M/s Jaypee Powergrid Ltd.m, New Delhi V. ITo, New Delhi

ITA 5489/DEL/2013

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6602 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 28-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 07-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Diversion of income; Question of law; Capital receipt

Judgement Text

ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 5489/DEL/2013 ASSESSMENT YEAR: 2009-10 JAYPEE POWERGRID LTD., 63, JA HOUSE, BASANT LOK, VASANT VIHAR, NEW DELHI. (PAN: AABCJ8054F) VS ITO, WARD 4(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL CHOPRA, FCA SHRI V.K. GARG, A DV. SHRI PARVE EN KUMAR, FCA RESPONDENT BY : SHRI AMIT JAIN, SR. DR DATE OF HEARING: 26.04.2018 DATE OF PRONOUNCEMENT : 24.07.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M. THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER DATED 31.07.2013 OF THE LD. CIT (APPEALS)-VII , NEW DELHI AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2. THE SOLE ISSUE UNDER DISPUTE IS THE ADDITION OF RS. 3,40,52,432/- AND PERTAINS TO INTEREST INCOME ON FD RS FOR SHORT TERM DURATION WHICH WAS TREATED AS INCOME FROM OTHE R SOURCES ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 2 BY THE ASSESSING OFFICER AS AGAINST THE SAME BEING TREATED AS A CAPITAL RECEIPT BY THE ASSESSEE. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY INCORPORATED ON 5.10. 2006 AS A JOINT VENTURE COMPANY BETWEEN JAIPRAKASH POWER VENT URES LTD. AND POWER GRID CORPORATION OF INDIA LTD. THE SOLE OBJECTIVE OF THE COMPANY WAS TO SET UP A POWER TRANSMISSION SYST EM IN THE STATE OF HIMACHAL PRADESH. THE ACTUAL WORK OF CONS TRUCTION OF THE SAID PROJECT WAS STARTED IN FINANCIAL YEAR 2007 -08 AND WAS COMPLETED IN FINANCIAL YEAR 2012-13. THE TOTAL EST IMATED COMPLETION COST WAS RS. 981 CRORE FOR WHICH EQUITY OF RS. 300 CRORE AND A DEBT OF RS. 700 CRORE WERE RAISED. THE ENTIRE DEBT WAS RECEIVED FROM CONSORTIUM OF BANKS UNDER TRUST A ND RETENTION ACCOUNT AGREEMENT AND LOAN AGREEMENT. PR OJECT FUNDS WERE ALSO RAISED FROM TIME TO TIME DURING THE PERIO D OF THE PROJECT. OUT OF THE PROJECT FUNDS SO RAISED, THE F UNDS NOT IMMEDIATELY REQUIRED WERE TEMPORARILY PARKED WITH T HE BANK IN FIXED DEPOSIT RECEIPTS FOR SHORT TERM DURATION. DU RING THE YEAR UNDER CONSIDERATION, THE AVAILABILITY OF FUNDS WAS AS UNDER:- I) FUNDS AVAILABLE FROM EQUITY AND DEBT RS. 295 CRORE II) FUNDS USED IN PROJECT RS. 251 CRORE ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 3 III) SHORT TERM BANK FDRS 55.16 C RORE IV) PROJECT CONTRACTS REMAINING TO BE 117 CRORE EXECUTED V) INTEREST RECEIVED ON FDRS 3.40 CRORE VI) INTEREST PAID ON BORROWED FUNDS 5.80 CRORE 2.1 IN THE YEAR UNDER CONSIDERATION, SINCE THE PROJ ECT WAS AT ITS INITIAL STAGES AND THE ASSESSEE HAD NOT STARTED ANY BUSINESS, NO PROFIT AND LOSS ACCOUNT WAS PREPARED FOR THE YEAR. THE ASSESSEE RECEIVED INTEREST INCOME OF RS. 3,40,52,432/- ON TE MPORARY FDRS OF RS. 5,16,77,561/- WHICH WAS CREDITED TO THE INCI DENTAL EXPENDITURE DURING CONSTRUCTION PENDING ALLOCATION ACCOUNT AND THE SAME WAS CLAIMED AS EXEMPT BEING CAPITAL RE CEIPT. HOWEVER, THE ASSESSING OFFICER TAXED THE SAME AS IN COME FROM OTHER SOURCES. 