ITO, New Delhi V. M/s Triumph Realty Pvt. Ltd., New Delhi

ITA 6597/DEL/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1999 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 26-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR
• Assessee Lawyers: RINKI
• Keywords: Capital asset; Question of law; Capital receipt; Capital expenditure; CHAPTER IV
• Section: 143(3); 13

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH G, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI A.N. MISHRA, ACCOUNTANT MEMBER ITA NO.6597/DEL/2016 ASSESSMENT YEAR: 2012-13 INCOME - TAX OFFICER, WARD 25(4), NEW DELHI (APPELLANT) VS. TRIUMPH REALTY PVT. LTD., PLOT NO.2, VASANTKUNJ, PHASE-II, NELSON MANDELA ROAD, NEW DELHI. PAN-AACCT8092L (RESPONDENT) APPELLANT BY SH. SARAS KUMAR, SR. DR RESPONDENT BY SH. VINOD KUMAR BINDAL & MS. RINKI, ADVOCATES ORDER PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 23.09.2016 PASSED BY LEARNED C IT(A)-13, NEW DELHI FOR THE QUANTUM OF ASSESSMENT U/S. 143(3) FOR THE ASSESSMENT YEAR 2012-13. DATE OF HEARING 21.11.2019 DATE OF PRONOUNCEMENT 29 . 11.2019 ITA NO. 6597/DEL/2016 2 2. IN THE GROUNDS OF APPEAL, THE REVENUE HAS RAISED FOLLOWING GROUND: 1. THE LD.CIT(A) HAS ERRED IN FACTS & LAW OF THE C ASE IN ALLOWING CAPITALIZATION OF INTEREST ON FDRS EARNED DURING THE PERIOD OF CONSTRUCTION WITHOUT CONSIDERING VARIOUS DECISIONS OF THE COURTS INCLUDING THE FOLLOWING: - (I) TUTICORIN ALKALI CHEMICAL AND FERTILIZERS LIMITED VS. CIT(SC) 227 ITR 172 (II) CIT VS COROMANDAL CEMENTS LTD. (SC) 234 ITR 41 2 (III) CIT VS AUTOKAST LTD. (SC) 248 ITR 110 (IV) CIT VS KISHAN SAHAKARI CHINI MILLS (ALL) 280 I TR 617 (V) CIT VS MANIPUR SPINNING MILLS CORPN. LTD. (GAU) 226 ITR 551. 3. THE FACTS, IN BRIEF, QUA THE ISSUE INVOLVED, ARE THAT THE ASSESSEE COMPANY WAS IN PROCESS OF CONSTRUCTION OF A HOTEL AND HAS FILED ITS RETURN OF INCOME DECLARING INCOME OF RS.1 ,20,744/- ON 29.09.2012. THE ASSESSEE COMPANY ACQUIRED AN EXISTI NG HOTEL AT CALWADDO SALCETTE, GOA UNDER THE SARFEASI ACT PROVIS IONS FROM SBI, MUMBAI FOR A CONSIDERATION OF RS.61.40 CRORES. THE ASSESSEE HAD NOT COMMENCED ANY BUSINESS OPERATIONS, AS RENOV ATION OF THE SAID HOTEL WAS BEING CARRIED OUT DURING THE YEAR UN DER CONSIDERATION. THE EXPENDITURE INCURRED ON RENOVATI ON AND REFURBISHMENT OF THE HOTEL WAS SHOWN AS CAPITAL-WORK- IN-PROGRESS PENDING CAPITALIZATION IN THE BALANCE SHEET. THE AS SESSEE COMPANY HAS RAISED FOREIGN CURRENCY ECB LOAN OF US DOLLARS 17.45 MILLION WHICH IN TERMS OF INR COMES TO RS. 82,36,64,497/- FR OM AXIS BANK, ITA NO. 6597/DEL/2016 3 HONG KONG FOR THE PURPOSE OF RENOVATION AND REFURBI SHMENT OF THE HOTEL. ENTIRE ECB WAS DISBURSED IN A SINGLE TRENCH B Y THE BANK. AS PER RBI GUIDELINES AND REGULATIONS, ECB AMOUNT HAS TO BE NECESSARILY KEPT WITH A CATEGORY BANK IN INDIA. IT IS NOT IN DISPUTE THAT ENTIRE ECB LOAN OF APPROX. 