENERGY INVESTMENTS INFUSED IT S SHARE OF EQUITY IN THE JOINT VENTURE EQUIVALENT TO THE SHARE OF HPCL. THE ASSESSEE INVESTED A PORTION OF THE SHARE CAPITAL AND SHARE APPLICATION MONEY IN SHORT TERM DEPOSITS WITH BANKS AND HPCL BECAUSE THESE AMOUNTS COULD NOT BE UTILIZED IN THE PROJECT INSTANTLY. THE ISSUE INVOLVED IS THA T THE INTEREST INCOME OF RS.23,61,52,102/- EARNED BY THE ASSESSEE FROM THE T ERM DEPOSITS MADE IN BANK AND HPCL IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES ASSESSEE CLAIMED THAT THE INTEREST EARNED WOULD GO TO REDUCE THE CAPITAL COST OF THE PROJECT. THE AO RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT 227 ITR 172 (SC0 IN WHICH THE HONBLE SUPREME COURT HAS HELD THAT A 15 COMPANY IS LIABLE TO BE ASSESSED ON INCOME EARNED B Y IT FROM SOURCES OTHER THAN INCOME FROM PROFITS AND GAINS OF BUSINESS IF IT HAS NOT COMMENCED BUSINESS AND IF THE COMPANY HAS EARNED INTEREST INC OME BY INVESTING ITS FUNDS TO SHORT TERM DEPOSITS, INTEREST SO EARNED W OULD BE CHARGEABLE U/S 56 OF THE INCOME TAX ACT, 1961. THE ASSESSEE RELIED UP ON THE JUDGMENTS OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LIMITED REPORTED AT 236 ITR 315 AND FURTHER RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF INDIA OIL PANIPAT POWER CONSOR TIUM LIMITED VS. ITO REPORTED AT 314 ITR 255 WHEREIN IT WAS HELD THAT I NTEREST EARNED ON MONIES RECEIVED AS SHARE CAPITAL BY THE ASSESSEE WHICH WER E TEMPORARILY PUT IN FIXED DEPOSITS AWAITING ACQUISITION OF LAND, THE ASSESSE ES CLAIM THAT THE INTEREST WAS IN THE NATURE OF CAPITAL RECEIPT WHICH WAS LIAB LE TO BE SET OFF AGAINST PRE- OPERATIVE EXPENSES, IS ACCEPTABLE. THE LD. CIT(A) H AS APPRECIATING THE FINDINGS OF THE AO THAT THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IS DISTINGUISHABLE ON FACTS AND AS SUCH IT IS NOT RELE VANT TO THE FACTS OF THE CASE. THE DIFFERENTIATION IS DELINEATED AS UNDER: INDIAN OIL PANIPAT POWER CORPORATION LTD (181 TAXMAN 249 ASSESSEE SOURCE OF FUNDS SHARE CAPITAL SHARE CAPITAL REASONS FOR INVESTMENT FUNDS REQUIRED FOR INVESTMEN T OF FUNDS IN 16 FUNDS IN DEPOSITS PURCHASE OF LAND AND DEVELOPMENT OF INFRASTRUCTURE BUT DUE TO LEGAL ENTANGLEMENTS WITH RESPECT TO TITLE OF LAND, SAME WERE TEMPORARILY PUT IN FIXED DEPOSIT WITH BANK. DEPOSITS WAS MADE BECAUSE THESE AMOUNTS COULD NOT BE UTILIZED IN THE PROJECT INSTANTLY AND DEPOSITS ENSURED LIQUIDITY AND SAFELY OF FUNDS AND MONEY COULD BE WITHDRAWN AS AND WHEN THE SAME WAS REQUIRED. THUS, THERE WAS NO LEGAL ENTANGLEMENT. IT IS A CASE OF PARKING OF SURPLUS FUNDS ON WHICH INTEREST WAS EARNED. STARTING OF PROJECT PROJECT WAS NOT STARTED AND EVEN THE LAND COULD NOT BE ACQUIRED DUE TO LEGAL ENTANGLEMENTS. DURING THE YEAR, HUGE AMOUNT WAS SPENT ON CONSTRUCTION AND OTHER ACTIVITIES. INVESTMENT OF RS.108.50 CRORE WAS MADE WHICH SHOWED THAT THE PROJECT WAS NOT STAGNANT. FUNDS OF RS.943.66 CR. WERE RECEIVED DURING THE YEAR AND DEPOSITED WITH BANK AND ALSO WITH THE JOINT VENTURE PARTNER HPCL ALSO. 7.1. THE LD. DR FURTHER STATED THAT IT IS CLEAR TH AT IN THE ASSESSEES CASE THE FUNDS WERE NOT INEXTRICABLY LINKED TO THE SETTING U P OF THE PLANT AND AS SUCH THE ASSESSEE WAS FREE TO MAKE USE OF THE FUNDS AND IF HE HAD DEPOSITED THE SAME WITH THE BANK OR HPCL, INTEREST WHICH WAS EARN ED BY IT HAD TO BE ASSESSED AS ITS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AS HELD 17 BY THE HONBLE SUPREME COURT IN THE CASE OF TUTICOR IN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA). IT MAY BE FURTHER MENTION HERE THAT THE HONBLE KERALA HIGH COURT IN THE CASE OF G.T.N. TEXTILES LT D. VS. DCIT REPORTED AT 326 ITR 352 HAS HELD THAT SO LONG AS THE ASSESSEE IS NOT ENGAGED IN FINANCING, INTEREST ON SHORT TERM DEPOSIT IS RIGHTL Y ASSESSED AS INCOME FROM OTHER SOURCES. IN THIS CASE ALSO, THE ASSESSEE HAD MADE SHORT TERM DEPOSIT OF THE SHARE MONEY AS IS THE FACT OBTAINING IN THE CAS E OF THE ASSESSEE. THEREFORE, THIS LATER DATE DECISION OF THE HONBLE HIGH COURT COVERS THE CASE OF THE ASSESSEE AND IS AGAINST IT. 7.2. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAD ITSELF DECLARED INCOME OF RS.23,61,30,520/- UNDER THE HEAD INCOME F ROM OTHER SOURCES IN ITS RETURN FILED ON 30.09.2008. IT WAS IN THE REVISED R ETURN THAT THE ASSESSEE HAD DECLARED NIL INCOME. SINCE THERE WAS NO OMISSION OR ANY WRONG STATEMENT IN THE ORIGINAL RETURN, THE REVISED RETURN WAS NOT VAL ID ONE AND DESERVED NOT TO BE TAKEN COGNIZANCE OF. THE LD. CIT(A) FAILED TO TA KE COGNIZANCE OF THIS VITAL FACT AND OUGHT TO HAVE DISREGARDED THE REVISE D RETURN IN HIS CO-TERMINUS JURISDICTION WITH THAT OF THE AO. IT IS, THEREFORE, PRAYED THAT THE HONBLE BENCH MAY BE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS GROUND ALSO IN VIEW OF RULE 27 OF THE INCOME TAX APPELLATE TRIBUNAL, 19 63. IT IS FURTHER SUBMITTED THAT THE HONBLE BENCH