2.2 ON APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (A), THE LD. C.I.T. (A) CONFIRMED THE ADDITION BY FOLLOW ING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF T UTICORIN CHEMICALS AND FERTILIZERS LTD. REPORTED IN 227 ITR 172 (SC). 2.3 NOW, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT AGAINST THE CONFIRMATION OF THE ADDITION BY THE LD. COMMISSIONE R OF INCOME TAX (A). THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 4 THAT THE LEARNED CIT(A) HAS ERRED IN ASSESSING THE INTEREST OF RS. 3,40,52,432 ACCRUING ON FDRS AS INCOME FROM OTHER SOURCES, NOT APPRECIATING THAT 1) THE APPELLANT IS IMPLEMENTING A TRANSMISSION-LI NE CONSTRUCTION PROJECT AND ITS ENTIRE CAPITAL INCLUDI NG BORROWED FUNDS HAS BEEN BROUGHT IN FOR THE PURPOSES OF THE SAID PROJECT. 2) THE APPELLANT HAS NO SURPLUS FUNDS WHICH MAY B E INVESTED WITH THE INTENTION OF CREATING ANY INDEPEN DENT SOURCE OF INCOME BY WAY OF INTEREST. 3) THE APPELLANT HAS TEMPORARILY PLACED IN FIXED DEPOSITS A PART OF THE CAPITAL MEANT FOR CONSTRUCTI ON OF THE TRANSMISSION-LINE. 4) THE INTEREST EARNED BY THE APPELLANT IS INEXTR ICABLY LINKED WITH THE IMPLEMENTATION OF THE TRANSMISSION- LINE PROJECT AND IS A CAPITAL RECEIPT WHICH ONLY OFFSETS THE COST OF THE PROJECT. 5) THE APPELLANT'S CASE IS GOVERNED BY THE RULE IN BOKARO STEEL LTD [1999] 236 ITR 315 (SC) AND FOLLOW ED IN INDIAN OIL PANIPAT POWER CONSORTIUM LTD V. ITO 3 15 ITR 255 (DEL). 2.4 THE ASSESSEE HAS ALSO FILED AN ADDITIONAL GROUN D IN THE APPEAL WHICH READS AS UNDER:- THAT WITHOUT PREJUDICE TO THE MAIN GROUND THAT THE INTEREST INCOME ON FDRS DURING PROJECT IMPLEMENTATI ON PERIOD IS A CAPITAL RECEIPT, LD. ASSESSING OFFICER HAS ERRED IN NOT NETTING THE INTEREST INCOME OF RS. 3,40,52,432/- WITH INTEREST PAID OF RS. 5,79,93,992 /- ON FUNDS BORROWED FOR THE IMPLEMENTATION OF THE PRO JECT WHILE TAXING THE SAME AS INCOME FROM OTHER SOURCES. AS SUCH TOO, AS INTEREST PAID FAR EXCEEDS INTEREST INCOME, NO INCOME IS TAXABLE AS OTHER INCOME. ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 5 3. THE LD. AR SUBMITTED THAT THE ADDITIONAL GROUND OF APPEAL BEING RAISED DESERVED TO BE ADMITTED AS THE SAME PE RTAINED TO A QUESTION OF LAW. LD. AR ALSO RELIED ON THE JUDGMEN T OF THE HONBLE APEX COURT IN THE CASE OF NATIONAL THERMAL POWER COMPANY LTD. VS. C.I.T. REPORTED IN 229 ITR 383 (SC ) FOR THE PROPOSITION THAT ADDITIONAL GROUND PERTAINING TO A QUESTION OF LAW AND ARISING FROM FACTS ON RECORD SHOULD BE ALLOWED TO BE RAISED WHEN IT WAS NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF THE ASSESSEE. 4. THE LD. SR. DR OPPOSED THE ASSESSEES PRAYER FOR ADMITTING ADDITIONAL GROUND OF APPEAL. 5. HAVING HEARD BOTH THE PARTIES WITH RESPECT TO AD MITTING OF ADDITIONAL GROUND OF APPEAL, IT IS OUR CONSIDERED O PINION THAT THIS GROUND DESERVES TO BE ADMITTED AS IT ESSENTIALLY RA ISES A QUESTION OF LAW AND NO FACTUAL INVESTIGATION IS REQUIRED WHI LE ADMITTING THIS ADDITIONAL GROUND OF APPEAL. ACCORDINGLY, WE ADMIT ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE. 6. THE LD. AR SUBMITTED THAT WHILE DISMISSING THE ASSESSEES APPEAL, THE LD. COMMISSIONER OF INCOME TAX (A) HAD MADE AN INCORRECT ASSERTION THAT THE ASSESSEES COUNSEL WAS PERSUADED TO ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 6 ACCEPT THE JUDGMENT OF THE HONBLE APEX COURT IN TH E CASE OF TUTICORIN CHEMICALS AND FERTILIZERS LTD. (SUPRA). I T WAS SUBMITTED THAT AN AFFIDAVIT UNDER RULE 10 OF THE INCOME TAX T RIBUNAL RULES HAS BEEN FILED BY THE ERSTWHILE COUNSEL WHEREIN IT HAS BEEN AVERRED THAT THIS OBSERVATION OF THE LD. COMMISSION ER OF INCOME TAX (A) IS INCORRECT. THE LD. AR FURTHER SUBMITTED THAT IN THE ASSESSEES CASE, THE FUNDS TEMPORARILY PLACED IN TH E FIXED DEPOSITS WERE NOT SURPLUS FUNDS AND THEY WERE THE F UNDS REQUIRED FOR SETTING UP A TRANSMISSION LINE PROJECT AND WERE, THEREFORE, INEXTRICABLY LINKED WITH THE PROJECT. R ELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS . ITO REPORTED IN 315 ITR 255 WHEREIN THE HONBLE DELHI H IGH COURT HAD HELD THAT INTEREST EARNED ON MONEYS RAISED FOR SHARE CAPITAL WHICH WERE TEMPORARILY PUT IN FIXED DEPOSIT AWAITIN G ACQUISITION OF LAND COULD NOT HAVE BEEN CLASSIFIED AS INCOME FR OM OTHER SOURCES AS THE INTEREST WAS EARNED ON FUNDS PRIMARI LY BROUGHT FOR INFUSION IN THE BUSINESS. THE HONBLE DELHI HI GH COURT WENT ON TO HOLD THAT SINCE THE INCOME WAS EARNED IN A PE RIOD PRIOR TO COMMENCEMENT OF BUSINESS, IT WAS IN THE NATURE OF C APITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST PRE-OP ERATIVE ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 7 EXPENSES. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD. REPORTED IN 236 ITR 315 (SC) WHEREIN IT HAD BEEN HELD THAT IF A NY AMOUNT WHICH IS INEXTRICABLY LINKED WITH THE PROCESS OF SE TTING UP OF PLANT AND MACHINERY IS RECEIVED, SUCH RECEIPT WILL BE IN THE NATURE OF CAPITAL AND CANNOT BE TAXED AS INCOME. 6.1 LD. AR ALSO SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TAX (A) HAD SOLELY RELIED UPON THE JUDGMENT OF HON BLE APEX COURT IN THE CASE OF TUTICORIN CHEMICALS AND FERTILIZERS LTD. (SUPRA), IGNORING NUMEROUS SUBSEQUENT JUDGMENTS OF THE HONB LE APEX COURT. 7. THE LD. SR. DR PLACED RELIANCE ON THE ORDER OF T HE ASSESSING OFFICER AS WELL AS THE LD. COMMISSIONER OF INCOME T AX (A) AND SUBMITTED THAT THE JUDGMENT OF THE HONBLE APEX COU RT IN THE CASE OF TUTICORIN CHEMICALS AND FERTILIZERS LTD. IS VERY CLEAR INASMUCH AS IT LAYS DOWN THAT INTEREST EARNED PRIOR TO COMMENCEMENT OF BUSINESS WAS ASSESSABLE UNDER INCOM E FROM OTHER SOURCES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT A SIMILA R ISSUE HAD ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 8 COME UP BEFORE ITAT AHMEDABAD BENCH IN THE CASE OF ADANI POWER LTD. VS. ACIT IN ITA NO. 2755/AHD/2011. IN I TS ORDER DATED 27.7.2015, THE COORDINATE BENCH OF THE ITAT A NALYSED THE RATIO OF THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF TUTICORIN CHEMICALS AND FERTILIZERS LTD AS WELL AS THAT IN THE CASE OF BOKARO STEEL LTD. (SUPRA) AND THE JUDGMENT OF TH E HONBLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA) ALONG WITH A PLETHORA OF OT HER RELATED JUDGMENTS ON IDENTICAL SET OF FACTS. THE RELEVANT OBSERVATIONS AND ADJUDICATION ARE CONTAINED IN PARA 18, 19, 20, 21, 22, 23 AND 24 OF THE ABOVE SAID ORDER OF THE ITAT AHMEDABAD BE NCH IN THE CASE OF ADANI POWER LTD. VS. ACIT (SUPRA). THE SAM E IS BEING REPRODUCED HEREUNDER FOR A READY REFERENCE:- 18. WE FIND THAT BOTH THE PARTIES HAVE RELIED UPON THE DECISIONS OF THE HON'BLE APEX COURT AND IN ADDITION , THE ASSESSEE HAS RELIED UPON THE DECISION OF HON'BLE DE LHI HIGH COURT. THEREFORE, IT WOULD BE APPROPRIATE TO FIRST REFER TO THOSE DECISIONS. IN THE CASE OF TUTICORIN ALKALI CHEMICAL S & FERTILIZERS LTD. (SUPRA), THE HON'BLE APEX COURT HE LD AS UNDER:- '...THAT THE COMPANY HAD SURPLUS FUNDS IN ITS HANDS . IN ORDER TO EARN INCOME OUT OF THE SURPLUS FUNDS, IT H AD INVESTED THE AMOUNT FOR THE PURPOSE OF EARNING INTE REST. ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 9 THE INTEREST THUS EARNED WAS CLEARLY OF REVENUE NAT URE AND WOULD HAVE TO BE TAXED ACCORDINGLY. THE ACCOUNTANTS MIGHT HAVE TAKEN SOME OTHER VIEW BUT ACCOUNTANCY PRACTICE WAS NOT NECESSARILY GOOD LAW. THIS WAS NOT A CASE OF DIVERSION OF INCOME BY OVERR IDING TITLE. THE ASSESSEE WAS ENTIRELY AT LIBERTY TO DEAL WITH THE INTEREST AMOUNT AS IT LIKED. THE APPLICATION OF THE INCOME FOR PAYMENT OF INTEREST WOULD NOT AFFECT ITS TAXABILITY IN ANY WAY. THE COMPANY COULD NOT CLAIM ANY RELIEF UNDER SECTION 70 OR SECTION 71 SINCE ITS BUS INESS HAD NOT STARTED AND THERE COULD NOT BE ANY COMPUTAT ION OF BUSINESS INCOME OR LOSS INCURRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEARS. IN SUCH A SITUATION, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS E OF SETTING UP ITS BUSINESS COULD NOT BE ALLOWED AS DEDUCTION, NOR COULD IT BE ADJUSTED AGAINST ANY OTH ER INCOME UNDER ANY OTHER HEAD. SIMILARLY ANY INCOME FROM A NON-BUSINESS SOURCE COULD NOT BE SET OFF AGA INST THE LIABILITY TO PAY INTEREST ON FUNDS BORROWED FOR THE PURPOSE OF PURCHASE OF PLANT AND MACHINERY EVEN BEF ORE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE.' 19. IN THE CASE OF BOKARO STEEL LTD. (SUPRA), THE H ON'BLE APEX COURT, AFTER CONSIDERING THE DECISION OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA), HELD AS UNDER :- '..., DISMISSING THE APPEAL, THAT THE FIRST THREE H EADS OF INCOME WERE (I) THE RENT CHARGED BY THE ASSESSEE TO ITS CONTRACTORS FOR HOUSING WORKERS AND STAFF EMPLOYED BY THE CONTRACTOR FOR THE CONSTRUCTION WORK OF THE ASS ESSEE INCLUDING CERTAIN AMENITIES GRANTED TO THE STAFF BY THE ASSESSEE, (II) HIRE CHARGES FOR PLANT AND MACHINERY WHICH WAS GIVEN TO THE CONTRACTORS BY THE ASSESSEE FOR USE IN THE CONSTRUCTION WORK OF THE ASSESSEE, AND ( III) INTEREST FROM ADVANCES MADE TO THE CONTRACTORS BY T HE ASSESSEE FOR THE PURPOSE OF FACILITATING THE WORK O F ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 10 CONSTRUCTION. THE ACTIVITIES OF THE ASSESSEE IN CON NECTION WITH ALL THESE THREE RECEIPTS WERE DIRECTLY CONNECT ED WITH OR INCIDENTAL TO THE WORK OF CONSTRUCTION OF I TS PLANT UNDERTAKEN BY THE ASSESSEE. THE ADVANCES WHICH THE ASSESSEE MADE TO THE CONTRACTORS TO FACILITATE THE CONSTRUCTION ACTIVITY OF PUTTING TOGETHER A VERY LA RGE PROJECT WAS AS MUCH TO ENSURE THAT THE WORK OF THE CONTRACTORS PROCEEDED WITHOUT ANY FINANCIAL HITCH A S TO HELP THE CONTRACTORS. THE ARRANGEMENTS WHICH WERE MADE BETWEEN THE ASSESSEE-COMPANY AND THE CONTRACTORS PERTAINING TO THESE THREE RECEIPTS WERE ARRANGEMENTS WHICH WERE INTRINSICALLY CONNECTED WIT H THE CONSTRUCTION OF ITS STEEL PLANT. THE RECEIPTS H AD BEEN ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRAC TORS AND HAD GONE TO REDUCE THE COST OF CONSTRUCTION. TH EY HAD, THEREFORE, BEEN RIGHTLY HELD AS CAPITAL RECEIP TS AND NOT INCOME OF THE ASSESSEE FROM ANY INDEPENDENT SOURCE.' 20. IN THE CASE OF KARNAL CO-OPERATIVE SUGAR MILLS LTD. (SUPRA), THEIR LORDSHIPS OF HON'BLE APEX COURT, AFT ER APPLYING THE DECISION OF BOKARO STEEL LTD. (SUPRA), HELD AS UNDER:- 'HELD, THAT, IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED MONEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED FOR SETTING UP I TS PLANT IN TERMS OF THE ASSESSEE'S AGREEMENT WITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOM E INTEREST HAD BEEN EARNED. THIS WAS, THEREFORE, NOT A CASE WHERE ANY SURPLUS SHARE CAPITAL MONEY WHICH WA S LYING IDLE HAD BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF EARNING INTEREST. THE DEPOSIT OF MONEY I N THE PRESENT CASE WAS DIRECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INCOME EARNED ON SUCH DEPOSIT WAS INCIDENTAL TO THE ACQUISITION OF A SSETS FOR THE SETTING UP OF THE PLANT AND MACHINERY. THE ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 11 INTEREST WAS A CAPITAL RECEIPT, WHICH WOULD GO TO R EDUCE THE COST OF ASSET. ' 21. IN THE CASE OF KARNATAKA POWER CORPORATION (SUP RA), THEIR LORDSHIPS OF HON'BLE APEX COURT, FOLLOWING THE DECI SION OF BOKARO STEEL LTD. (SUPRA), HELD AS UNDER:- '...ALSO, (I) THAT THE TRIBUNAL WAS RIGHT IN LAW IN UPHOLDING THE ORDER OF THE COMMISSIONER (APPEALS) W HO DELETED THE ADDITION OF RS.1,30,44,518/- BEING INTE REST RECEIPTS AND HIRE CHARGES FROM CONTRACTORS BY HOLDI NG THAT THE SAME WERE IN THE NATURE OF CAPITAL RECEIPT S WHICH WOULD GO TO REDUCE CAPITAL COST.' 22. IN THE CASE OF BONGAIGAON REFINERY & PETROCHEMI CALS LTD. (SUPRA), THE HON'BLE APEX COURT, AFTER CONSIDERING THE DECISION OF BOKARO STEEL LTD. (SUPRA), HELD AS UNDER:- ' REVERSING THE DECISION OF THE HIGH COURT IN RELAT ION TO THESE ITEMS OF INCOME, THAT THESE ITEMS OF RECEIPTS WERE NOT TAXABLE INCOME BUT WERE TO BE ADJUSTED AGAINST THE PROJECT COST FOR THE BUSINESS OF OIL REFINERY AND P ETRO- CHEMICALS.' 23. THAT THE HON'BLE DELHI HIGH COURT IN THE CASE O F INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), AFTER CONSID ERING THE DECISIONS IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) AND BOKARO STEEL LTD. (SUP RA) AT LENGTH, HELD AT PAGES 258, 259 AND 260 OF REPORT, I .E., 315 ITR 255, AS UNDER:- 5. IN OUR OPINION THE TRIBUNAL HAS MISCONSTRUED THE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS [1997] 227 ITR 172 AND T HAT ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 12 OF BOKARO STEEL LTD. [1999] 236 ITR 315. THE TEST W HICH PERMEATES THROUGH THE JUDGMENT OF THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS [1997] 227 ITR 172 IS THAT IF FUNDS HAVE BEEN BORROWED FOR SETTING UP OF A PLA NT AND IF THE FUNDS ARE 'SURPLUS' AND THEN BY VIRTUE O F THAT CIRCUMSTANCE THEY ARE INVESTED IN FIXED DEPOSITS TH E INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXAB LE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JUDGMENT IN BOKARO STEEL LTD. [1999] 236 ITR 315 TO OUR MIND IS THAT IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE 'INEXTRICABLY LINKED' TO THE SETTING UP OF THE PLAN T, 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 ACTIVITY WHICH IS TAKEN UP FOR SETTING UP OF THE BU SINESS AND THE FUNDS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETTING UP OF THE PLANT. THE CLUE IS PERHAPS AVAILABLE IN S. 3 OF THE ACT WHICH STATES T HAT FOR NEWLY SET UP BUSINESS THE PREVIOUS YEAR SHALL B E THE PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINESS. THEREFORE, AS PER THE PROVISION OF S. 4 O F THE ACT WHICH IS THE CHARGING SECTION INCOME WHICH ARIS ES TO AN ASSESSEE FROM THE DATE OF SETTING OF THE BUSINES S BUT PRIOR TO COMMENCEMENT IS CHARGEABLE TO TAX DEPENDIN G ON WHETHER IT IS OF A REVENUE NATURE OR CAPITAL REC EIPT. 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 N ATURE UNDER ANY OF THE HEADS PROVIDED UNDER S. 14 IN CHAPTER IV OF THE ACT. FOR AN INCOME TO BE CLASSIFI ED AS INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION' IT WOULD HAVE TO BE AN ACTIVITY WHICH I S IN SOME MANNER OR FORM CONNECTED WITH BUSINESS. THE WORD 'BUSINESS' IS OF WIDE IMPORT WHICH WOULD ALSO INCLUDE ALL SUCH ACTIVITIES WHICH COALESCE INTO SET TING UP ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 13 OF THE BUSINESS. SEE MAZAGAON DOCK LTD. VS. CIT/CEPT (1958) 34 ITR 368 (SC) AND NARAIN SWADESHI WEAVING MILLS VS. CEPT (1954) 26 ITR 765 (SC). ONCE IT IS HELD THAT THE ASSESSEE'S INCOME IS AN INCOME CONNECTED WITH BUSINESS, WHICH WOULD BE SO I N THE PRESENT CASE, 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 DEVE LOP INFRASTRUCTURE THEN IT CANNOT BE HELD THAT THE INCO ME DERIVED BY PARKING THE FUNDS TEMPORARILY WITH TOKYO MITSUBISHI BANK, WILL RESULT IN THE CHARACTER OF TH E FUNDS BEING CHANGED, IN AS MUCH AS THE INTEREST EARNED FR OM THE BANK WOULD HAVE A HUE DIFFERENT THAN THAT OF BUSINESS AND BE BROUGHT TO TAX UNDER THE HEAD 'INCO ME FROM OTHER SOURCES'. IT IS WELL-SETTLED THAT AN INC OME RECEIVED BY THE ASSESSEE CAN BE TAXED UNDER THE HEA D 'INCOME FROM OTHER SOURCES' ONLY IF IT DOES NOT FAL L UNDER ANY OTHER HEAD OF INCOME AS PROVIDED IN S. 14 OF TH E ACT. THE HEAD 'INCOME FROM OTHER SOURCES' IS A RESIDUARY HEAD OF INCOME. SEE S.G. MERCANTILE CORPORATION (P) LTD. VS. CIT1972 CTR (SC) 8 : (1972 ) 83 ITR 700 (SC) AND CIT VS. GOVINDA CHOUDHURY & SONS (1994) 116 CTR (SC) 61 : (1993) 203 ITR 881 (S C). 5.2 IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUN D BY THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR A SPECIFIC PURPOSE OF ACQU IRING LAND AND THE DEVELOPMENT OF INFRASTRUCTURE. THEREFO RE, THE INTEREST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CLASSI FIED 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 CAPITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENS ES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS [1997] 227 I TR 172 IT WAS FOUND BY THE AUTHORITIES THAT THE FUNDS ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 14 AVAILABLE WITH THE ASSESSEE IN THAT CASE WERE 'SURP LUS' AND, THEREFORE, THE SUPREME COURT HELD THAT THE INT EREST EARNED ON SURPLUS FUNDS WOULD HAVE TO BE TREATED AS 'INCOME FROM OTHER SOURCES'. ON THE OTHER HAND IN BOKARO STEEL LTD. [1999] 236 ITR 315 (SC) WHERE THE ASSESSEE HAD EARNED INTEREST ON ADVANCE PAID TO CONTRACTORS DURING PRE-COMMENCEMENT PERIOD WAS FOUN D TO BE 'INEXTRICABLY LINKED' TO THE SETTING UP OF TH E PLANT OF THE ASSESSEE AND HENCE WAS HELD TO BE A CAPITAL RECEIPT WHICH WAS PERMITTED TO BE SET OFF AGAINST P RE- OPERATIVE EXPENSES. 24. FROM THE ABOVE, IT IS EVIDENT THAT THE HON'BLE DELHI HIGH COURT HAS CONSIDERED AND INTERPRETED THE DECISIONS OF HON'BLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICAL S & FERTILIZERS LTD. (SUPRA) AS WELL AS BOKARO STEEL LT D. (SUPRA). THE CONCLUSION OF THE DELHI HIGH COURT IS IN FACT T HE LAW WHICH EMERGES AS PER THE DECISION OF HON'BLE APEX C OURT. THEREFORE, IN OUR OPINION, THE CIT (A) WAS NOT JUST IFIED IN IGNORING THE DECISION OF HON'BLE DELHI HIGH COURT B Y SIMPLY MENTIONING THAT THE ISSUE IS COVERED BY THE DECISIO N 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 LORDSHIP S OF THE DELHI HIGH COURT ARRIVED AT THE CONCLUSION 'IT IS C LEAR UPON A PERUSAL OF THE FACTS AS FOUND BY THE AUTHORITIES BE LOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR THE 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 COUL D NOT HAVE BEEN CLASSIFIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS, IT WAS IN THE NATURE OF CAPITAL RECEIPT A ND HENCE WAS REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIV E EXPENSES.' THAT, THE RATIO OF THE ABOVE FINDING OF THE HON'BLE DELHI HIGH COURT WOULD BE SQUARELY APPLICABLE TO TH E FACTS OF THE ASSESSEE'S CASE, BECAUSE ADMITTEDLY IN THE CASE UNDER APPEAL BEFORE US THE SHARE CAPITAL AS WELL AS LOANS WERE RAISED FOR THE SPECIFIC PURPOSE OF SETTING UP OF TH E POWER ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 15 GENERATION PLANTS. THE BUSINESS OF THE ASSESSEE HAS NOT BEEN COMMENCED AND THEREFORE, AS PER ABOVE DECISION, THE INTEREST RECEIVED IN THE PERIOD PRIOR TO COMMENCEMENT OF BUS INESS WAS IN THE NATURE OF CAPITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EXPENSES. T HE ASSESSEE HAS ALREADY SET OFF THE INTEREST INCOME AGAINST THE PRE- OPERATIVE EXPENSES WHICH IS TITLED AS 'PROJECT DEVE LOPMENT EXPENDITURE'. IN VIEW OF ABOVE, WE ARE OF THE OPINI ON THAT THE INTEREST INCOME OF RS.1,35,87,158/- AS WELL AS RS.7,91,51,306/- WAS A CAPITAL RECEIPT NOT CHARGEAB LE TO TAX DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, G ROUND NOS. 2 AND 4 OF THE ASSESSEE'S APPEAL ARE ALLOWED. 8.1 THE LD. SR. DR COULD NOT POINT OUT ANY OTHER JU DGMENT IN FAVOUR OF THE REVENUE OTHER THAN THE JUDGMENT OF TH E HONBLE APEX COURT IN THE CASE OF TUTICORIN CHEMICALS AND F ERTILIZERS LTD (SUPRA) WHICH HAS BEEN DULY CONSIDERED AND DISTINGU ISHED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA) AND WHICH COVERS THE CASE O F THE ASSESSEE IN ITS FAVOUR. THE CO-ORDINATE BENCH OF TH E TRIBUNAL HAS ALSO TAKEN A VIEW IN FAVOUR OF THE ASSESSEE ON IDEN TICAL FACTS AND THE SAME HAS BEEN REPRODUCED IN THE PRECEDING PARAG RAPHS OF THIS ORDER. THEREFORE, IN VIEW OF THE ORDER OF THE COORDINATE BENCH AND RESPECTFULLY APPLYING THE RATIO OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), WE HOLD THAT SINCE THE BUS INESS OF THE ASSESSEE HAD NOT COMMENCED, THE INTEREST RECEIVED I N THE PERIOD PRIOR TO THE COMMENCEMENT OF BUSINESS WAS IN THE NA TURE OF ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 16 CAPITAL RECEIPT AND WAS REQUIRED TO BE SET OFF AGAI NST THE PRE- OPERATIVE EXPENSES. THEREFORE, THE IMPUGNED INTERE ST INCOME IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX DURING THE YE AR UNDER CONSIDERATION. ACCORDINGLY, WE ALLOW THE GROUNDS O F APPEAL RAISED BY THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JULY, 2018. SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) PRESIDENT JUDICIAL MEMBER DATED: 24 TH JULY, 2018 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER ASSISTANT REGISTRAR ITA NO. 5489/DEL/2013 ASSESSMENT YEAR 2009-10 17 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER 1