82.37 CRORES WAS TO BE SPENT FOR THE ACQUISITION OF CAPITAL ASSET AND RENOVATION OF THE HOTEL AND WAS TO BE PAID OVER A PERIOD OF TIME AND NOT AT ONE GO. TH E ASSESSEE, INSTEAD OF KEEPING THE SAID DISBURSEMENT OF LOAN IN CURRENT ACCOUNT HAS KEPT THE SAME AS FIXED DEPOSIT WITH THE BANK PEN DING UTILIZATION. IN ORDER TO REDUCE THE INTEREST COST ON MONEY BORROWED, THE ASSESSEE HAS KEPT THE BALANCE LOAN AMOUNT IN TH E FORM OF FDRS AND ULTIMATELY IT WAS TREATED AS PROJECT COST. THUS, ECB LOAN AMOUNT DISBURSED IN THE BANK ACCOUNT OF THE ASSESSE E FOR SOLELY FOR THE PURPOSE OF ACQUISITION OF FIXED ASSETS/CAPITAL EXPENDITURE WHICH WAS TEMPORARILY PARKED IN FDRS TILL THE TIME IT WAS U SED FOR FIXED ASSETS AND CAPITAL EXPENDITURE STRICTLY IN COMPLIAN CE TO THE RBI INSTRUCTIONS. THE ASSESSEE HAD EARNED INTEREST INCO ME OF RS.4.03 CRORES ON THE SAID FDRS, WHICH WAS NETTED OF AGAINST THE INTEREST PAID OF RS.13.38 CRORES AND ONLY THE NET AMOUNT OF INTEREST OF RS.9.35 CRORES WAS ADDED TO THE PREOPERATIVE EXPENS ES PENDING CAPITALIZATION, WHICH FACT WAS ALSO DISCLOSED IN NOTE -9 ATTACHED TO THE BALANCE SHEET. IN THIS YEAR, OUT OF AMOUNT OF R S.82.37 CRORES RECEIVED AS ECB LOAN, ONLY AN AMOUNT OF RS.33.70 CR ORES COULD BE SPENT ON RENOVATION AND REFURBISHMENT OF HOTEL AND WAS CONSIDERED AS CAPITAL WIP TILL THE YEAR END. ITA NO. 6597/DEL/2016 4 4. THE LD. ASSESSING OFFICER OBSERVED THAT THE ASSE SSEE COMPANY HAS NOT CARRIED OUT ANY BUSINESS ACTIVITIES DURING THE YEAR AND AFTER CONSIDERING THE ENTIRE FACTS AND SUBMISSIONS OF THE ASSESSEE, HE HELD THAT THERE IS NO DIFFERENCE WHETHER THERE IS DI RECT NEXUS OR PROXIMITY OF RELATIONSHIP BETWEEN THE BANK LOAN AND THE FDRS; AND WHETHER THE ASSESSEE COMPANY WAS FORCED TO KEEP THE L OAN FUNDS IN FDR AS PER RBI STIPULATIONS, BECAUSE THESE ARE MERE LY FOR ACCOUNTING PURPOSE AND HAS NO RELEVANCY IN SO FAR A S TAXABILITY PROVISIONS ARE CONCERNED. AFTER RELYING ON THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD., 227 ITR 172 , HE HELD THAT SINCE THE ASSESSEE HAS NOT COMMENCED ANY BUSINESS, THEREFORE, THE INTEREST INCOME EARNED ON THE ECB LOANS PARKED IN FDRS BEFORE COMMENCEMENT OF BUSINESS IS ASSESSABLE AS INCOME FROM OTHER SOURCES . HE HAS ALSO RELIED UPON VARIOUS OTHER JUDGMENTS AS ENLISTED BY HIM AT PAGE 4. 5. BEFORE THE LD. CIT (A), AFTER EXPLAINING THE ENT IRE FACTS, THE ASSESSEE STRONGLY REFERRED AND RELIED ON THE JUDGME NT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD., 236 ITR 315, WHEREIN, THE HONBLE SUPREME COURT HAS REITERATED T HE PRINCIPLE THAT INCOME RECEIVED FROM THE FUNDS WHICH ARE INEXTRICABLY LINKED WITH SETTING UP OF A PLANT FOR ACQUISITION OF CAPITAL ASSET IS A CAPITAL RECEIPT. THIS JUDGMENT HAS ALSO BEEN FOLLOW ED BY THE SUPREME COURT