IS COMPETENT TO UP HOLD THE ORDER OF THE LD. 18 CIT(A) ON THIS GROUND ALSO THAT THERE WAS NO OMISSI ON OR WRONG STATEMENT IN THE ORIGINAL RETURN AND AS SUCH REVISED RETURN COUL D NOT BE ENTERTAINED. THIS IS MANDATED IN THE SUPREME COURTS JUDGMENT IN THE CASE OF HUKUM CHAND MILLS LTD. REPORTED AT 63 ITR 232 (SC) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT THE TRIBUNAL CAN PASS ANY ORDER AS IT THINKS FIT ON THE FACTS OF THE CASE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE IN THE PRESENT CASE HAS INVESTED THE F UNDS IN THE SHORT-TERM DEPOSITS IN THE BANKS AND HPCL, IN FACT, IS ALSO TH E MAJOR EQUITY SHAREHOLDER HOLDING 49% OF THE EQUITY. THE INTEREST EARNED AMOU NTING TO RS.26,81,85,996/- ON THE SHORT TERMS DEPOSITS WITH BANK AND HPCL WAS CLAIMED BY THE ASSESSEE AS CAPITAL RECEIPT AND WAS SET OFF AGAINST PRE- OPERATIVE EXPENSES BEING INEXTRICABLY LINKED WITH THE SETTING UP OF THE BUSINESS WHICH CLAIM OF THE ASSESSEE WAS NOT ACCEPT ED BY THE AO. THE AO TREATED THE SAME AS CHARGEABLE UNDER SECTION 56 OF THE INCOME TAX ACT, 1961.DURING THE YEAR, THE ASSESSEE ENTERED INTO TH E JOINT VENTURE WITH M/S. MITTAL ENERGY INVESTMENTS, LUXEMBOURG WITH EQUAL JO INT EQUITY PARTICIPATION BY M/S. HINDUSTAN PETROLEUM CORPORATI ON LTD. (HPCL). AS A RESULT OF THIS JOINT VENTURE, THE NEW PARTNER M/S. MITTAL ENERGY INVESTMENTS INFUSED ITS SHARE OF EQUITY IN THE JOINT VENTURE EQ UIVALENT TO THE SHARE OF 19 HPCL. THE ASSESSEE INVESTED IN SHORT TERMS DEPOSITS AS MENTIONED HEREINABOVE, WHICH COULD NOT BE UTILIZED IN THE PRO JECT INSTANTLY. THE AO RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COU RT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LIMITED VS . CIT REPORTED AT 227 ITR 172 (SC). THE ASSESSEE RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LIMITED R EPORTED AT 236 ITR 315 AND JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CAS E OF INDIA OIL PANIPAT POWER CONSORTIUM LIMITED VS. ITO REPORTED AT 315 IT R 255. THE LD. COUNSEL FOR THE ASSESSEE, MAINLY RELIED UPON THE DE CISION IN THE CASE OF INDIA OIL PANIPAT POWER CONSORTIUM LIMITED VS. ITO REPORT ED AT 315 ITR 255. THE ARGUMENTS MADE BY THE LD. DR ARE FOUND TO BE CO NVINCING WITH THE JUDGMENT IN THE CASE OF INDIA OIL PANIPAT POWER CON SORTIUM LIMITED VS. ITO (SUPRA) CANNOT BE MADE APPLICABLE IN THE PRESEN T CASE. AS SUBMITTED HEREINABOVE THAT IN THE CASE OF INDIA OIL PANIPAT POWER CONSORTIUM LIMITED VS. ITO (SUPRA) FUNDS WERE REQUIRED FOR THE PURCHAS E OF LAND AND DEVELOPMENT OF INFRASTRUCTURE BUT DUE TO LEGAL ENTA NGLEMENTS WITH RESPECT TO TITLE OF LAND, SAME WERE TEMPORARILY PUT IN FIXED D EPOSIT WITH BANK, WHEREAS IN THE PRESENT CASE, INVESTMENT OF FUND IN DEPOSITS WAS MADE BECAUSE THESE AMOUNTS COULD NOT BE UTILIZED IN THE PROJECT INSTAN TLY AND DEPOSITS ENSURED LIQUIDITY AND SAFETY OF FUNDS AND MONEY COULD BE WITHDRAWN AS AND WHEN THE SAME WAS 20 REQUIRED. THUS, THERE WAS NO LEGAL ENTANGLEMENT. IT IS A CASE OF PARKING OF SURPLUS FUNDS ON WHICH INTEREST WAS EARNED.SECONDLY , IN THE CASE INDIAN OIL PANIPAT POWER CORPORATION LTD. (SUPRA), THE PROJEC T WAS NOT STARTED AND EVEN THE LAND COULD NOT BE ACQUIRED DUE TO LEGAL EN TANGLEMENTS, WHEREAS IN THE PRESENT CASE DURING THE IMPUGNED YEAR, HUGE AMO UNT WAS SPENT ON CONSTRUCTION AND OTHER ACTIVITIES. INVESTMENT OF RS .108.50 CRORE WAS MADE WHICH SHOWED THAT THE PROJECT WAS NOT STAGNANT. FUN DS OF RS.943.66 CR. WERE RECEIVED DURING THE YEAR AND DEPOSITED WITH BANK AN D ALSO WITH THE JOINT VENTURE PARTNER HPCL. THEREFORE, THERE WAS NO INTER -LINKING OF FUNDS, AS WAS IN THE CASE OF INDIAN OIL PANIPAT POWER CORPOR ATION LTD.(SUPRA). IN THE PRESENT CASE, FUNDS WERE NOT INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT AND AS SUCH THE ASSESSEE WAS FREE TO MAKE USE OF TH E FUNDS AND IF THE SAME WERE DEPOSITED IN FDR WITH THE BANK AND JOINT VENTU RE PARTNER HPCL, EVEN THE INTEREST INCOME CAN BE UTILIZED AS AND WHEN RE QUIRED BY THE ASSESSEE. THE ASSESSEE HAS UTILIZED THE FUNDS FRUITFULLY AND INCOME SO GENERATED HAS TO BE TREATED AS REVENUE IN NATURE AND IT CANNOT BE TR EATED AS ACCRETION OF CAPITAL, WHETHER THE MONEY HAS BEEN RAISED AS SHARE CAPITAL FROM THE JOINT VENTURE SHAREHOLDER OR AS A BORROWINGS WILL NOT MAK E ANY DIFFERENCE TO THIS RATIO. EVEN IF THE MONEY BORROWED HAS BEEN INVESTED IN THE FDR WITH BANK AND JOINT VENTURE SHAREHOLDER, HPCL, EVEN THEN WE A RE OF THE VIEW THAT 21 INCOME IS BEING GENERATED OUT OF SUCH FDR AND INVES TMENTS OF THE FUNDS WHICH HAVE BEEN INVESTED BY THE ASSESSEE TO UTILIZE THE SAME FRUITFULLY AND ESSENTIALLY HAS TO BE TREATED AS INCOME OF REVENUE IN NATURE. THERE IS NO CLAIM OF THE ASSESSEE IN THE PRESENT APPEAL THAT AN Y INTEREST ON THE MONEY BORROWED, WHICH ARE THE LOAN FUNDS HAS TO BE DEDUCT ED OUT OF SUCH INTEREST INCOME. AS MENTIONED HEREINABOVE, THE COMPANY IN TH E PRESENT CASE IS AT LIBERTY TO USE THE INTEREST INCOME SO EARNED ON FDR WITH THE BANK AND DEPOSITS WITH HPCL- JOINT VENTURE SHAREHOLDER. THE COMPANY IS FREE TO INVEST SUCH INTEREST INCOME IN ANY FIXED ASSETS, FI NANCIAL ASSETS OR IN FUTURE CAN USE AS A WORKING CAPITAL AND EVEN DIVIDENDS TO THE SHAREHOLDERS. THERE WAS NO OVER-RIDING TITLE OF ANYBODY DIVERTING THE I NCOME AT SOURCE TO PAY THE SAID AMOUNT EVEN PAYABLE TO ANY PERSON. WE HAVE TO SEE WHETHER INCOME IS TAXABLE AT THE POINT OF ACCRUAL AND IN THE PRESENT CASE, IT IS TAXABLE INCOME AND HAS TO BE TREATED AS REVENUE IN NATURE. IT WILL BE PERTINENT TO MENTION THAT TAXABILITY OF INCOME HAS TO BE DECIDED IN ACCO RDANCE WITH THE PRINCIPLE OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTING PRACTI CE. THE ACCOUNTING PRACTICE CANNOT OVER-RIDE SECTION 56 OR ANY OTHER P ROVISIONS OF THIS ACT. THE INCOME TAX ATTRACTS ON THE INCOME AS AND WHEN IT AC CRUES AND IN THE PRESENT CASE, IT HAS ACCRUED IN THE IMPUGNED YEAR AND THERE FORE, THE SAME IS OF THE REVENUE IN NATURE. THE LD. CIT(A) AND THE ASSESSING OFFICER HAS RIGHTLY 22 RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME CO URT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. C IT REPORTED IN 227 ITR 172 AND HEAD NOTES OF THE SAME FOR THE SAKE OF CON VENIENCE ARE REPRODUCED AS UNDER: THE FACTS OF THIS CASE WERE NOT IN DISPUTE. IN THE USU AL COURSE, INTEREST RECEIVED BY THE COMPANY FROM THE BANK DEPO SITS AND LOANS WOULD BE TAXABLE AS INCOME UNDER THE HEAD INCOME FR OM OTHER SOURCES U/S 56. IT WAS ARGUED ON BEHALF OF THE CO MPANY THAT IT HAD NOT YET COMMENCED ITS BUSINESS AND IN ANY EVENT IF THE INCOME WAS DERIVED FROM FUNDS BORROWED FOR SETTING UP THE FACT ORY OF THE COMPANY, IT SHOULD BE ADJUSTED AGAINST THE INTERES T 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 CHA RGEABLE TO TAX UNDER SECTION 4. THE TOTAL INCOME HAS TO BE COMPUTE D IN ACCORDANCE WITH THE PROVISION OF THE ACT. SECTION 14 LAYS DOWN THAT FOR THE PURPOSE OF COMPUTATION, INCOME OF AN ASSESSEE HAS T O BE CLASSIFIED UNDER SIX HEADS. THE COMPUTATION OF INCOME UNDER EACH OF THE SIX HEA DS WILL HAVE TO BE MADE INDEPENDENTLY AND SEPARATELY. THERE ARE SPECI FIC RULES OF DEDUCTION AND ALLOWANCES UNDER EACH HEAD. NO DEDUCT ION OR ADJUSTMENT ON ACCOUNT OF ANY EXPENDITURE CAN BE MAD E EXCEPT AS PROVIDED BY THE ACT. THE BASIS PROPOSITION THAT HAS TO BE BORNE IN MIND IN HIS CASE IS THAT IT IS POSSIBLE FOR A COMPANY TO HAVE SIX DIFFERENT SOU RCES OF INCOME, EACH ONE OF WHICH WILL BE CHARGEABLE TO INCOME-TAX. PRO FITS AND GAINS OF BUSINESS OR PROFESSION IS ONLY ONE OF THE HEADS UN DER WHICH THE COMPANYS INCOME IS LIABLE TO BE ASSESSED TO TAX. I F A COMPANY HAS NOT COMMENCED BUSINESS, THERE CANNOT BE ANY QUESTION OF ASSESSMENT OF ITS PROFITS AND GAINS OF BUSINESS. THAT DOES NOT ME AN THAT UNTIL AND UNLESS THE COMPANY COMMENCES ITS BUSINESS, ITS INCO ME FROM ANY OTHER SOURCE WILL NOT BE TAXED IF THE COMPANY, EVEN BEFORE IT COMMENCES BUSINESS, INVESTS THE SURPLUS FUND IN ITS HAND FOR PURCHASE OF LAND OR HOUSE PROPERTY AND LATER SELLS IT AT PRO FIT, THE GAIN MADE BY THE COMPANY WILL BE ASSESSABLE UNDER THE HEAD CAPI TAL GAINS. SIMILARLY, IF A COMPANY PURCHASES A RENTED HOUSE AN D GETS RENT, SUCH 23 RENT WILL BE ASSESSALE TO TAX TAX U/S 22 AS INCOME FROM HOUSE PROPERTY. LIKEWISE, A COMPANY MAY HAVE INCOME FROM OTHER SOU RCES. IT MAY BUY SHARES AND GET DIVIDENDS. SUCH DIVIDENDS WILL B E TAXABLE U/S 56. THE COMPANY MAY ALSO, AS IN THIS CASE, KEEP THE SUR PLUS FUND IN SHORT- TERM DEPOSITS IN ORDER TO EARN INTEREST. SUCH INTER ESTS WILL BE CHARGEABLE U/S 56. 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 HBE OF THE REVENUE NATURE. IF THE CAPITAL OF A COMPANY IS FRUITFULLY UTILISED INSTEAD OF KEEPING IT IDEL, 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 MA KE ANY DIFFERENCE TO THIS PRINCIPLE. IF BORROWED CAPITAL IS USED FOR THE PURPOSE OF EARNING INCOME, THAT INCOME WILL HAVE TO BE TAXED I N ACCORDANCE WITH LAW. INCOME IS SOMETHING WHICH FLOWS FROM THE PROPE RTY. SOMETHING RECEIVED IN PLACE OF THE PROPERTY WILL BE CAPITAL R ECEIPT. THE AMOUNT OF INTEREST RECEIVED BY THE COMPANY FLOWS FROM ITS INVESTMENTS AND IS ITS INCOME AND IS CLEARLY TAXABLE 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 BORROWED FU NDS AS ITS INCOME. THE INTEREST EARNED BY THE ASSESSEE WAS CLEARLY ITS INCOME AND UNLESS IT COULD BE SHOWN THAT ANY PROVISION LIKE SECTION 10 HAD EXEMPTED IT FROM TAX, IT WIL BE TAXABLE. THE FACT THAT THE SOUR CE OF INCOME WAS BORROWED MONEY DID NOT DETRACT ANY THING FROM THE REVENUE CHARACTER OF THE RECEIPT. THE QUESTION OF ADJUSTMEN T OF INTEREST PAYABLE BY THE COMPANY AGAINST THE INTEREST EARNED BY IT WILL DEPEND UPON THE PROVISIONS OF THE ACT. THE EXPENDITURE WOU LD HAVE BEEN DEDUCTIBLE AS INCURRED FOR THE PURPOSE OF BUSINESS IF THE ASSESSEES BUSINESS HAD COMMENCED. BUT THAT WAS NOT THE CASE I N THE INSTANT CASE.THE ASSESSEE MAY BE ENTITLED TO CAPITALISE THE INTEREST PAYABLE BYU IT. BUT WHAT THE ASSESSEE COULD NOT CLAIM WAS A DJUSTMENT OF THIS EXPENDITURE AGAINST INTEREST ASSESSABLE U/S 56. SEC TION 57 SETS OUT IN ITS CLAUSES (I) AND (II) OF THE EXPENDITURES WHICH ARE ALLOABALE AS 24 DEDUCTION FROM INCOME ASSESSABLE U/S 56.IT IS NOT T HE CASE OF THE ASSESSEE THAT THE INTEREST PAYABLE BY IT ON TERM LO ANS IS ALLOWABLE AS DEDUCTION U/S 57. THERE ARE SPECIFIC PROVISIONS OF THE ACT FOR SETTIN G OFF OF LOSS FROM OEN SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME (SECTION 70), AS WELL AS SETTING OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER (SECTION 71). IN THE FA CTS OF THIS CASE, THE COMPANY COULD NOT CLAIM ANY RELIEF SINCE ITS BUSINE SS HAD NOT STARTED AND THERE COULD NOT BE ANY COMPUTATION OF BUSINESS INCOME OR LOSS INCURRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEAR. IN SUCH A SITUATION, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF SETTING UP ITS BUSINESS COULD NOT BE ALLOWED AS DED UCTION, NOR COULD IT BE ADJUSTED AGAINST ANY OTHER INCOME UNDER ANY OTHE R HEAD. SIMILARLY, ANY INCOME FROM A NON-BUSINESS SOURCE COULD NOT BE SET OFF AGAINST THE LIABILITY TO PAY INTEREST ON FUNDS BORROWED FOR THE PURPOSE OF PLANTS AND MACHINERIES EVEN BEFORE COMMENCEMENT OF BUSINESS OF THE ASSESSEE. FURTHER, NO ADJUSTMENT COULD BE ALLOWED EXCEPT IN A CCORDANCE WITH THE PROVISIONS OF THE ACT. HOWEVER, DESIRABLE ITMAY BE, FROM THE POINT OF VIEW OF EQUITY, THIS ADJUSTMENT CANNOT BE MADE U NLESS THE LAW SPECIFICALLY PERMIT SUCH ADJUSTMENT. FURTHER ANY AR GUMENT BASED ON ACCOUNTANCY PRACICE HAS LITTLE MERIT IF SUCH PRACTI CE CANNOT BE JUSTIFIED BY ANY PROVISION OF THE STATUTE OR IS CON TRARY TO IT. 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 SET UP ANOTHER LINE O F BUSINESS IT MIGHT EVEN PAY DIVIDENDS OUT OF THIS INCOME TO ITS SHAREH OLDERS. THERE WAS NO OVERRIDING TITLE OF ANBODY DIVERTING THE INCOME AT SOURCE TO PAY THE AMOUNT TO THE CREDITORS OF THE COMPANY. IT IS W ELL SETTLED HTAT TAX IS ATTRACTED AT THE POINT WHEN THE INCOME IS EARNED T AXABILITY OF INCOME IS NOT DEPENDENT UPON ITS DESTINATION OR THE MANNER OF ITS UTILISATION. IT HAS TO BE SEEN WHETHER AT THE POINT OF ACCRUAL, THE AMOUNT IS OF THE REVENUE NATURE AND IF SO, THE AMOUNT WILL HAVE TO B E TAXED. IT IS TRUE THAT THE SUPREME COURT HAS VERY OFTEN RE FERRED TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MADE BY A COMP ANY OR VALUE OF THE ASSETS OF A COMPANY. BUT WHEN THE QUESTION IS W HETHER A RECEIPT OF 25 MONEY IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTIO NS FROM THAT RECEIPT ARE PERMISSIBLE IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRINCIPLES OF LAW AND NOT IN ACCOR DANCE WITH ACCOUNTANCY PRACTICE. ACCOUNTING PRACTICE CANNOT OV ERRIDE SECTION 56 OR ANY OTHER PROVISIONS OF THE ACT. WHETHER A PARTICULAR RECEIPT IS OF THE NATURE OF I NCOME AND IT FALLAS ITHIN 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 INCME 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 A S 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 ALAYS OF A REVENUE NATURE UNLESS IT IS RECEIVED BY WAY OF DAMAGES OR COMPENSATION. 9. THE LD. COUNSEL FOR THE ASSESSEE TIME AND AGAIN RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. BOKARO STEEL LTD. REPORTED AT (1999) 102 TAXMAN 94, WHICH IS NOT APPL ICABLE IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE FOR THE REASON THE ASSESSEE IN THAT CASE IS A CORPORATION WHOLLY OWNED BY THE GOVERNMENT OF IND IA HAVING ITS OBJECT TO CONSTRUCT AND OWN AN INTEGRAL IRON AND STEEL W ORKS. THE RELEVANT AND OPERATIVE PART IS AS UNDER: DURING THE ASSESSMENT YEARS UNDER CONSIDERATION, T HE WORK OF CONSTRUCTION OF THE COMPANYS FACTORY AND INSTALLAT ION OF THE PLANT WAS IN THE PROCESS OF COMPLETION AND THE COMPANY HAD NO T STARTED ANY BUSINESS. ITS RECEIPTS WERE AS UNDER: (1) THE COMPANY HAD GIVEN TO THE CONTRACTORS QUARTERS F OR THE RESIDENCE OF THE STAFF AND WORKERS EMPLOYED BY THE CONTRACTORS WHO HAD BEEN ENGAGED BY THE ASSESSEE-RESPONDENT FOR CARRYING 26 OUT THE WORK OF CONSTRUCTION. THE ASSESSEE CHARGED THE CONTRACTORS FOR THE USE OF THE QUARTERS SO GIVEN TO THE CONTRACTORS. (2) THE ASSESSEE HAD ENTERED INTO SUPPLEMENTARY AGREEME NTS WITH ITS CONTRACTORS UNDER WHICH THE ASSESSEE HAD MADE C ERTAIN ADVANCES TO THE CONTRACTORS ON INTEREST TO ENABLE T HEM TO EXECUTE THE LARGE-SCALE CONSTRUCTION WORK SMOOTHL Y FOR THE ASSESSEE-COMPANY. THIS ARRANGEMENT PRIMARILY MEANT PAYMENT IN ADVANCE OF THE AMOUNTS OF THE CONTRACTORS BILLS FOR WHICH THE ASSESSEE-COMPANY HAD CHARGED INTEREST. THIS INT EREST WAS LATER ADJUSTED AGAINST THE DUES OF THE CONTRACTORS. 9.1 THEREFORE, WITH THIS BACKGROUND, THE HONBLE SU PREME COURT HAS HELD INTEREST FROM ADVANCES MADE TO CONTRACTORS FOR PURP OSE OF FACILITATING WORK OF CONSTRUCTION IS INSTRINSICALLY CONNECTED WITH CO NSTRUCTION OF PLANT AND WOULD BE CAPITAL RECEIPT AND NOT INCOME OF ASSESSEE FROM ANY INDEPENDENT SOURCE. WHEREAS IN THE PRESENT CASE, THE FACTS ARE DIFFERENT AND ACCORDINGLY THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. BOKARO STEEL LTD. (SUPRA) CANNOT BE MADE APPLICABLE IN THE PRESE NT FACTS AND CIRCUMSTANCES. AS HELD HEREINABOVE AND PERUSED BY U S, THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKA LI CHEMICALS & FERTILIZERS LTD. VS. CIT (SUPRA) IS APPLICABLE TO T HE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE, WHICH IS RIGHTLY APPLIED BY THE AO & AND THE LD. CIT(A) AND WE FIND NO INFIRMITY IN HIS ORDER. 27 10. AS REGARDS THE FINDINGS OF THE AO AND ARGUMENT S MADE BY THE LD. DR THAT THE ASSESSEE HAS DECLARED THE SAID INTERES T INCOME AS INCOME FROM OTHER SOURCES IN ITS ORIGINAL RETURN FILED ON 30.09 .2008 BUT THE SAME WAS REVISED BY THE ASSESSEE ON 09.09.2008 DECLARING NIL INCOME. THE LD. DR INVITED OUR ATTENTION THAT THERE WAS NO OMISSION OR WRONG STATEMENT IN THE ORIGINAL RETURN AND THERE WAS NO REASON TO REVISE T HE RETURN AND THEREFORE, THE LD. CIT(A) OUGHT TO HAVE DISREGARDED THE REVISED RE TURN IN HIS CO-TERMINUS JURISDICTION. HE, THEREFORE, PRAYED TO UPHOLD THE O RDER OF THE LD. CIT(A) SINCE THERE IS NO OMISSION OR WRONG STATEMENT IN TH E ORIGINAL RETURN AND SUCH REVISED RETURN CAN NOT BE ENTERTAINED, WHICH IS MAN DATED BY THE HONBLE SUPREME COURT IN THE CASE OF HUKUM CHAND MILLS LTD. REPORTED AT 63 ITR 232 (SC). 11. THE LD. COUNSEL FOR THE ASSESSEE IN THE REJOIND ER HAS STATED THAT INCOME WAS DECLARED AS PER THE DECISIONS OF VARIOUS COURTS AVAILABLE ON THAT DATE I.E. DATE OF FILING THE RETURN, WHICH WAS REVI SED LATER ON THE POSSESSION OF DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CORPORATION LTD. {181 TAXMAN 249}. 12. IN THIS REGARD, THE ARGUMENTS OF THE LD. COUNSE L FOR THE ASSESSEE AND CLAIM OF THE ASSESSEE THAT IT WAS A OMISSION OR WRO NG STATEMENT IN THE 28 ORIGINAL RETURN, CANNOT BE ACCEPTED AND THEREFORE, WE FIND THAT THERE WAS NO OMISSION OR WRONG STATEMENT FILED BY THE ASSESSEE ON 30.09.2008 AND THEREFORE, THE LD. CIT(A) SHOULD HAVE REJECTED OR OMITTED TO HAVE ENTERTAINED THE REVISED RETURN IN THE PRESENT CASE. 13. IN ANY CASE, AS OUR FINDINGS HEREINABOVE, FOR T HE REPETITION PURPOSE AND FOR THE REASONS MENTIONED HEREINABOVE, WE DISMI SS GROUND NO.2 OF THE ASSESSEE. 14. NOW, WE TAKE UP GROUNDS NO. 3 & 3.1 OF THE ASS ESSEE. THE BRIEF FACTS AS ARISING FROM THE ORDER OF THE A.O. IN PARA 5.1 T O 5.4 AT PAGE 38 & 39 ARE REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: 5.1. THE SECOND ISSUE I.E. (B) IN PARA 2.6 ABOVE I S TAKEN UP NOW. AT THE OUTSET, IT IS STATED THAT AS DISCUSSED ABOVE IN CASE OF FIRST ISSUE, HONBLE SUPREME COURT AND OTHER COURTS HAVE ALREADY HELD THAT INTEREST EARNED ON TERM DEPOSITS IN BANK DURING THE CONSTRUCTION PERIOD IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOU RCES THEREFORE, THE INTEREST EARNED BY THE ASSESSEE ON DEPOSIT MADE IN THE BANK AS A SECURITY GIVEN TO TRIAL COURT IS ALSO CHARGEABLE UN DER THE SAID HEAD AND COULD NOT GO TO REDUCE THE CAPITAL COST OF THE PROJ ECT. 5.2. WITHOUT PREJUDICE TO WHAT IS STATED IN PARA 5. 1 ABOVE, THE OTHER CONTENTIONS MADE BY THE ASSESSEE IN ITS REPLY DATED 25.01.2011 IN RESPECT OF THE ISSUE UNDER CONSIDERATION ARE DISCUS SED NOW. IN THIS REPLY, THE ASSESSEE HAS CONTENDED THAT THE FIXED DE POSITS WAS MADE AS PER DIRECTIONS OF HONBLE COURT PENDING LITIGATION IN CONNECTION WITH ACQUISITION OF LAND REQUIRED FOR THE REFINERY. ON T HIS BASIS, IT HAS BEEN CONTENDED THAT THE FIXED DEPOSITS MADE HAS DIRECT N EXUS AND INEXTRICABLE LINK TO THE PROJECT. 29 5.3. THE CONTENTION MADE BY THE ASSESSEE HAS BEEN C AREFULLY EXAMINED. THE SAME IS HELD DEVOID OF ANY MERITS FOR THE UNDER MENTIONED REASONS: (A) THE LAND REQUIRED FOR THE FACTORY WAS ACQUIRED BY THE GOVT. OF PUNJAB AND GIVEN BY IT TO THE ASSESSEE COMPANY LONG BACK. THE ISSUE PENDING BEFORE THE HONBLE COURT IS NOT WHETHER TH E LAND SHOULD BE ALLOWED TO BE ACQUIRED. THE ISSUE PENDING IS DETERM INATION OF COMPENSATION FOR THE LAND. THEREFORE, THE FIXED DEP OSIT MADE IN THE BANK AS SECURITY GIVEN TO TRIAL COURT IS NOT DIREC TLY CONNECTED WITH ACQUISITION OF THE LAND REQUIRED FOR REFINERY FOR T HE REASON THAT LAND HAD ALREADY BEEN ACQUIRED AND TRANSFERRED IN THE N AME OF THE ASSESSEE. THE ACTIVITIES OF THE ASSESSEE IN MAKING THIS FIXED DEPOSIT IS IN CONNECTION WITH SETTLEMENT OF THE CONSIDERATION FOR THE LAND AND NOT ACQUISITION OF LAND. THEREFORE, THE INTEREST EARNE D ON THIS FIXED DEPOSIT IS NOT INEXTRICABLY LINKED TO THE SETTING U P OF THE REFINERY. UNDER THESE FACTS, THE FIXED DEPOSIT IN QUESTION MA DE IN THE BANK IS TO BE TREATED ON THE SAME FOOTING AS THE OTHER TERM DE POSITS. (B) THERE MAY BE COMPULSION ON THE ASSESSEE TO MAKE THE FIXED DEPOSITS IN BANK IN VIEW OF THE DIRECTIONS GIVEN BY THE HONBLE COURT, THIS FACT WOULD NOT AFFECT THE NATURE OF INTEREST I NCOME RECEIVED, WHICH REMAINS REVENUE ONLY. AS DISCUSSED IN PARA3.11 ABOV E, ON SIMILAR FACTS IN THE CASE OF KISAN SAHAKARI CHINI MILLS LTD .(SUPRA), HONBLE HIGH COURT OF ALLAHABAD HELD THAT FREE WILL IS IMMA TERIAL AND THE INCOME ON TERM DEPOSITS WILL BE CHARGEABLE UNDER TH E HEAD INCOME FROM OTHER SOURCES. 5.4. THEREFORE, AS SUCH THE INTEREST INCOME EARNED BY THE ASSESSEE ON THE SAID FIXED DEPOSIT IS TO BE TREATED ON THE SAME FOOTING AS INTEREST EARNED ON OTHER TERM DEPOSITS. THUS, THE DISCUSSION S MADE ABOVE IN RESPECT OF FIRST ISSUE I.E. (A) PARA 2.6, WOULD AP PLY IN RESPECT OF THIS ISSUE ALSO. IN VIEW OF ABOVE, IT IS HELD THAT THE I NTEREST INCOME OF RS.86,50,373/- EARNED ON BANK DEPOSIT MADE AND GIVE N AS SECURITY TO THE TRIAL COURT IS TAXABLE UNDER THE HEAD INCOME F ROM OTHER SOURCES AND WOULD NOT GO TO REDUCE THE CAPITAL COST OF THE PROJECT. 15. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSE SSING OFFICER. 30 16. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GOVERNMENT OF PUNJAB HAS, THROUGH AWARD PROCESS, ACQUIRED 1992.57 5 ACRES OF LAND AT DISTRICT BHATINDA, PUNJAB FOR THE ASSESSEE FOR THE SETTING UP OF THE REFINERY. SUBSEQUENTLY 131 LANDOWNERS IN THE YEAR 1999 FILED THE REFERENCE TO THE COLLECTOR LAND ACQUISITION FOR PAYMENT OF ADDITION AL COMPENSATION. THE CLA IN TURN FORWARDED THAT PETITION TO DISTRICT COU RT AT BHATINDA. ON 29 TH NOV., 2005, THE LD. ADDL. DISTRICT JUDGE, BHATINDA VIDE HIS JUDGMENT AND AWARD ORDER DECIDED THE AWARD ENHANCED LAND COMPENS ATION WHICH WAS APPROXIMATELY RS.22.70 CRORES. BOTH ASSESSEE AND TH E LANDOWNERS FILED AN APPEAL AGAINST THE ABOVE ORDER IN THE PUNJAB & HARY ANA HIGH COURT AND THE PUNJAB & HARYANA HIGH COURT ON 6 TH APRIL,2006 DECLINED TO GRANT THE STAY AND ALLOWED THE CLAIMANTS TO WITHDRAW THE AMOUNT ON FURNISHING SECURITY TO THE SATISFACTION OF THE EXECUTING COURT. THE ASSESS EE FILED THE SPECIAL LEAVE PETITION IN THE SUPREME COURT ON 1 ST MAY, 2006 AGAINST THE SAID INTERIM ORDER OF THE HIGH COURT. ON 12 TH MAY, 2006, THE SUPREME COURT DIRECTED THE ASSESSEE THAT THE AMOUNT SHALL BE INVESTED IN FIXED DEPOSIT IN A NATIONALISED BANK INITIALLY FOR A PERIOD OF SIX MONTHS. AS PER T HE INSTRUCTION OF THE SUPREME COURT, THE ASSESSEE DEPOSITED RS.7,50,00,00 0/- WITH THE TRIAL COURT ( I.E. DISTRICT COURT, BHATINDA) AND IN TURN TRIAL COURT INVESTED THIS AMOUNT IN FIXED DEPOSIT WITH THE ORIENTAL BANK OF COMMERCE , DISTRICT COURT BRANCH, 31 BHATINDA IN THE NAME OF ADDL. DISTRICT JUDGE, BHATI NDA. ACCUMULATED INTEREST WAS REINVESTED BY TRIAL COURT AT THE TIME OF RENEWAL OF THE FIXED DEPOSIT. FURTHER, ON 20 TH FEB., 2006, THE CONVEYANCE DEED WAS EXECUTED AND LAND WAS REGISTERED IN THE NAME OF THE ASSESSEE SUB JECT TO AMONGST OTHER, FOLLOWING TERM AND CONDITION: COMPANY WILL UNDERTAKE TO PAY TO THE GOVERNMENT SUC H FURTHER AMOUNT AS IT MAY AT ANY TIME BECOME LIABLE TO PAY ON ACCOUNT OF ENHANCEMENT OF COMPENSATION PAYABLE IN RESPECT OF T HE ACQUISITION OF THE SAID LAND AND ALL SUCH COSTS, CHARGES AND OTHER EXPENSES WHATSOEVER RELATING THERETO RESULTING FROM ANY REFE RENCES, APPEALS, FURTHER APPEALS OR WRIT PETITIONS OR OTHER LITIGATI ON. DURING THE PREVIOUS YEAR UNDER CONSIDERATION, THE A SSESSEE CLAIMED THAT THE INTEREST ON THE FIXED DEPOSIT IN THE NAME OF ADDL. DISTRICT JUDGE SHOULD NOT BE CONSIDERED AS INCOME OF THE ASSESSEE BECAUSE NEI THER THE ASSESSEE MADE THE INVESTMENT IN ITS OWN NAME NOR ANY INTEREST ON SUCH FIXED DEPOSIT IS DUE TO OR IS RECEIVED BY THE ASSESSEE. EVEN IF IT IS CO NSIDERD AS INCOME OF THE ASSESSEE, AS PER THE DISCUSSION UNDER GROUND NO.2 A BOVE, IT SHOULD BE CONSIDERED A CAPITAL RECEIPT AS IT IS INEXTRICABLE CONNECTED WITH THE SETTING UP OF THE PROJECT AND SHOULD GO TO REDUCE THE COST OF THE LAND ACQUIRED. HOWEVER, THE AO NOT ONLY HELD THAT IT IS AN INCOME OF THE ASSESSEE BUT ALSO HELD THAT THE AMOUNT OF INTEREST THEREON SHOULD BE CHARGEABLE U/S 56 OF THE ACT AS INCOME FROM OTHER SOURCES. THE AO PLACED REL IANCE ON THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF KISA N SAHAKARI CHINI MILLS 32 LIMITED (260 IT 617). THIS DECISION OF THE AO WAS S UBSEQUENTLY CONFIRMED BY THE LD. CIT(A). IN THIS REGARD, IT IS SUBMITTED THAT THE AO HAS WRONGLY PLACED RELIANCE ON THE ABOVE CASE, AS THE FACTS OF THAT CASE ARE DIFFERENT FROM THE FACTS OF THE ASSESSEE. IN KISAN SAHAKARI CHINI MILLS CASE (SUPRA), THE AMOUNT OF LOAN TAKEN BY THE ASSESSEE FROM IFCI WAS KEPT IN THE SPECIAL BANK ACCOUNT IN ITS OWN NAME AND ACCORDINGLY THE INTERES T ON SUCH DEPOSIT WAS ACTUALLY RECEIVED BY THE ASSESSEE HIMSELF. HOWEVER, IN THE CASE OF THE ASSESSEE, THE FIXED DEPOSIT WAS MADE IN THE NAME OF THE ADDL. DISTRICT JUDGE, DISTRICT COURT, BHATINDA AND IT IS ONLY THE ADDL. D ISTRICT JUDGE WHO WAS ENTITLED TO RECEIVED THE INTEREST AND NOT THE ASSES SEE. IT IS ALSO STATED WITHOUT PREJUDICE TO THE ABOVE, EVEN IF THE SAID INTEREST I S TREATED AS INCOME OF THE ASSESSEE, IT WOULD ALWAYS BE A CAPITAL RECEIPT WHIC H WOULD GO TO REDUCE THE COST OF THE LAND, AS THE DEPOSIT OF MONEY WITH THE ADDL. DISTRICT JUDGE IS INEXTRICABLY LINKED TO ACQUISITION OF LAND FOR THE PURPOSE OF CONSTRUCTING A REFINERY. THE ASSESSEE IN THIS REGARD PLACED RELIAN CE ON THE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. KARNAL COOPERATIVE SUGAR MILLS LTD. (118 TAXMAN 489) WHERE THE ASSESSEE HAD DEPOSITED MONEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED F OR SETTING UP ITS PLANT IN TERMS OF THE ASSESSEES AGREEMENT WITH THE SUPPLIER . IT WAS ON THE MONEY SO DEPOSITED THAT SOME INTEREST HAD BEEN EARNED. IN T HIS CASE, THE SUPREME 33 COURT OBSERVED THAT THIS WAS NOT A CASE WHERE ANY S URPLUS SHARE CAPITAL MONEY WHICH WAS LYING IDLED HAD BEEN DEPOSITED IN T HE BANK FOR THE PURPOSE OF EARNING INTEREST. THE DEPOSIT OF MONEY IN THE I NSTANT CASE WAS DIRECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. HE NCE, ANY INCOME EARNED ON SUCH DEPOSIT WAS INCIDENTAL TO THE ACQUISITION O F ASSETS FOR THE SETTING UP OF THE PLANT AND MACHINERY. THUS, THE INTEREST WAS A CAPITAL RECEIPT WHICH WOULD GO TO REDUCE THE COST OF ASSET. FURTHER, RELI ANCE IS PLACED ON THE DECISION OF SUPREME COURT IN THE CASE OF BOKARO STE EL (SUPRA) AND DELHI HIGH COURT IN THE CASE OF INDIAN OIL (SUPRA) AS DIS CUSSED ABOVE. 16.1 IN THE LIGHT OF THE ABOVE, IT IS SUBMITTED THA T THE INTEREST EARNED ON THE FIXED DEPOSIT IS NOT THE INCOME OF THE ASSESSEE AS THE ASSESSEE DOES NOT HAVE ANY RIGHT TO RECEIVE THE SAME. EVEN IF IT IS TREATE D AS AN INCOME OF THE ASSESSEE, IT IS NOT TAXABLE U/S 56 OF THE ACT IN VI EW OF THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF KARNAL CO-OPERATIVE (SUPRA) AND THE FACT THAT THE FIXED DEPOSIT IS INEXTRICABLY LINKED TO PURCHAS E OF LAND. THE INTEREST EARNED ON SUCH DEPOSITS WOULD GO ON TO REDUCE THE C OST OF THE LAND. 17. THE LD. DR ON THE OTHER HAND, SUBMITTED THAT TH IS GROUND IS NOT MAINTAINABLE FOR THE REASON THAT THE LD. CIT(A) HAS CONFIRMED THE ADDITION BY UPHOLDING THE AOS FINDING BASED ON THE JUDGMENT OF THE HONBLE ALLAHABAD 34 HIGH COURT IN THE CASE OF KISAN SAHAKARI CHINI MILL S LTD. REPORTED AT 280 ITR 617 WHEREIN THE HONBLE HIGH COURT HELD THAT FR EE WILL IS IMMATERIAL AND EVEN IF THE AMOUNT OF LOAN OBTAINED FROM IFCI W AS KEPT IN SPECIAL DEPOSIT ACCOUNT DURING CONSTRUCTION OF ITS SUGAR MI LL IN COMPLIANCE WITH THE TERMS OF THE LOAN AGREEMENT, INCOME SO EARNED SHAL L BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE HAS NOT FAULTED THE LD. CIT(A) PLACING RELIANCE ON JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT (SUPRA). THE ASSESSEE HAS TAKEN A MISLEADING STANCE THAT THE AMOUNT WAS NOT DEPOSITED BY IT AND FURTHER THAT INTEREST IS NOT DU E TO I, IT MAY BE MENTIONED THAT THE ASSESSEE HAD DEPOSITED A SUM OF RS.7,50,00 ,000/- WITH THE TRIAL COURT ON THE DIRECTION OF THE HONBLE SUPREME COURT AND THE TRIAL COURT HAD BEEN FURTHER DIRECTED TO DEPOSIT THE SAME WITH THE BANK. IT WAS CLEARLY SO DIRECTED BY THE HONBLE SUPREME COURT TO SAFEGUARD THE INTERESTS OF THE LAND OWNERS WHOSE LAND WAS COMPULSORILY ACQUIRED BY THE OWNERSHIP OF THE SUM OF RS.7,50,00,000/- REMAINED VESTED WITH THE ASSESS EE. IF THE COURTS HAD FOUND THAT NO FURTHER ENHANCED COMPENSATION IS REQU IRED TO BE PAID THEN THE ENTIRE SUM ALONGWITH INTEREST THEREON WOULD HAVE BE EN RECEIVED BACK BY THE ASSESSEE. THUS, INTEREST EARNED ON SUCH DEPOSIT WAS CLEARLY THE INCOME OF THE ASSESSEE AS PER THE JUDGMENT OF THE ALLAHABAD HIGH COURT (SUPRA). 35 THE ASSESSEES FURTHER CLAIM THAT THE INCOME WAS IN EXSTRICABLY LINKED WITH THE ACQUISITION OF LAND IS NOT OF ANY CONSEQUENCE A S THE CASE OF ACQUISITION BEFORE THE HONBLE SUPREME COURT HAD BROUGHT THE PR OJECT TO A STAGNANT POSITION AS WAS IN THE CASE OF DELHI HIGH COURT JUD GMENT (SUPRA). THEREFORE, THIS GROUND IS ALSO NOT MAINTAINABLE. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE IN THE PRESENT CAS E HAS STATED AND SUBMITTED IN THE WRITTEN SUBMISSIONS AND ARGUED BEFORE US THA T THE FDRS HAVE BEEN MADE IN THE NAME OF ADDL. DISTRICT J UDGE, BHATINDA, WHEREAS NO SUCH COPY OF THE SAID FDRS OR THE ORDER OF THE COURT HAS BEEN PLACED ON RECORD THAT FDRS HAVE BEEN PURCHASED IN T HE NAME OF DISTRICT JUDGE. IN FACT, AS PER FINDINGS, WHICH HAVE BEEN R EPRODUCED HEREINABOVE, THE FDRS MADE IN THE BANK WERE KEPT AS SECURITY TO THE TRIAL COURT. ALSO, AS ARGUED AND SUBMITTED BY THE LD. DR THAT INTEREST I NCOME OF SUCH FDRS HAS BEEN DECLARED BY THE ASSESSEE AS INTEREST INCOME I N THE RETURN FILED. RELIANCE IS PLACED ON THE DECISION OF HONBLE ALLAHABAD HIG H COURT IN THE CASE OF KISAN SAHAKARI CHINI MILLS LIMITED REPORTED AT 280 ITR 617 WHEREIN IT HAS BEEN HELD THAT FREE WILL IS IMMATERIAL AND INCOME O N THE TERM DEPOSITS WILL BE CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOU RCES. THE OWNERSHIP OF THE SUM KEPT IN FDRS AS A SECURITY REMAINS VESTE D WITH THE ASSESSEE AND IF 36 THE COURTS FOUND THAT NO FURTHER ENHANCED COMPENSAT ION IS REQUIRED TO BE PAID THEN THE ENTIRE SUM ALONGWITH INTEREST WILL BE RECEIVED BACK BY THE ASSESSEE AND ACCORDINGLY INTEREST EARNED ON SUCH DE POSITS IS CLEARLY INCOME OF REVENUE IN NATURE AS PER THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF KISAN SAHAKARI CHINI MILLS LTD. (SUP RA). THE DECISION RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE IS NOT APP LICABLE TO THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, WE FIND N O INFIRMITY IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY CONFIRMED THE ORDER OF THE A.O. THEREFORE, GROUNDS NO. 3 & 3.1 OF THE ASSESSEE ARE DISMISSED. 19. GROUND NO.4 DOES NOT ARISE FROM THE ORDER OF T HE LD. CIT(A) AND THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 20. GROUND NO.5 IS MANDATORY AND CONSEQUENTIAL IN N ATURE. 21. GROUND NO.1 IS GENERAL IN NATURE AND THEREFORE, DO NOT REQUIRE ANY ADJUDICATION. 22. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IN ITA NO.446(ASR)/2013 IS DISMISSED. 23. NOW, WE TAKE UP APPEAL OF THE ASSESSEE IN ITA N O.445(ASR)/2013. GROUND NO.1 IS GENERAL IN NATURE AND THEREFORE, DO NOT REQUIRE ANY 37 ADJUDICATION. GROUND NO.5 DOES NOT ARISE FROM THE O RDER OF THE LD. CIT(A) AND THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. GROUND NO.6 IS MANDATORY AND CONSEQUENTIAL IN NATURE. 24. AS REGARDS GROUND NO.2, THE FACTS IN THE PRESEN T CASE ARE IDENTICAL TO THE FACTS IN THE CASE OF ASSESSEE ITSELF FOR THE AS SESSMENT YEAR 2009-10, WHICH HAS BEEN DECIDED BY US IN ITA NO.446(ASR)/2013 OF E VEN DATE HEREINABOVE AND AS MENTIONED HEREINABOVE, OUR DECISION IN ITA N O.446(ASR)/2013 IS IDENTICALLY APPLICABLE IN THE PRESENT CASE AND ACCO RDINGLY GROUND NO. 2 OF THE ASSESSEE IS DISMISSED. 25. AS REGARDS GROUNDS NO. 3 & 3.1, THE FACTS IN T HE PRESENT CASE ARE IDENTICAL TO THE FACTS IN THE CASE OF ASSESSEE ITSE LF FOR THE ASSESSMENT YEAR 2009-10, WHICH HAS BEEN DECIDED BY US IN ITA NO.446 (ASR)/2013 OF EVEN DATE HEREINABOVE AND AS MENTIONED HEREINABOVE, OUR DECISION IN ITA NO.446(ASR)/2013 IS IDENTICALLY APPLICABLE IN THE P RESENT CASE AND ACCORDINGLY GROUNDS NO.3 & 3.1 OF THE ASSESSEE ARE DISMISSED. 26. GROUND NO.4 OF THE ASSESSEE HAS NOT BEEN AGITAT ED BY THE LD. COUNSEL FOR THE ASSESSEE AND THEREFORE, THE SAME IS TREATED AS NOT PRESSED. 27. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.445(ASR)/2013 IS DISMISSED. 38 28. NOW, WE TAKE UP APPEAL OF THE ASSESSEE IN IT A NO.443ASR)./2013. GROUND NO.1 OF THE ASSESSEE IS GENERAL IN NATURE AN D GROUND NO.3 DOES NOT ARISE FROM THE ORDER OF THE LD. CIT(A), THEREFORE, THESE GROUNDS DO NOT REQUIRE ANY ADJUDICATION. 29. AS REGARDS GROUND NO.2, THE FACTS IN THE PRESENT CA SE ARE IDENTICAL TO THE FACTS IN THE CASE OF ASSESSEE ITSELF FOR THE AS SESSMENT YEAR 2009-10, WHICH HAS BEEN DECIDED BY US IN ITA NO.446(ASR)/2013 OF E VEN DATE HEREINABOVE AND AS MENTIONED HEREINABOVE, OUR DECISION IN ITA N O.446(ASR)/2013 IS IDENTICALLY APPLICABLE IN THE PRESENT CASE AND ACCO RDINGLY GROUND NO. 2 OF THE ASSESSEE IS DISMISSED. 30. GROUND NO.4 IS MANDATORY AND CONSEQUENTIAL IN N ATURE. 31. NOW, WE TAKE UP APPEAL OF THE ASSESSEE IN ITA N O.444(ASR)/2013 FOR THE ASSESSMENT YEAR 2009-10. GROUND NO.1 OF THE ASSESSEE IS GENERAL IN NATURE AND GROUND NO.3 DOES NOT ARISE FROM THE ORDE R OF THE LD. CIT(A), THEREFORE, THESE GROUNDS DO NOT REQUIRE ANY ADJUDI CATION. 32. AS REGARDS GROUND NO.2, THE FACTS IN THE PRESENT CA SE ARE IDENTICAL TO THE FACTS IN THE CASE OF ASSESSEE ITSELF FOR THE AS SESSMENT YEAR 2009-10, WHICH HAS BEEN DECIDED BY US IN ITA NO.446(ASR)/2013 OF E VEN DATE HEREINABOVE AND AS MENTIONED HEREINABOVE, OUR DECISION IN ITA N O.446(ASR)/2013 IS 39 IDENTICALLY APPLICABLE IN THE PRESENT CASE AND ACCO RDINGLY GROUND NO. 2 OF THE ASSESSEE IS DISMISSED. 33. GROUND NO.4 IS MANDATORY AND CONSEQUENTIAL IN N ATURE. 34. IN THE RESULT, THE APPEALS OF BOTH THE ASSESSEE S IN ITA NOS. 445 & 446(ASR)/2013 AND IN ITA NOS. 443 & 445(ASR)/2013 ARE DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 31ST DECEMBER., 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 ST DECEMBER, 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: 2. THE 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.