IN THE CASE OF CIT VS. KARNAL COOPERATIVE SUGAR MILLS LTD., 243 ITR 2 (SC) AND CIT VS. KARNATAKA POWER CORPORATION, 247 ITR 268 . FURTHER RELIANCE WAS ALSO PLACED ON THE ITA NO. 6597/DEL/2016 5 JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO, 315 ITR 255 (DEL), WHEREIN THE HONBLE DELHI HIGH COURT HAVE EVEN TAKEN NOTE OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF TU TICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. (SUPRA). THE LD. CIT (A), AFTER CONSIDERING THE ENTIRE FACTS AND SUBMISSIONS AND VA RIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE RATIO AND PRINCIPLE LA ID DOWN IN JUDGMENT OF DELHI HIGH COURT DATED 07.01.2016 IN TH E CASE OF PR. CIT VS. FACOR POWER LTD., 2016-TIOL-82-HC-DEL-IT, HAS DELETED THE DISALLOWANCE. THE RELEVANT OBSERVATION OF HONBL E HIGH COURT RELIED UPON READS AS UNDER : '++ THIS COURT IS OF THE VIEW THAT NO SUBSTANTIAL Q UESTION OF LAW ARISES FOR OUR CONSIDERATION. THIS IS SO BECAUSE, I N OUR VIEW, THE TRIBUNAL HAS CORRECTLY PLACED RELIANCE ON THE DECIS ION OF THIS COURT IN INDIAN OIL PANIPAT POWER CONSORTIUM LIMITE D. THE FACTS IN THAT CASE WERE QUITE SIMILAR. IN THAT CASE ALSO MONIES HAD BEEN RECEIVED AS SHARE CAPITAL BY THE ASSESSEE WHIC H WERE TEMPORARILY PUT IN FIXED DEPOSITS AWAITING ACQUISIT ION OF LAND WHICH HAD RUN INTO LEGAL ENTANGLEMENTS ON ACCOUNT O F TITLE. THE QUESTION OF LAW WHICH WAS RAISED BEFORE THE DIVISIO N BENCH WAS WHETHER THE TRIBUNAL MISDIRECTED ITSELF IN LAW IN HOLDING THAT INTEREST WHICH ACCRUED ON FUNDS DEPLOYED WITH THE BANK COULD BE TAXED AS INCOME FROM OTHER SOURCES AND NOT AS CAPITAL RECEIPT LIABLE TO BE SET OF AGAINST PRE-OPERATIVE E XPENSES. THE DIVISION BENCH CONSIDERED THE DECISIONS OF THE SUPR EME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD AND HELD THAT IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE 'INEXTRICABLY L INKED' TO THE SETTING UP OF THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED ITA NO. 6597/DEL/2016 6 TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. IT IS EVIDENT THAT THE TEST THAT IS REQUIRED TO BE EMPLOYED IS WHETHER THE ACTIVITY WHICH IS TAKEN UP FOR SETTING UP OF THE BUSINESS AN D THE FUNDS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO TH E SETTING UP OF THE SAME. IN THE PRESENT CASE, FINDINGS OF FACT HAVE BEEN RETURNED BY THE CIT(A) AND HAVE BEEN CONFIRMED BY T HE IT AT TO THE EFFECT THAT THE FUNDS WERE INEXTRICABLY CONNECT ED WITH THE SETTING UP OF THE POWER PLANT OF THE ASSESSEE. THE COUNSEL FOR THE REVENUE HAS ALSO NOT BEEN ABLE TO POINT OUT ANY PERVERSITY IN SUCH FINDING AND, THEREFORE, THE FACTUAL FINDINGS H AVE TO BE TAKEN AS THOSE ACCEPTED BY THE ITAT WHICH IS THE FI NAL FACT FINDING AUTHORITY IN THE INCOME TAX REGIME. THAT BE ING THE CASE, THE DECISION OF THE DIVISION BENCH IN INDIAN OIL PA NIPAT POWER CONSORTIUM LIMITED WOULD SQUARELY APPLY TO THE FACT S OF THE PRESENT CASE AND THE TRIBUNAL WAS RIGHT IN APPLYING THE SAME.' 6. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE MATERIAL PLACED ON RECORD AND THE JUDGMENTS RELIED UPON BY T HE LD. COUNSEL, WE FIND THAT IT IS UNDISPUTED FACT AND EVEN ACCEPTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS TAKEN FOREI GN ECB LOAN OF RS.82.37 CRORES FOR THE PURPOSE OF ACQUISITION OF A CAPITAL ASSET, I.E., RENOVATION AND REFURBISHMENT OF HOTEL ACQUIRED BY T HE ASSESSEE UNDER SARFEASI ACT FROM SBI, MUMBAI. THE ENTIRE ECB LOAN WAS DISBURSED IN A SINGLE TRENCH IN THE YEAR UNDER CONS IDERATION AND TILL THIS YEAR, THE ASSESSEE COULD UTILIZE ONLY RS.33.70 CRORES AND WAS CONSIDERED IN THE CAPITAL WIP. THE ASSESSEE HAS TEM PORARILY PARKED THE ECB LOAN IN FDRS TILL UTILIZATION FOR FIXED ASS ET/CAPITAL EXPENDITURE STRICTLY IN COMPLIANCE WITH THE RBI INST RUCTION. THE ASSESSEE HAD PAID INTEREST AMOUNT OF RS.13.38 CRORE S AND HAS ITA NO. 6597/DEL/2016 7 EARNED INTEREST ON FDRS OF RS.4.03 CRORES. THE NET AMOUNT OF INTEREST OF RS.9.35 CRORES HAS BEEN ADDED TO THE PR EOPERATIVE EXPENDITURE PENDING CAPITALIZATION, I.E. IN CAPITAL WIP. THERE IS NO QUARREL THAT THE INTEREST PAID ON ECB LOAN HAS BEEN CAPITALIZED. WAY BACK IN THE YEAR 1974, HONBLE SUPREME COURT IN THE CASE OF CHALLAPALLI SUGARS LTD. VS. CIT, 98 ITR 167 (SC) HAD EXAMINED THE QUESTION WHETHER INTEREST PAID BEFORE COMMENCEM ENT OF PRODUCTION BY A COMPANY ON THE AMOUNT BORROWED FOR ACQUISITION, INSTALLATION OF PLANT AND MACHINERY WOULD FORM PART OF ACTUAL COST OF THE ASSET, ASSESSEE WILL BE ENTITLED TO DEPRECIAT ION ALLOWANCE AND DEVELOPMENT REBATE WITH REFERENCE TO SUCH INTEREST A LSO. THEIR LORDSHIPS HELD THAT IF ASSESSEE HAS RECEIVED ANY AM OUNT WHICH IS INEXTRICABLY LINKED WITH THE SETTING UP OF PLANT AND MACHINERY, THEN SUCH RECEIPT WILL ONLY GO TO REDUCE THE COST OF FIXE D ASSET. THIS PRINCIPLE WAS FOLLOWED BY HONBLE SUPREME COURT IN T HE CASE OF BOKARO STEEL LTD . (SUPRA) AND ALSO IN THE CASES OF CIT VS. KARNAL COOPERATIVE SUGAR MILLS LTD.(SUPRA) AND CIT VS. KARNATAKA POWER CORPORATION (SUPRA ). THE LD. ASSESSING OFFICER HAS RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE C ASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD.(SUP RA) TO TAX THE INTEREST EARNED ON FDRS AS INCOME FROM OTHER SOURCE S ON THE FACTS OF THE PRESENT CASE. THIS PRECISE ISSUE HAD CAME UP IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD . (SUPRA), WHEREIN EXPLAINING THE PRINCIPLE LAID DOWN IN THE DECISION O F TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD., BOKARO STEEL LTD. A ND CHALLAPALLI ITA NO. 6597/DEL/2016 8 SUGARS LTD. (SUPRA), THE HONBLE JURISDICTIONAL COU RT HELD THAT THE TEST WHICH PERMEATES THROUGH THE JUDGMENT IN TUTICOR IN ALKALI CHEMICALS (SUPRA) IS THAT, IF FUNDS HAVE BEEN BORRO WED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE SURPLUS AND THEN BY VIRTUE OF THAT CIRCUMSTANCE THEY ARE INVESTED IN FIXED DEPOSITS, T HE INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE HE AD INCOME FROM OTHER SOURCES. ON THE OTHER HAND, THE RATIO OF SUP REME COURT JUDGMENT IN BOKARO STEEL LTD. (SUPRA) IS THAT IF IN COME IS EARNED WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER OR THE FUNDS, WHICH ARE OTHERWISE INEXTRICABLY LINKED WITH SETTING UP OF A PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PREOPERATIVE EXPENSES. AFTER APPLYING THIS PRINCIPL E, HONBLE HIGH COURT HAS OBSERVED AND HELD AS UNDER: 5.1 THE TEST, THEREFORE, TO OUR MIND IS WHETHER TH E ACTIVITY WHICH IS TAKEN UP FOR SETTING UP OF THE BUSINESS AN D THE FUNDS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO TH E SETTING UP OF THE PLANT. THE CLUE IS PERHAPS AVAILABLE IN SECT ION 3 OF THE ACT WHICH STATES THAT FOR NEWLY SET UP BUSINESS THE PRE VIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF SETT ING UP OF THE BUSINESS. THEREFORE, AS PER THE PROVISION OF SECTIO N 4 OF THE ACT WHICH IS THE CHARGING SECTION INCOME WHICH ARISES T O AN ASSESSEE FROM THE DATE OF SETTING OF THE BUSINESS B UT PRIOR TO COMMENCEMENT IS CHARGEABLE TO TAX DEPENDING ON WHET HER IT IS OF A REVENUE NATURE OR CAPITAL RECEIPT. THE INCOME OF A NEWLY SET UP BUSINESS, POST THE DATE OF ITS SETTING UP CAN BE TAXED IF IT IS ITA NO. 6597/DEL/2016 9 OF A REVENUE NATURE UNDER ANY OF THE HEADS PROVIDED UNDER SECTION 14 IN CHAPTER IV OF THE ACT. FOR AN INCOME TO BE CLASSIFIED AS INCOME UNDER THE HEAD 'PROFIT AND GAI NS OF BUSINESS OR PROFESSION' IT WOULD HAVE TO BE AN ACTI VITY WHICH IS IN SOME MANNER OR FORM CONNECTED WITH BUSINESS. THE WORD 'BUSINESS' IS OF WIDE IMPORT WHICH WOULD ALSO INCLU DE ALL SUCH ACTIVITIES WHICH COALESCE INTO SETTING UP OF THE BU SINESS. SEE MAZAGAON DOCK LTD VS CIT & EXCESS PROFITS TAX; (195 8) 34 ITR 368 (SC), AND NARAIN SWADESHI WEAVING MILLS VS COMM ISSIONER OF EXCESS PROFITS TAX; (1954) 26 ITR 765 (SC). ONCE IT IS HELD THAT THE ASSESSEE'S INCOME IS AN INCOME CONNECTED W ITH BUSINESS, WHICH WOULD BE SO IN 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 JOIN T VENTURE PARTNERS WERE PRIMARILY INFUSED TO PURCHASE LAND AN D TO DEVELOP INFRASTRUCTURE - THEN IT CANNOT BE HELD THA T THE INCOME DERIVED BY PARKING THE FUNDS TEMPORARILY WITH TOKYO MITSUBISHI BANK, WILL RESULT IN THE CHARACTER OF THE FUNDS BEI NG CHANGED, IN AS MUCH AS, THE INTEREST EARNED FROM THE BANK WOULD HAVE A HUE DIFFERENT THAN THAT OF BUSINESS AND BE BROUGHT TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. IT IS WELL-SE TTLED THAT AN INCOME RECEIVED BY THE ASSESSEE CAN BE TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' ONLY IF IT DOES NOT FAL L UNDER ANY OTHER HEAD OF INCOME AS PROVIDED IN SECTION 14 OF T HE ACT. THE HEAD 'INCOME FROM OTHER SOURCES' IS A RESIDUARY HEA D OF INCOME. ITA NO. 6597/DEL/2016 10 SEE S.G. MERCANTILE CORPORATION PVT. LTD. VS CIT, C ALCUTTA; (1972) 83 ITR 700 (SC) AND CIT VS GOVINDA CHOUDHURY & SONS.; (1993) 203 ITR 881 (SC). 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 SHA RE CAPITAL WERE INFUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LA ND AND THE DEVELOPMENT OF INFRASTRUCTURE. THEREFORE, THE INTER EST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINES S COULD 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 AN D HENCE WAS REQUIRED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENS ES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS (SUPRA) IT WAS F OUND BY THE AUTHORITIES THAT THE FUNDS AVAILABLE WITH THE ASSES SEE IN THAT CASE WERE 'SURPLUS' AND, THEREFORE, THE SUPREME COU RT HELD THAT THE INTEREST EARNED ON SURPLUS FUNDS WOULD HAVE TO BE TREATED AS 'INCOME FROM OTHER SOURCES'. ON THE OTHER HAND I N BOKARO STEEL LTD (SUPRA) WHERE THE ASSESSEE HAD EARNED INT EREST ON ADVANCE PAID TO CONTRACTORS DURING PRE-COMMENCEMENT PERIOD WAS FOUND TO BE 'INEXTRICABLY LINKED' TO THE SETTIN G UP OF THE PLANT OF THE ASSESSEE AND HENCE WAS HELD TO BE A CA PITAL RECEIPT WHICH WAS PERMITTED TO BE SET OFF AGAINST PRE-OPERA TIVE EXPENSES. 7. THIS DECISION AND PRINCIPLE WAS AGAIN FOLLOWED BY DELHI HIGH COURT IN THE CASE OF NTPC SAIL POWER, (2012) 210 TAXMAN ITA NO. 6597/DEL/2016 11 358 AND PCIT VS. FACOR POWER LTD. (SUPRA). IN JUDGMENT DATED 07.01.2016 IN THE CASE OF PR. CIT VS. FACOR POWER L TD. (ITA NO. 1011/2015), THEIR LORDSHIPS HAVE OBSERVED AND HELD AS UNDER : '11. FROM THE ABOVE EXTRACT, IT IS EVIDENT THAT THE TEST THAT IS REQUIRED TO BE EMPLOYED IS WHETHER THE ACTIVITY WHI CH IS TAKEN UP FOR SETTING UP OF THE BUSINESS AND THE FUNDS WHI CH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETTING UP OF THE SAME. IN THE PRESENT CASE, FINDINGS OF FACT HAVE BE EN RETURNED BY THE COMMISSIONER OF INCOME TAX (APPEALS) AND HAV E BEEN CONFIRMED BY THE INCOME TAX APPELLATE TRIBUNAL TO T HE EFFECT THAT THE FUNDS WERE INEXTRICABLY CONNECTED WITH THE SETTING UP OF THE POWER PLANT OF THE ASSESSEE. THE LEARNED COU NSEL FOR THE REVENUE HAS ALSO NOT BEEN ABLE TO POINT OUT ANY PER VERSITY IN SUCH FINDING AND, THEREFORE, THE FACTUAL FINDINGS H AVE TO BE TAKEN AS THOSE ACCEPTED BY THE INCOME TAX APPELLATE TRIBUNAL WHICH IS THE FINAL FACT FINDING AUTHORITY IN THE IN COME TAX REGIME. THAT BEING THE CASE, THE DECISION OF THE DIVISION B ENCH IN INDIAN OIL PANIPAT POWER CONSORTIUM LIMITED (SUPRA) WOULD SQUARELY APPLY TO THE FACTS OF THE PRESENT CASE AND THE TRIB UNAL WAS RIGHT IN APPLYING THE SAME. 12. BEFORE PARTING WITH THIS DECISION, WE WOULD, HO WEVER, LIKE TO COMMENT UPON A CONTENTION WHICH HAS BEEN RAISED BY THE LEARNED COUNSEL FOR THE REVENUE. HE SUBMITTED THAT THE TRIBUNAL IN THE IMPUGNED ORDER MADE AN OBSERVATION IN PARAGR APH 8 OF THE IMPUGNED ORDER WHICH GIVES AN IMPRESSION THAT I F FUNDS ITA NO. 6597/DEL/2016 12 WERE OBTAINED THROUGH RAISING SHARE CAPITAL AS DIST INCT FROM BORROWED FUNDS, THEN THE QUESTION OF INTEREST DERIV ED ON PLACING THOSE FUNDS IN A FIXED DEPOSIT AMOUNTING TO 'INCOME FROM OTHER SOURCES' WOULD NOT ARISE. SUCH AN IMPRESSION OUGHT NOT TO BE GATHERED FROM THE TRIBUNAL'S DECISION BECAUSE THE S UPREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD (SUPRA) HAD CLEARLY STATED THAT WHETHER THE FUNDS ARE RAISE D BY ISSUE OF SHARES AND DEBENTURES OR THROUGH BORROWING WOULD NO T MAKE ANY DIFFERENCE TO THE PRINCIPLES SET OUT THEREUNDER . THE PRINCIPLE BEING THAT IF THE CAPITAL OF A COMPANY IS FRUITFULL Y UTILISED INSTEAD OF KEEPING IT IDLE, THE INCOME THUS GENERAT ED, WILL BE OF A REVENUE NATURE AND NOT ACCRETION OF CAPITAL. 13. IN THE PRESENT CASE, THERE IS A FINDING OF FACT THAT THE MONEY PLACED IN THE FIXED DEPOSIT WAS INEXTRICABLY LINKED WITH THE SETTING UP OF THE POWER PLANT. THUS, THE REVENU E GENERATED ON ACCOUNT OF INTEREST ON THE SAID FIXED DEPOSITS W OULD BE IN THE NATURE OF A CAPITAL RECEIPT AND NOT A REVENUE RECEI PT. THIS CASE HAS BEEN DECIDED ON THE BASIS OF THIS PRINCIPLE AND NOT ON THE BASIS THAT THE SOURCE OF THE FUNDS WAS THROUGH RAIS ING OF SHARE CAPITAL AND NOT THROUGH BORROWINGS.' 8. THE SEQUITOR OF THE JUDGMENT OF HONBLE SUPREME COURT AND HONBLE JURISDICTIONAL HIGH COURT IS THAT IF THE FU NDS HAVE BEEN RAISED FOR THE PURPOSE OF SETTING UP OF A PLANT OR ACQUISITION OF CAPITAL ASSET THEN THE FUNDS HAVE TO BE INEXTRICABL Y LINKED WITH THE ITA NO. 6597/DEL/2016 13 ACTIVITIES OF THE PLANT AND IF SUCH FUNDS HAVE BEEN PUT IN FDRS, THEN INTEREST RECEIVED WILL BE A CAPITAL RECEIPT AND CANNOT BE TAXED AS INCOME FROM OTHER SOURCES. RESPECTFULLY FOLLOWIN G THE AFORESAID PRINCIPLE, WHICH IS APPLICABLE ON THE FACTS OF THE P RESENT CASE ALSO, WE HOLD THAT ONCE THE ECB LOAN WHICH IS TO BE UTILIZE D FOR CAPITAL EXPENDITURE ONLY, THEN, ANY INTEREST EARNED ON FUND S TEMPORARILY PARKED IN FDRS IS INEXTRICABLY LINKED WITH THE SETTI NG UP OF HOTEL OF THE ASSESSEE, WHICH IS TO BE HELD AS CAPITAL RECEIPT S ONLY AND IS PERMITTED TO BE SET OFF AGAINST THE CAPITAL EXPENDI TURE. THE DECISION OF CIT (A) IS IN LINE WITH THE JUDICIAL PRECEDENCE A ND THEREFORE, THE IMPUGNED ORDER OF THE LD. CIT (A) IS UPHELD. CONSEQ UENTLY, THE APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/11/2019. SD/- SD/- (A.N. MISHRA) (AMIT S HUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 TH NOV., 2019 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI