HAZARIBAG RANCHI EXPRESSWAY LTD, MUMBAI V. ITO 14(2)(1), MUMBAI

ITA 6696/MUM/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8108 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 23-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBE
• Assessee Lawyers: NITI AGARWAL ARS
• Keywords: Business income; Source of fund; Question of law; Capital receipt; Revenue expenditure; Set aside; CHAPTER IV; FORM 26AS
• Section: 234B; 37(1); 208; 72; 13; 37; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H, BENCH MUM BAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.6696/MUM/2017 ( ASSESSMENT YEAR :2012-13 ) HAZARIBAGH RANCHI EXPRESSWAY LTD. THE IL&FS FINANCIAL CENTER PLOT NO.C-22, G BLOCK BKC, BANDRA(E) MUMBAI-400 051 VS. ITO-14(2)(1) 4 TH FLOOR, AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AA CCH2490J APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI SACHCHIDANAND DUBE, DR ASSESSEE BY SHRI SANDEEP BHALLA & MS. NITI AGARWAL, ARS DATE OF HEARING 0 6/01/2020 DATE OF PRONOUNCEMENT 22/01/2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)22, MUMBAI, DATED 09/08/2017 AND IT PERTAINS TO ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THA T THE SUM OF RS. 75,96,711/- BE TAXED UNDER THE HEAD INCOME FROM OTH ER SOURCES. THE APPELLANT PRAYS THAT THE CONCLUSION REACHED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT THE SUM O F RS. 75,96,711/- IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 2. ON THE (ACTS & CIRCUMSTANCES OF THE CASE THE A PPELLANT PRAYS THAT THE ADDITION MADE, BY THE LEARNED ASSESSING OFFICER AND CONFIRMED BY THE ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 2 LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AMOUNT ING TO RS. 75,96,711/- UNDER THE HEAD INCOME FROM OTHER SOURCE S IN MAY BE DELETED. 3. ON THE [ACTS & CIRCUMSTANCES OF THE CASE THE A PPELLANT PRAYS THAT THE SUM OF RS. 75,96,711/-MAY BE TREATED AS INCOME EAR NED FROM BUSINESS AND PROFESSION AND MAY BE REDUCED FROM THE TOTAL VA LUE OF THE CAPITAL WORK-IN-PROGRESS AND THE SAID AMOUNT IS NOT CHARGEA BLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 4. ON THE FACTS &. CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONCLUDING THA T THE APPELLANT IS NOT ENTITLED TO CLAIM THE DEDUCTION OF THE SUM OF RS. 2 ,48,92,602/- , BEING THE INTEREST PAID AGAINST THE INTEREST INCOME. 5. ON THE FACTS AND CIRCUMSTANCES THE APPELLANT P RAYS THAT THE SUM OF RS. 2,48,92,602/- BEING THE INTEREST PAYMENT MAY BE ALLOWED AS DEDUCTION AGAINST THE INTEREST OF RS.75,96,711/- TR EATED AS THE INCOME CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 6. WITHOUT PREJUDICE TO GROUND 1 TO 5 THE APPELLA NT PRAYS THAT IF THE SUM OF RS.75,96,711/- IS TAXED UNDER THE HEAD INCOME F ROM OTHER SOURCES AND IF DEDUCTION OF INTEREST PAYMENT IS NOT ALLOWED TO BE SET OFF AGAINST THE SAID INCOME THEN THE SUM OF RS. 2,48,92,602/- M AY BE ADDED TO THE CAPITAL WORK-IN-PROGRESS AS THE APPELLANT HAS REDUC ED THE SAID AMOUNT WHILE COMPUTING THE CAPITAL WORK-IN-PROGRESS. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT PRAYS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN ALLOWING THE DEDUCTION OF RS. 2,90,600/-U/S. .37(1) AS AGAIN ST THE CLAIM OF THE APPELLANT OF RS. 3,78,373/-. THE APPELLANT PRAYS TH AT APPELLANT BE GRANTED DEDUCTION OF RS. 35.87,773/- US. 37(1). 8. WITHOUT PREJUDICE TO GROUND NO. 7 IF THE CLAIM OF DEDUCTION OF RS. 35,87,773/- IS NOT ACCEPTED THEN ME SAID SUM OF RES . 35.87,7737- BE ADDED TO CAPITAL WORK-IN-PROGRESS 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE A PPELLANT DENIES THE LIABILITY FOR PAYMENT OF INTEREST U/S 234B AND PRAYS THAT THE INTEREST LEVIED BY THE LEARNED ASSESSING OFFICER MAY BE DELE TED. 10. THE APPELLANT CRAVES THE PERMISSION TO ADD, ALT ER OR AMEND THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESEE COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF ROADS ON BOT BASIS, FILED ITS RETURN OF INCOME FOR THE AY 2012-13 ON 24/09/20 12, DECLARING NIL ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 3 TOTAL INCOME. THE CASE WAS SELECTED FOR SCRUTINY AN D DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO NOTICE D THAT ON PERUSAL OF FORM 26AS, IT IS SEEN THAT DURING THE YE AR, THE ASSESSEE HAS RECEIVED INTEREST ON TIME DEPOSITS OF RS. 75,96 ,711/- . HOWEVER, ON PERUSAL OF THE RETURN OF INCOME, IT IS SEEN THAT SAID INCOME WAS NOT OFFERED TO TAX, BUT REDUCED THE SAME FROM ITS C APITAL WORK-IN- PROGRESS. THEREFORE, HE CALLED UPON THE ASSESSEE TO FILE NECESSARY EXPLANATION AS TO WHY INTEREST INCOME FROM TIME DEP OSITS SHALL NOT BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCE S AS PER PROVISIONS OF SECTION 56(1) OF THE I.T.ACT, 1961. I N RESPONSE, THE ASSESEE SUBMITTED THAT IT IS ENGAGED IN THE BUSINES S OF CONSTRUCTION OF ROADS ON BOT BASIS, FOR WHICH IT HAS BORROWED LO ANS FROM CONSORTIUM BANKS. AS PER THE AGREEMENT WITH CONSORT IUM BANKS, THE ASSESSEE DRAWN LOAN FUNDS FOR THE PURPOSE OF ITS PR OJECT ON A PERIODIC BASIS. HOWEVER, WHEN THE FUNDS ARE NOT REQ UIRED FOR ITS PROJECT, IT HAS KEPT THOSE FUNDS IN CONSORTIUM BAN KS IN FIXED DEPOSITS FOR SHORT PERIOD AND NECESSARY INTEREST EARNED FROM SAID DEPOSITS HAS BEEN CREDITED TO RTA ACCOUNT TO BE USED FOR PRO JECT OF THE ASSESSE. 4. THE LD. AO DID NOT CONVINCED WITH THE ARGUMENTS OF THE ASSESEE FOR THE REASONS THAT WEATHER THERE IS ANY LINK BETWEEN FUNDS USED FOR TIME DEPOSITS OR NOT, BUT INTEREST E ARNED FROM TIME DEPOSITS SHALL BE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. HE, FURTHER OBSERVED THAT THIS LEGAL POSI TION HAS BEEN SETTLED BY THE HONBLE SUPREME COURT, IN THE CASE O F TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS CIT 227 ITR 172, WHERE IT WAS HELD THAT EVEN, IF THE SURPLUS FUNDS AT THE DISPOSAL OF THE ASSESSEE, WHERE DEPLOYED FOR EARNING INCOME LIKE INTEREST ETC., BUT THE INTEREST ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 4 INCOME EARNED WAS TO BE OFFERED TO TAX UNDER THE HE AD INCOME FROM OTHER SOURCES. THE RELEVANT FINDINGS OF THE AO ARE AS UNDER:- 5.6 THE SUBMISSIONS MADE BY THE ASSESSEE HAS BEE N CAREFULLY PERUSED AND CONSIDERED BUT THE SAME ARE FOUND UNTENABLE. A T THE OUTSET, IT NEEDS NOT BE MENTIONED THAT THE ASSESSE HAS PLACED EMPHAS IS ON THE FACTS THAT THE INTEREST HAS BEEN EARNED ON THE BORROWED FUNDS ON WHICH IT HAS PAID INTEREST. SINCE, THE INTEREST IS PAID BY THE ASSES SE, AS PER ITS SUBMISSION, IS ENTITLED FOR DEDUCTION U/S 57(III) OF THE INCOME TAX ACT, 1961. THE EDIFICE OF THE SUBMISSION OF THE ASSESSE IS FOUNDED ON WRONG NOTION. AT THIS POINT OF TIME, IT NEEDS TO BE MENTIONED THAT B Y VIRTUE OF THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CI T VS. DR.V.P. GOPINATHAN 248 ITR 449 (SC) THE ASSESSEE DOES NOT B ECOME ENTITLED FOR DEDUCTION U/S 57(III) IN THE BACK DROP OF FACTS OF THE CASE. IN THE CASE BEFORE THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DR. V.P. GOPINATHAN 248 ITR 449(SC) THE ASSESSEE DOE SOT BEC OME ENTITLED FOR DEDUCTION U/S 57(III) IN THE BACK DROP OF FACTS OF THE CASE. IN THE CASE BEFORE THE HONBLE SUPREME COURT THE RESPONDENT RAI SED LOAN AGAINST HIS FD WITH THE BANK ON WHICH IT WAS REQUIRED TO PAY IN TEREST. THE INTEREST SO PAID WAS REDUCED BY THE RESPONDENT FROM HIS INTERES T EARNING ON THE IDENTICAL PRETEXT THAT THE INVESTMENT IN THAT THE I NTEREST HAS BEEN PAID ON THE LOANS TAKEN BY THE ASSESSEE. THE HONBLE APEX C OURT VIDE RULING UNDER CONSIDERATION PRONOUNCED THAT SINCE THE LOAN S WERE NOT TAKEN FOR EARNING OF INTEREST, ASSESSEE DOES NOT BECOME ENTIT LED FOR DEDUCTION U/S 57(III). 5.7 TAKING INTO CONSIDERATION, THE RULING OF HONBL E SUPREME COURT IN THE CASE REFERRED TO THE ABOVE NATURAL INFERENCE TH AT SPRING IS THAT THE FACTS OF THE INSTANT CASE ARE ALMOST IDENTICAL TO T HE CASE DECIDED BY THE HONBLE APEX COURT. INASMUCH AS, IN THE INSTANT CAS E, THE ASSESSEE HAS BORROWED THE FUNDS BY WAY OF SHARE CAPITAL FROM ITS SUBSIDIARIES AND CREDIT FACILITIES FROM BANKS AND INSTITUTIONS. THER EFORE, THE UNDERSIGNED HAS NOT HESITATION WHATSOEVER IN CONCLUDING THAT TH E ASSESSEE HAS NO CASE TO SEEK ANY DEDUCTION AGAINST THE INTEREST EAR NED BY THE ASSESSE. 5.8 THE ASSESSE COMPANY IS INCORPORATED FOR SETTI NG UP OF INFRASTRUCTURE FACILITY BEING CONSTRUCTION OF TOLL ROAD BETWEEN HA ZARIBAG AND RANCHI WHICH IS UNDER CONSTRUCTION. DURING THE YEAR UNDER CONSIDERATION ASSESSEES ACTIVITIES TO CONSTRUCT ROAD WERE UNDER PROGRESS AND THE PROJECT WAS NOT FINALIZED DURING THE YEAR UNDER CON SIDERATION. THE ASSESSEE COMPANY IS CAPITALIZING ALL THE EXPENSES I NCURRED FOR DEVELOPMENT FOR PROJECTS UNDER THE HEAD WIP. THE WIP IS REFLECTED IN THE BALANCE SHEET OF THE COMPANY. 5.9 BEFORE DWELLING UPON THE CAPTIONED ISSUE IT IS IMPERATIVE TO GO THROUGH THE WIP REFLECTED IN BALANCE SHEET AS IT WI LL ASSIST IN ARRIVING AT THE JUDICIOUS CONCLUSION. TAKING INTO CONSIDERATION THE SIGNIFICANCE OF THIS ASPECT OF THE BALANCE SHEET IT IS OBSERVED THAT THE ASSESSEE HAS EARNED INTEREST INCOME ON TEMPORARY INVESTMENT FROM BORROW ED FUNDS OF ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 5 RS.75,96,711/- WHICH WAS DEDUCTED FROM THE BORROWIN G COST TO ARRIVE AT THE FIGURE OF CAPITAL WORK-IN-PROGRESS OF RS.185,60 ,44,412/-. EVEN A CURSORY LOOK AT THE ABOVE IMPRINTED SCHEDULE OF THE BALANCE SHEET MAKES IT ABUNDANTLY CLEAR THAT THE CLOSING BALANCE OF THE WORK-IN- PROGRESS HAS BEEN ARRIVED AT AFTER REDUCING AN AMOU NT OF RS.75,96,711/- WHICH THE ASSESEE HAS CLAIMED AS EXPENSES RELATED T O EARNING OF INTEREST (TO THE EXTENT OF INTEREST EARNED I.E RS.75,96,711 /-). 5.10 TAKING INTO CONSIDERATION THIS ASPECT THE NAT URAL QUESTION THAT CROPS UP IS THAT AS TO WHY THE IMPUGNED AMOUNT OF RS.75,9 6,711/- HAS NOT BEEN SHOWN IN THE P&L ACCOUNT AS RECEIPTS FOLLOWING THE DICTUM OF VARIOUS COURT PRONOUNCEMENTS. INSTEAD, THE ASSESSEE WHILE T AKING THIS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES HAS CONV ENIENTLY REDUCED THE SAME AMOUNT FROM THE INTEREST INCOME BEING EXPE NSES INCURRED FOR EARNING INTEREST INCOME. THIS ACT OF THE ASSESEE IS TOTALLY NOT IN CONSONANCE WITH THE PROVISIONS OF SEC. 57(III) OF T HE INCOME TAX ACT, 1961. 5.11 NOW THE SECOND MOST IMPORTANT QUESTION THA T ARISES FROM THE FACTS OF THE CASE IS THAT WHETHER THE INTEREST SO E ARNED BY THE ASSESSEE IS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCE S OR ASSESSEE IS ENTITLED FOR REDUCTION OF SUCH INTEREST EARNING FRO M WIP AS DONE BY THE ASSESSEE. IN THIS CONTEXT, THE ASSESSEE IN ITS SUBM ISSION HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS. BOKARO STEEL LTD. THE FACTS OF THE CASE BEFORE THE HONBLE SUPREME COURT AND THE FACTS OF THE ASSESSEES CASE ARE DIST INGUISHABLE IN AS MUCH AS IN THAT CASE THE PROJECT WAS NOT IN PROGRESS AND THEREFORE THIS RULING DOES NOT PROVIDE ANY AID OR ASSISTANCE TO THE ASSES SEE. IN THE OTHER CASE I.E INDIAN OIL PANIPAT POWER CONSORTIUM LTD. THE IN COME EARNED BY THE ASSESSEE WAS TOTALLY LINKED TO THE ASSETS OF THE PR OJECT. THEREFORE, IN BOTH THESE CASE THE INCOME RECEIVED BY THE ASSESSEE WAS INEXTRICABLY LINKED, WHEREAS IN THE INSTANT CASE THE RECIPES IN THE FORM OF INTEREST EARNED BY THE ASSESSEE HAVE GOT NO DIRECT LINK WITH THE ASSET S MEANT FOR THE PROJECT OF THE ASSESSE. IN ALL THE CASE LAWS CITED BY THE A SSESSEE THE COMMON FEATURE IS INEXTRICABLE LINK TO THE ASSET, WHEREAS THE SAME LINK IS MISSING IN THE CASE OF THE ASSESEE. THE ASSESSEE HAS THEREF ORE TRIED TO MISINTERPRET THE DECISIONS GIVEN BY THE HONBLE DE LHI COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. AND THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF BOKARO STEEL LTD. 5.12 AS A MATTER OF FACT, THE FACTS AND CIRCUMST ANCES OF THE INSTANT CASE HAS GOT MORE PROXIMITY WITH THE RULING OF HONBLE S UPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LT D. VS. CIT 227 ITR 172 (SC) AS DISCUSSED HEREIN UNDER: 5.13 FACTS OF THE ASSESSEES CASE; AS STATED EARLI ER THE ASSESSEE COMPANY IS ENGAGED IN CONSTRUCTION OF ROAD ON BOT B ASIS AND THE ACTIVITIES OF PROJECTS IN HANDS ARE IN PROGRESS NOT YET REACHED FINALITY. THIS IS EVIDENT FROM THE FACT THAT ASSESSEE SHOWING THE EXPENSES TOWARDS PROJECT AS WIP. THE FUNDS REQUIRED FOR THIS CONSTRU CTION ACTIVITY HAVE BEEN RAISED BY THE ASSESEE BY SHARE APPLICATION MON EY AND LOAN FUNDS, ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 6 INTER-ALIA ON WHICH ASSESSEE PAYS INTEREST. THE MAJ OR PAT OF INTEREST BEARING BORROWED FUNDS WHICH HAVE NOT BEEN PUT INTO THE USE FOR CONSTRUCTION OF ROAD ACTIVITIES WERE ADVANCED BY TH E ASSESSEE TO ITS ASSOCIATE CONCERNS AND INTEREST WAS CHARGED ON THE SAME. THIS ACTIVITY FETCH INTEREST INCOME OF RS.75,96,711/- WHICH ASSES SEE HAS NOT CREDITED TO P&L ACCOUNT, BUT HAS CREDITED TO WIP ACCOUNT MEA NING THEREBY THE WIP HAS BEEN REDUCED TO THAT EXTENT. 5.14 FACTS OF THE CASE BEFORE THE SUPREME COURT: IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. C IT 227 ITR 172 (SC) THE WORK OF PROJECT IN THE HANDS OF THE ASSESSEE WAS IN PROGRESS AND AS A RESULT THE FUNDS AT THE DISPOSAL OF THE ASSESSEE WE RE NOT USED FOR THE PURPOSE THEY WERE MEANT. THE SURPLUS FUNDS AT THE D ISPOSAL OF HAVE ASSESSEE WERE DEPLOYED FOR EARNING INCOME LIKE INTE REST ETC. THE INTEREST SO EARNED WAS NOT OFFERED FOR TAX AND WAS REDUCED F ROM THE WORK-IN- PROGRESS. THE HONBLE SUPREME COURT REJECTED ASSESS EES CLAIM AND RULED THAT THE INCOME EARNED BY THE ASSESSEE REQUIR ES TO BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES.. 5.15 IN THE BACK DROP OF ABOVE COMPARATIVE FACT S THERE IS NO IOTA OF DOUBT THAT IN THE INSTANT CASE THE RULING OF SUPREME COUR T IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT 27 ITR 172 (SC) SQUARELY GETS APPLIED. THERE ARE PLETHORA OF PRONOUNCEMENTS WHERE IN IDENTICAL DECISION WAS PRONOUNCED BY THE COURT FEW OF WHICH ARE LIST ED HEREIN UNDER: WHISTLING WOODS INTERNATIONAL LTD. ( 16 TAXMANN 242 (MUM) (2011) WHERE ASSESEE WAS IN PROCESS OF SETTING UP OF BUSIN ESS, INTEREST EARNED BY IT BY DEPLOYING SURPLUS FUND WOULD BE ASSESSED U NDER THE HEAD ' DY.CIT VS. ALLIED CONSTRUCTION 106 TTJ 595 (DEL. SB ) INTEREST ON DEPOSIT IS DIFFERENT AND SEPARATE FROM ASSESEE CONTRACT BUSINESS. THERE IS NEXUS BETWEEN THE EARNING ON EX IST OR CONTINUE WITHOUT PRESSURE OR CONTINUITY OF OTHER. INTEREST I S INDEPENDENT SOURCES OF INCOME AND TO BE TAXED AS INCOME FORM OTHER SOURCES . A.C.NIELSON RESEARCH SERVICES (P) LTD. VS. ADDL. CI T 120 TTJ(MUM) 918 (MUM) ASSESSEE COMPANY ENGAGED IN BUSINESS OF CUSTOMIZED MARKET RE- SEARCH ALSO EARNS INCOME FROM LOANS GIVEN AND FDR S INCE COMPANY WAS NOT ENGAGED IN THE BUSINESS OF ADVANCING LOAN THE I NTEREST SO EARNED HAS TO BE TAXED AS INCOME FROM OTHER SOURCES. DY.CIT VS. TIMES GUARANTEE LTD. 131 TTJ (MUM) 257. DEPLOYMENT OF SURPLUS FUND FOR EARNING INTEREST GIV ES RISE TO INTEREST INCOME TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCE. TRACO CABLE CO.LTD. VS. CIT (KER) 72 ITR 503 MADHYA PRADESH STATE INDUSTRIES CORPN. LTD. VS. CIT (MP) 69 ITR 824(MP) CIT VS. ASSAM PLANTATION CORP DEV. CORPN LTD. (GAU) 221 ITR 392 SHARE CAPITAL RECEIVED DEPOSITED IN BANK INTEREST EANRED IS TO BE ASSESSED UNDER OTHER SOURCES THE IDENTICAL RULING HAS BEEN GIVEN IN THE FOLLOWIN G CASES. ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 7 I. SOUTH INDIA SHIPPING CORPORATION LTD. VS. CIT-24 0 ITR 24 (MAD.) II. CIT VS. KISAN SAHAKARI CHINI MILLS LTD. -280 IT R 617 (ALL.) III. SHREE KRISHNA PLOYSTERS LTD. VS. DY.CIT -274 I TR 21(BOM.) 5.16 IN THE BACK DROP OF THE DISCUSSION IN FOREGOIN G PARAS, THE ONLY AND ONLY NATURAL AND JUDICIAL INFERENCE THAT CROPS UP I S THAT THE INTEREST EARNED BY THE ASSESEE OF RS. 75,96,711/- IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCE AND ASSESSEE IS NOT ENTITLED FOR ANY DEDUCTION U/S 57(III) OF THE INCOME TAX ACT. SINCE THE FUNDS WERE BORROWED B Y THE ASSESSEE FOR THE PURPOSE OF CONSTRUCTION OF ROADS ON BOT BASIS A ND THE INTEREST PAID ON SUCH BORROWED FUNDS HAS TO BE DEALT WITH AS PER THE PROVISION OF SECTION 36. ACCORDINGLY, A SUM OF RS. 75,96,711/- I S BROUGHT TO TAX AS ASSESSEES INCOME UNDER THE HEAD INCOME UNDER THE H EAD INCOME FROM OTHER SOURCES WITHOUT GIVING ANY DEDUCTION U/S 57( III) OF THE INCOME TAX ACT. 5. AGGRIEVED, BY THE ASSESSMENT ORDER, THE ASSESEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESEE HAS REITERATED ITS ARGUMENTS MADE BEFORE THE LD. AO, IN LIGHT OF THE DECISION OF HONBLE SUPREME COURT, IN THE CASE OF C IT VS BOKARO STEEL LTD. 236 ITR 315. THE LD.CIT(A) AFTER CONSIDE RING RELEVANT SUBMISSIONS OF THE ASSESSE AND ALSO BY RELIED UPON VARIOUS JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE SUPRE ME COURT, IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS CIT(SUPRA) HELD THAT WHETHER, FUNDS USED FOR DEPLOYMENT IN FIX ED DEPOSITS TO EARN INTEREST IS INEXTRICABLY LINKED WITH THE PROJE CT OR NOT, BUT INTEREST SO EARNED IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE, HE OPINED THAT THERE IS NO ERROR IN THE FINDINGS OF THE LD. AO IN ASSESSING INTEREST INCOME FROM TIME DEPOSITS UNDER THE HEAD INCOME FROM OTHER SOURCES. INSOFAR AS, ALTERNATIVE GROUND TAKEN BY THE ASSESSEE FOR DEDUCTION OF CERTAIN EXPENSES, INC LUDING INTEREST PAID AGAINST INCOME FROM OTHER SOURCES BEING INTERE ST EARNED FROM FIXED DEPOSITS, THE LD.CIT(A) HELD THAT INTEREST PA YABLE ON THE AMOUNT BORROWED FOR THE BUSINESS PURPOSE CANNOT BE ADJUSTED AGAINST THE INTEREST INCOME, WHICH HAS BEEN CONSIDE RED AS INCOME FROM OTHER SOURCES. THE LD.CIT(A) HAS ALSO REJECTED THE ALTERNATIVE ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 8 GROUND TAKEN BY THE ASSESSEE REGARDING INCREASE IN VALUE OF CAPITAL WORK-IN-PROGRESS. SIMILARLY, THE LD.CIT(A) HAS ADMI TTED ADDITIONAL GROUND FILED BY THE ASSESSEE CLAIMING DEDUCTION FOR CERTAIN EXPENDITURE AMOUNTING TO RS. 38,78,373/-, ON THE GR OUND THAT SAID EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS, BUT ALLOWED PARTIAL RELIEF TO THE ASSESSEE AND OUT OF TOTAL EXPENDITURE OF RS. 38,78,378/-, HE HAS ALLOWED A SUM OF RS. 2,90,600/- BEING DIRECTORS FEES AND AUDITOR FE E, ON THE GROUND THAT ABOVE MENTIONED EXPENSES ARE REQUIRED TO BE IN CURRED TO MAINTAIN THE CORPORATE STATUS OF THE ASSESSEE. AGGR IEVED BY THE LD.CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE U S. 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ASSESSMENT OF INTEREST INCOME FROM TIME DEPOSITS UN DER THE HEAD INCOME FROM OTHER SOURCES. THE LD. AR, FOR THE ASSE SSEE, AT THE TIME OF HEARING SUBMITTED, THIS ISSUE IS SQUARELY C OVERED IN FAVOUR OF THE ASSESEE BY THE DECISION OF ITAT, MUMBAI, C BE NCH, IN THE CASE OF PUNE SHOLAPUR ROAD DEVELOPMENT COMPANY LTD. VS ITO IN ITA NO. 6674/MUM/2017, WHERE THE TRIBUNAL UNDER IDENTIC AL FACTS AND CIRCUMSTANCES AND ALSO AFTER CONSIDERING THE DECIS ION OF HONBLE SUPREME COURT, IN THE CASE OF TUTICORIN ALKALI CHEM ICALS AND FERTILIZERS LIMITED VS CIT (SUPRA) HELD THAT INTERE ST INCOME EARNED FROM TIME DEPOSITS KEPT OUT OF SURPLUS FUNDS OF PRO JECT IS DEDUCTABLE AGAINST CAPITAL WORK-IN-PROGRESS. HE, FURTHER SUBMI TTED THAT THE CO- ORDINATE BENCH IN THE SAID CASE HAS FOLLOWED THE DE CISION OF ASSESSEES OWN CASE FOR EARLIER YEARS. 7. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORT ING ORDER OF THE LD.CIT(A) SUBMITTED THAT AS PER THE PROVISION O F SECTION 14 OF THE ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 9 ACT, INCOME IS CLASSIFIED UNDER FIVE HEADS OF INCOM E BASED ON NATURE OF INCOME AND HENCE, IT IS HIGHLY INCORRECT TO REFE R, THE SOURCE OF FUNDS TO EARN SAID INCOME TO CHANGE THE CHARACTERS OF INCOME. HE FURTHER SUBMITTED THAT THIS POSITION HAS BEEN CLEAR LY EXPLAINED BY THE HONBLE SUPREME COURT, IN THE CASE OF CIT VS. TUTIC ORIN ALKALI CHEMICALS AND FERTILIZERS LTD(SUPRA), WHERE IT WAS CATEGORICALLY HELD THAT IT IS IRRELEVANT TO SEE THE SOURCE OF FUNDS, B UT WHAT IS RELEVANT IS THE NATURE OF INCOME TO DECIDE THE HEAD OF INCOME. THE LD. AO, AS WELL AS THE LD.CIT(A) HAS RIGHTLY CONSIDERED THE FA CTS, IN LIGHT OF PROVISION OF THE ACT, AND ASSESSED INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEIR ORDER SHOULD BE UPHELD. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THOUGH ORDERS OF THE A UTHORITIES BELOW. WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT APPE AL REGARDING TAXABILITY OF INTEREST EARNED FROM TIME DEPOSITS, WHETHER IT IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES OR IT CAN BE REDUCED FROM CAPITAL WORK-IN-PROGRESS, WHEN THE FUNDS ARE INEXTR ICABLY LINKED WITH PROJECT FUNDS IS NO LONGER A RES-INTEGRA . THE CO-ORDINATE BENCH OF ITAT, MUMBAI G BENCH IN ASSESSEES OWN CASE FOR A Y 2011-12 HAD CONSIDERED AN IDENTICAL ISSUE AND AFTER CONSIDE RING RELEVANT FACTS AND ALSO BY FOLLOWING ANOTHER CO-ORDINATE B ENCH DECISION, IN THE CASE OF INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHAN LTD. VS DCIT (SUPRA) HELD THAT INTEREST EARNED FROM TIME DEPOSITS KEPT OUT OF SURPLUS FUNDS AVAILABLE TO THE ASSESSEE OUT OF PROJECT FUNDS IS DEDUCTABLE FROM THE CAPITAL WORKING PROGRESS. THE R ELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- ISSUES NO. 1:- ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 10 4. WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. R EPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE LD. REPRESE NTATIVE OF THE ASSESSEE HAS ARGUED THAT THE INTEREST FROM DEPOSIT IS REQUIRED TO BE TREATED AS BUSINESS INCOME IN ACCORDANCE WITH LAW A ND IN THIS REGARD THE LD. REPRESENTATIVE OF THE ASSESSEE HAS PLACED RELIA NCE UPON THE LAW SETTLED BY THE DIFFERENT AUTHORITIES CITED AS INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO REPORTED IN 181 TAXMANN PAG E 249, 315 ITR 255 (DELHI HIGH COURT), BOKARO STEEL LTD. 236 ITR P G. 315 (SC), THE ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHA N LTD. ITA. NO. 628/JP/2014 JAIPUR, ANDHRA PRADESH EXPRESSWAY L TD. ITA. NO. 663/M/2015 & KARNATAKA POWER CORPORATION LTD. 247 I TR 268 . HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE REVENUE HAS REFUTED THE SAID CONTENTION. THE FACTUAL SITUATION IS NOT IN DISPUTE TO THE FACT THAT THE ASSESSEE RECEIVED THE LOAN AND CREDIT ED IN HIS ACCOUNT LIES WITH BANK OF INDIA WHO CREDITED THE INTEREST IN THE ACCOUNT OF THE ASSESSEE. IT IS TO BE SEEN WHETHER THE SAID INTERES T INCOME IS REQUIRED TO BE TREATED AS INCOME FROM BUSINESS OR INCOME FROM O THER SOURCES. THE ASSESSEE COMPANY IS A SPECIAL PURPOSE VEHICLE (SPV) PROMOTED BY IL&FS TRANSPORTATION NETWORK LTD. THE COMPANY HAS E NTERED INTO A CONCESSION AGREEMENT ON 08.10.2009 WITH THE NATIONA L HIGHWAYS AUTHORITY OF INDIA TO DESIGN, ENGINEERS, FINANCE, P ROCURE, CONSTRUCT, OPERATE AND MAINTAIN 4 LANING, HAZARIBAGH-RANCHI SE CTION OF NH-33 ON BOT BASIS IN THE STATE OF JHARKHAND. IN THE YEAR OF ASSESSMENT, THE ASSESSEE DID NOT COMMENCE ITS BUSINESS. ALL THE EXP ENSES HAVE BEEN SHOWN UNDER CAPITAL WORK-IN-PROGRESS. THE ASSESSEE TOOK THE LOAN FOR THE PROJECT AND KEPT ITS FUND WITH BANK OF INDIA WHICH WAS UTILIZED THEREAFTER, THEREFORE, THE BANK OF INDIA CREDITED THE INTEREST IN FAVOUR OF THE ASSESSEE COMPANY WHICH IS IN QUESTION. THE LAW RELIED BY THE LD. REPRESENTATIVE OF THE ASSESSEE HAS DECIDED THIS CONTROVERSY BY HOLDIN G THIS FACT THAT THE INTEREST INCOME IS IN CONNECTION WITH THE BUSINESS EXIGENCY, THEREFORE, THE SAME IS LIABLE TO BE TREATED AS BUSINESS INCOME . IN THE CASE DECIDED BY HONBLE ITAT D BENCH IN ITA. NO. 663/M/2015 TH E HONBLE ITAT HAS TREATED THE SAID INCOME AS INCOME FROM BUSINESS. TH E RELEVANT PARA NO. 5 IS REPRODUCED AS UNDER.: - 5. HAVING HEARD RIVAL SUBMISSIONS, WE ARE OF THE V IEW THAT THERE IS MERIT IN THE LATER SUBMISSIONS MADE BY LD A.R. FROM THE FINANCIAL STATEMENTS, WE NOTICE THAT THE ASSESSEE HAS BORROWE D LOANS FOR EXECUTING THE PROJECT AND THE AMOUNT OF LOAN OUTSTA NDING AS ON 31.3.2010 STAND AT RS.824.73 CRORES. THE LOAN TAKEN FROM BANKS ALONE STANDS AT RS.503.29 CRORES. IT IS AN ADMITTED FACT THAT THE TERM LOANS HAVE TO BE REPAID IN FIXED INSTALLMENTS AND HENCE THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT IT WAS CONSTRAINED TO KEEP THE FUNDS IN FIXED DEPOSITS TO EARN INTERES T, WHICH WILL MEET A PORTION OF INTEREST BURDEN OF BANK LOANS. FURTHER , WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT IT HAD TO KEEP SOME SURPLUS FUNDS IN HAND IN ORDER TO MEET THE MAINTENANCE REQU IREMENTS OF THE ROADS. IN THESE SET OF FACTS, WE ARE OF THE VIE W THAT THERE WERE BUSINESS EXIGENCIES IN KEEPING THE FUNDS IN FIXED D EPOSITS AND HENCE THERE IS MERIT IN THE CONTENTIONS OF THE ASSE SSEE THAT INTEREST INCOME EARNED ON THOSE FIXED DEPOSITS IS A SSESSABLE AS ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 11 INCOME FROM BUSINESS. IN THE CASE OF LOK HOLDINGS ( SUPRA), THE ASSESSEE THEREIN COLLECTED ADVANCES FROM THE CUSTOM ERS WHO INTENDED TO PURCHASE THE FLATS IN THE PROPERTIES AS DEVELOPED BY THE ASSESSEE. SINCE THE CONSTRUCTION WAS GOING ON, THE SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE OUT OF THE ADVANC ES SO RECEIVED WAS DEPOSITED IN FIXED DEPOSITS. THE HONBLE JURISD ICTIONAL BOMBAY HIGH COURT, AFTER CONSIDERING THE DECISION O F HONBLE SUPREME COURT RENDERED IN THE CASE OF TUTICORIN ALK ALI CHEMICALS AND FERTILIZERS LTD (SUPRA), HELD THAT THE INTEREST INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. 5. IN THE SIMILAR CIRCUMSTANCES, THE HONBLE ITAT J AIPUR BENCH IN THE CASE OF ITA. NO. 628/JP/2014 TITLE AS INFRASTRUCTUR E DEVELOPMENT COMPANY OF RAJASTHAN LTD. VS. DCIT DATED 11.08.2016 HAS HELD THAT THE INTEREST INCOME UPON THE DEPOSIT BY THE ASSESSEE FO R THE UTILIZATION OF FUND FOR THE PROJECT, IS LIABLE TO BE TREATED AS BU SINESS INCOME. THE FINDING IS HEREBY MENTIONED BELOW FOR READY REFEREN CE.: - 2.10 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSU ED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT BOTH THE PARTIES HAVE RELIED UPON THE DECISIONS OF THE HON'BLE SUPREME CO URT AND IN ADDITION, THE ASSESSEE HAS RELIED UPON THE DECISION S OF HON'BLE DELHI HIGH COURT. THEREFORE, IT WOULD BE APPROPRIAT E TO FIRST REFER TO THESE DECISIONS AND SOME OF THE OTHER RECENT DECISI ONS OF HONBLE HIGH COURTS AND COORDINATE BENCH DECISIONS. 2.11 IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPR A), THE HON'BLE SUPREME COURT HELD AS UNDER: THE FACTS OF THIS CASE WERE NOT IN DISPUTE. IN THE USUAL COURSE, INTEREST RECEIVED BY THE COMPANY FROM BANK DEPOSITS AND LOANS WOULD BE TAXABLE AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES' UNDER SECTION 56. I T WAS ARGUED ON BEHALF OF THE COMPANY THAT IT HAD NOT YET COMMENCED ITS BUSINESS AND IN ANY EVENT IF THE INCO ME WAS DERIVED FROM FUNDS BORROWED FOR SETTING UP THE FACT ORY OF THE COMPANY, IT SHOULD BE ADJUSTED AGAINST THE INTEREST PAYABLE ON THE BORROWED FUNDS. NEITHER OF THE TWO FACTORS C AN AFFECT TAXABILITY OF THE INCOME EARNED BY THE COMPANY THE TOTAL INCOME OF THE COMPANY IS CHARGEABLE TO TAX UNDER SE CTION 4. THE TOTAL INCOME HAS TO BE COMPUTED IN ACCORDANC E WITH THE PROVISIONS OF THE ACT. SECTION 14 LAYS DOWN THA T FOR THE PURPOSE OF COMPUTATION, INCOME OF AN ASSESSEE HAS T O BE CLASSIFIED UNDER SIX HEADS. IN THE INSTANT CASE, TH E COMPANY HAD CHOSEN NOT TO KEEP ITS SURPLUS CAPITAL IDLE, BU T HAD DECIDED TO INVEST IT FRUITFULLY. THE FRUITS OF SUCH INVESTMENT WILL CLEARLY BE OF THE REVENUE NATURE. IF THE CAPIT AL OF A COMPANY IS FRUITFULLY UTILISED INSTEAD OF KEEPING I T IDLE, THE INCOME THUS GENERATED WILL BE OF THE REVENUE NATURE AND NOT ACCRETION OF CAPITAL WHETHER THE COMPANY RAISED THE CAPITAL BY ISSUE OF SHARES OR DEBENTURES OR BY BORR OWING WILL NOT MAKE ANY DIFFERENCE TO THIS PRINCIPLE. IF BORRO WED CAPITAL IS USED FOR THE PURPOSE OF EARNING INCOME, THAT INC OME WILL HAVE TO BE TAXED IN ACCORDANCE WITH LAW. INCOME IS SOMETHING WHICH FLOWS FROM THE PROPERTY. SOMETHING ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 12 RECEIVED IN PLACE OF THE PROPERTY WILL BE CAPITAL R ECEIPT. THE AMOUNT OF INTEREST RECEIVED BY THE COMPANY FLOWS FR OM ITS INVESTMENTS AND IS ITS INCOME AND IS CLEARLY TAXABL E EVEN THOUGH THE INTEREST AMOUNT IS EARNED BY UTILISING B ORROWED CAPITAL. IT IS TRUE THAT THE COMPANY WILL HAVE TO P AY INTEREST ON THE MONEY BORROWED BY IT. BUT THAT CANNOT BE A G ROUND FOR EXEMPTION OF INTEREST EARNED BY THE COMPANY BY UTILISING THE BORROWED FUNDS AS ITS INCOME. THE COMPANY WAS A T LIBERTY TO USE THE INTEREST INCOME AS IT LIKED IT W AS UNDER NO OBLIGATION TO UTILISE THIS INTEREST INCOME TO REDUC E ITS LIABILITY TO PAY INTEREST TO ITS CREDITORS. IT COULD RE-INVES T THE INTEREST INCOME IN LAND OR SHARES, IT COULD PURCHASE SECURIT IES, IT COULD BUY HOUSE PROPERTY, IT COULD ALSO SETUP ANOTH ER LINE OF BUSINESS, IT MIGHT EVEN PAY DIVIDENDS OUT OF THIS I NCOME TO ITS SHAREHOLDERS. THERE WAS NO OVERRIDING TITLE OF ANYBODY DIVERTING THE INCOME AT SOURCE TO PAY THE AMOUNT TO THE CREDITORS OF THE COMPANY. IT IS WELL-SETTLED THAT T AX IS ATTRACTED AT THE POINT WHEN THE INCOME IS EARNED TA XABILITY OF INCOME IS NOT DEPENDENT UPON ITS DESTINATION OR THE MANNER OF ITS UTILIZATION. IT HAS TO BE SEEN WHETHE R AT THE POINT OF ACCRUAL, THE AMOUNT IS OF THE REVENUE NATU RE AND IF SO, THE AMOUNT WILL HAVE TO BE TAXED. IT IS TRUE TH AT THE SUPREME COURT HAS VERY OFTEN REFERRED TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MADE BY A COMP ANY OR VALUE OF THE ASSETS OF A COMPANY. BUT WHEN THE QUES TION IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHE THER CERTAIN DEDUCTIONS FROM THAT RECEIPT ARE PERMISSIBL E IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUN TANCY PRACTICE. ACCOUNTING PRACTICE CANNOT OVERRIDE SECTI ON 56 OR ANY OTHER PROVISION OF THE ACT. WHETHER A PARTICULA R RECEIPT IS OF THE NATURE OF INCOME AND FALLS WITHIN THE CHA RGE OF SECTION 4 IS A QUESTION OF LAW WHICH HAS TO BE DECI DED BY THE COURT ON THE BASIS OF THE PROVISIONS OF THE ACT AND THE INTERPRETATION OF THE TERM 'INCOME' GIVEN IN A LARG E NUMBER OF DECISIONS OF THE HIGH COURTS, THE PRIVY COUNCIL AND ALSO THIS COURT. IT IS WELL-SETTLED THAT INCOME ATTRACTS TAX AS SOON AS IT ACCRUES. THE APPLICATION OR DESTINATION OF TH E INCOME HAS NOTHING TO DO WITH ITS ACCRUAL OR TAXABILITY. I T IS ALSO WELL SETTLED THAT INTEREST INCOME IS ALWAYS OF A REVENUE NATURE UNLESS IT IS RECEIVED BY WAY OF DAMAGES OR COMPENSA TION. 2.12 IN THE CASE OF BOKARO STEEL LTD. (SUPRA), THE HON'BLE SUPREME COURT, AFTER CONSIDERING THE DECISION OF TU TICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA), HELD A S UNDER: THE ACTIVITIES OF THE ASSESSEE IN CONNECTION WITH FIRST THREE RECEIPTS WERE DIRECTLY CONNECTED WITH OR WERE INCID ENTAL TO THE WORK OF CONSTRUCTION OF ITS PLANT UNDERTAKEN BY THE ASSESSEE. BROADLY SPEAKING, THESE PERTAINED TO THE ARRANGEMENTS MADE BY THE ASSESSEE WITH ITS CONTRACT ORS PERTAINING TO THE WORK OF CONSTRUCTION. TO FACILITA TE THE WORK OF THE CONTRACTOR, THE ASSESSEE PERMITTED THE CONTR ACTOR TO ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 13 USE THE PREMISES OF THE ASSESSEE FOR HOUSING ITS ST AFF AND WORKERS ENGAGED IN THE CONSTRUCTION ACTIVITY OF THE ASSESSEE'S PLANT. THIS WAS CLEARLY TO FACILITATE TH E WORK OF CONSTRUCTION. HAD THIS FACILITY NOT BEEN PROVIDED B Y THE ASSESSEE, THE CONTRACTORS WOULD HAVE HAD TO MAKE TH EIR OWN ARRANGEMENTS AND THIS WOULD HAVE BEEN REFLECTED IN THE CHARGES OF THE CONTRACTORS FOR THE CONSTRUCTION WORK. INSTEAD, THE ASSESSEE HAD PROVIDED THESE FACILITIES . THE SAME WAS TRUE OF THE HIRE CHARGES FOR PLANT AND MAC HINERY WHICH WAS GIVEN BY THE ASSESSEE TO THE CONTRACTOR F OR THE ASSESSEE'S CONSTRUCTION WORK. THE RECEIPTS IN THIS CONNECTION ALSO WENT TO COMPENSATE THE ASSESSEE FOR THE WEAR AND TEAR ON THE MACHINERY. THE ADVANCES WHICH THE ASSESSEE MADE TO THE CONTRACTOR TO FACILITATE THE CONSTRUCTION ACTIVITY OF PUTTING TOGETHER A VERY LA RGE PROJECT WAS AS MUCH TO ENSURE THAT THE WORK OF THE CONTRACT ORS PROCEEDED WITHOUT ANY FINANCIAL HITCHES AS TO HELP THE CONTRACTORS. THE ARRANGEMENTS WHICH WERE MADE BETWE EN THE ASSESSEE-COMPANY AND THE CONTRACTORS PERTAINING TO THESE THREE RECEIPTS WERE ARRANGEMENTS WHICH WERE INTRINSICALLY CONNECTED WITH THE CONSTRUCTION OF IT S STEEL PLANT. THE RECEIPTS HAD BEEN ADJUSTED AGAINST THE C HARGES PAYABLE TO THE CONTRACTORS AND HAD GONE TO REDUCE T HE COST OF CONSTRUCTION. THEY HAD, THEREFORE, BEEN RIGHTLY HELD AS CAPITAL RECEIPTS AND NOT INCOME OF THE ASSESSEE FRO M ANY INDEPENDENT SOURCE. IN CASE MONEY IS BORROWED BY A NEWLY-STARTED COMPANY WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT, THE INTEREST I NCURRED BEFORE THE COMMENCEMENT OF PRODUCTION ON SUCH BORRO WED MONEY CAN BE CAPITALISED AND ADDED TO THE COST OF T HE FIXED ASSETS CREATED AS A RESULT OF SUCH EXPENDITURE. BY THE SAME REASONING IF THE ASSESSEE RECEIVED ANY AMOUNTS WHIC H WERE INEXTRICABLY LINKED WITH THE PROCESS OF SETTIN G UP ITS PLANT AND MACHINERY, SUCH RECEIPTS WOULD GO TO REDU CE THE COST OF ITS ASSETS. THESE WERE RECEIPTS OF A CAPITA L NATURE AND COULD NOT BE TAXED AS INCOME. THE SAME REASONIN G WOULD APPLY TO ROYALTY RECEIVED BY THE ASSESSEE COM PANY FOR STONES, ETC., EXCAVATED FROM THE ASSESSEE-COMPA NY'S LAND. THE LAND HAD BEEN ALLOWED TO BE UTILISED BY T HE CONTRACTORS FOR THE PURPOSE OF EXCAVATING STONES TO BE USED IN THE CONSTRUCTION WORK OF THE ASSESSEE'S STEEL PL ANT. THE COST OF THE PLANT TO THE EXTENT OF SUCH ROYALTY REC EIVED, WAS REDUCED FOR THE ASSESSEE. IT WAS, THEREFORE, RIGHTL Y TAKEN AS A CAPITAL RECEIPT. 2.13 THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), AFTER CONSIDERING THE DECISIONS IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) AND BOKARO STE EL LTD. (SUPRA) AT LENGTH, HELD AS UNDER: 5. IN OUR OPINION THE TRIBUNAL HAS MISCONSTRUED T HE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TU TICORIN ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 14 ALKALI CHEMICALS & FERTILIZERS LTD.'S CASE (SUPRA) AND THAT OF BOKARO STEEL LTD. (SUPRA). THE TEST WHICH PERMEATES THROUGH THE JUDGMENT OF THE SUPREME COURT IN TUTICO RIN ALKALI CHEMICALS & FERTILIZERS LTD.'S CASE (SUPRA ) IS THAT IF FUNDS HAVE BEEN BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE 'SURPLUS' AND THEN BY VIRTUE OF THAT CIRCUMSTANCE THEY ARE INVESTED IN FIXED DEPOSITS TH E INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABLE UNDE R THE HEAD 'INCOME FROM OTHER SOURCES'. ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JUDGMENT IN BOKARO STEEL LTD.'S C ASE (SUPRA) TO OUR MIND IS THAT IF INCOME IS EARNED, WH ETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHI CH ARE OTHERWISE 'INEXTRICABLY LINKED' TO THE SETTING UP O F THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. 5.1 THE TEST, THERE FORE, TO OUR MIND IS WHETHER THE ACTIVITY WHICH IS TAKEN UP FOR SETTING UP OF THE BUSINESS AND THE FUNDS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETTING UP OF THE PLA NT. THE CLUE IS PERHAPS AVAILABLE IN SECTION 3 OF THE ACT W HICH STATES THAT FOR NEWLY SET-UP BUSINESS THE PREVIOUS YEAR SH ALL BE THE PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINESS. THEREFORE, AS PER THE PROVISION OF SECTION 4 OF THE ACT WHICH IS THE CHARGING SECTION INCOME WHICH ARISES TO AN A SSESSEE FROM THE DATE OF SETTING OF THE BUSINESS BUT PRIOR TO COMMENCEMENT IS CHARGEABLE TO TAX DEPENDING ON WHET HER IT IS OF A REVENUE NATURE OR CAPITAL RECEIPT. THE I NCOME OF A NEWLY SET-UP BUSINESS, POST THE DATE OF ITS SETTING UP CAN BE TAXED IF IT IS OF A REVENUE NATURE UNDER ANY OF THE HEADS PROVIDED UNDER SECTION 14 IN CHAPTER IV OF THE ACT. FOR AN INCOME TO BE CLASSIFIED AS INCOME UNDER THE HEAD 'P ROFIT AND GAINS OF BUSINESS OR PROFESSION' IT WOULD HAVE TO BE AN ACTIVITY WHICH IS IN SOME MANNER OR FORM CONNECTED WITH BUSINESS. THE WORD 'BUSINESS' IS OF WIDE IMPORT WHI CH WOULD ALSO INCLUDE ALL SUCH ACTIVITIES WHICH COALES CE INTO SETTING UP OF THE BUSINESS. SEE MAZAGAON DOCK LTD. V. CIT & EPT [1958] 34 ITR 368 (SC), AND NARAIN SWDESHI WEAVING MILLS V. CEPT [1954] 26 ITR 765 (SC). ONCE IT IS HELD THAT THE ASSESSEE'S INCOME IS AN INCOME CONNEC TED WITH BUSINESS, WHICH WOULD BE SO IN THE PRESENT CAS E, IN VIEW OF THE FINDING OF FACT BY THE CIT(A) THAT THE MONIES WHICH WERE INDUCTED INTO THE JOINT VENTURE COMPANY BY THE JOINT VENTURE PARTNERS WERE PRIMARILY INFUSED TO PU RCHASE LAND AND TO DEVELOP INFRASTRUCTURE - THEN IT CANNOT BE HELD THAT THE INCOME DERIVED BY PARKING THE FUNDS TEMPOR ARILY WITH TOKYO MITSUBISHI BANK, WILL RESULT IN THE CHAR ACTER OF THE FUNDS BEING CHANGED, INASMUCH AS, THE INTEREST EARNED FROM 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 ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 15 ANY OTHER HEAD OF INCOME AS PROVIDED IN SECTION 14 OF THE ACT. THE HEAD 'INCOME FROM OTHER SOURCES' IS A RESI DUARY HEAD OF INCOME. SEE S.G. MERCANTILE CORPN. (P.) LTD . V. CIT [1972] 83 ITR 700 (SC) AND CIT V. GOVINDA CHOUDHURY & SONS [1993] 203 ITR 881 (SC). 5.2 IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUND BY THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR A SPE CIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT 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 AN D HENCE WAS REQUIRED TO BE SET OFF AGAINST PREOPERATIVE EXP ENSES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISER S LTD. (SUPRA) IT WAS FOUND BY THE AUTHORITIES THAT THE FU NDS AVAILABLE WITH THE ASSESSEE IN THAT CASE WERE 'SURP LUS' AND, THEREFORE, THE SUPREME COURT HELD THAT THE INTEREST EARNED ON SURPLUS FUNDS WOULD HAVE TO BE TREATED AS 'INCOM E FROM OTHER SOURCES' . ON THE OTHER HAND IN BOKARO STEEL LTD.'S CASE (SUPRA) WHERE THE ASSESSEE HAD EARNED INTEREST ON ADVANCE PAID TO CONTRACTORS DURING PRE COMMENCEMENT PERIOD WAS FOUND TO BE 'INEXTRICABLY LINKED' TO THE SETTING UP OF THE PLANT OF THE ASSESSEE AND HENCE WAS HELD TO BE A CAPITAL RECEIPT WHICH WAS PERMITTED TO BE SET OFF A GAINST PRE- OPERATIVE EXPENSES. 6. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE PRESENT ISSUE CAN BE EXAMINED. UNDER SECT ION 208 OF THE COMPANIES ACT, 1956 A COMPANY CAN PAY INTEREST ON SHARE CAPITAL WHICH IS ISSUED FOR A SPE CIFIC PURPOSE TO DEFRAY EXPENSES FOR CONSTRUCTION OF ANY WORK AND WHICH CANNOT BE MADE PROFITABLE FOR A LONG PERI OD SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN SUBSEC TIONS (2) TO (7) OF SECTION 208. THIS SECTION WAS SPECIFICALLY N OTED BY THE SUPREME COURT IN CHALLAPALLI SUGARS LTD. V. CIT [19 75] 98 ITR 167. 6.1 IN OUR VIEW THE SITUATION IN THE INSTA NT CASE IS QUITE SIMILAR EXCEPT HERE INSTEAD OF PAYING INTERES T ON FUNDS BROUGHT IN FOR SPECIFIC PURPOSE INTEREST IS EARNED ON FUNDS BROUGHT IN BY WAY OF SHARE CAPITAL FOR A SPECIFIC P URPOSE. COULD IT BE SAID THAT IN THE FORMER SITUATION INTER EST COULD HAVE BEEN CAPITALIZED AND IN THE LATER SITUATION IT CANNOT BE CAPITALIZED. TO TEST THE PRINCIPLE WE COULD EXTEND THE EXAMPLE, THAT IS, WOULD OUR ANSWER BE ANY DIFFERENT HAD ASSESSEE PASSED ON THE INTEREST TO THE RESPECTIVE SHAREHOLDERS. IF NOT, THEN IN OUR VIEW THE ONLY CON CLUSION POSSIBLE IS THAT INTEREST EARNED IN THE PRESENT CIR CUMSTANCES OUGHT TO BE CAPITALIZED. 7. IN VIEW OF THE DISCUSSI ON ABOVE, IN OUR OPINION THE TRIBUNAL MISDIRECTED ITSELF IN A PPLYING THE DECISION OF THE SUPREME COURT IN TUTICORIN ALKALI C HEMICALS & FERTILIZERS LTD.'S CASE (SUPRA ) IN THE FACTS OF THE PRESENT CASE. IN OUR OPINION ON ACCOUNT OF THE FINDING OF F ACT RETURNED BY THE CIT(A) THAT THE FUNDS INFUSED IN TH E ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 16 ASSESSEE BY THE JOINT VENTURE PARTNER WERE INEXTRIC ABLY LINKED WITH THE SETTING UP OF THE PLANT, THE INTERE ST EARNED BY THE ASSESSEE COULD NOT BE TREATED AS INCOME FROM OT HER SOURCES. IN THE RESULT WE ANSWER THE QUESTION AS FR AMED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE SE APPEALS ARE ALLOWED AND THE IMPUGNED JUDGMENT IS SE T ASIDE. 2.14 THAT THE HON'BLE DELHI HIGH COURT IN T HE CASE OF SASAN POWER LTD (SUPRA) FOLLOWING THE DECISION I N CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), H AS HELD AS UNDER: 14. IT IS CLEAR FROM THE FACTS STATED AB OVE THAT COMMISSIONER OF INCOME TAX (APPEALS) AND TRIBUNAL H AVE SPECIFICALLY HELD THAT THE INTEREST INCOME WAS ON C APITAL ACCOUNT. WE HAVE GONE THROUGH THE GROUNDS OF APPEAL AND DO NOT FIND ANY REASON OR JUSTIFICATION TO UPSET TH E SAID FINDING. THE FACTUAL FINDINGS RECORDED BY THE CIT(A PPEALS) AND TRIBUNAL ARE NOT UNDER CHALLENGE. THE CIT(APPEA LS) AND THE TRIBUNAL HAVE HELD THAT IN VIEW OF THE FACTUAL POSITION QUOTED ABOVE THE DECISION OF THE SUPREME COURT IN C IT V. BOKARO STEEL LTD. [1999] 236 ITR 315 / 102 TAXMAN 9 4 WAS APPLICABLE AS THE COMMITMENT ADVANCE, WHICH HAD BEE N PAID TO PFC. THIS IS NOT A CASE OF SURPLUS FUNDS, W HICH WERE AVAILABLE AND INVESTMENT WERE MADE IN FIXED DEPOSIT S TO EARN INTEREST. THE INTEREST PAID TO THE POWER PROCU REMENT UTILITIES ON COMMITMENT ADVANCES WAS CAPITALIZED. I NTEREST PAID AND INTEREST RECEIVED WERE INEXTRICABLY LINKED AND HAVE A COMMONALITY ABOUT THEIR NATURE AND CHARACTER. THE APPELLANT CANNOT TREAT THEM DIFFERENTLY. COMMITMENT ADVANCES AND INTEREST PAID AND RECEIVED HAD REFEREN CE TO BIDDING PROCESS AND LINKED TO THE PROJECT/PURPOSE F OR WHICH THE RESPONDENT WAS SET UP. IN VIEW OF THE FACTUAL M ATRIX, INTEREST RECEIVED ON UNUTILIZED COMMITMENT ADVANCES CANNOT BE TAXED AS REVENUE INCOME AND INTEREST PAID ON COMMITMENT ADVANCE TREATED AS A CAPITAL EXPENSE. TH IS WILL BE CONTRADICTORY. THE ENTIRE EXPENDITURE FOR INVITI NG BIDS ETC. AND EVEN DOCUMENTATION WAS PAID TO PFC. THE AMOUNTS RECEIVED FROM THE PROSPECTIVE BIDDERS ON ACCOUNT OF SALE OF TENDER DOCUMENTS WAS ALSO TRANSFERRED TO PFC. AS NO TICED ABOVE, REVENUE HAS NOT CHALLENGED AND HAS ACCEPTED THE ORDER OF THE TRIBUNAL DELETING ADDITION OF RS. 1,35 ,81,234/- PAID BY THE RESPONDENT-ASSESSEE TO PFC FOR PREPARAT ION OF TENDER DOCUMENTS. IN VIEW OF THE FACTUAL MATRIX, TH E TRIBUNAL HAS RIGHTLY FOLLOWED THE RATIO IN INDIAN OIL PANIPA T POWER CONSORTIUM LTD.'S CASE (SUPRA). 2.15 IN A RECENT DECISION, THE DELHI HIGH COURT IN CASE OF PR. COMMISSIONER OF INCOME-TAX V. FACOR POWER LTD. [201 6] 66 TAXMANN.COM 178 (DELHI) FOLLOWING THE DECISION IN C ASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), HAS HELD AS UNDER: 11. FROM THE ABOVE EXTRACT, IT IS EVIDENT THAT THE TEST THAT IS REQUIRED TO BE EMPLOYED IS WHETHER THE ACTIVITY WHI CH IS TAKEN UP FOR SETTING UP OF THE BUSINESS AND THE FUN DS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETT ING UP OF ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 17 THE SAME. IN THE PRESENT CASE, FINDINGS OF FACT HAV E BEEN RETURNED BY THE COMMISSIONER OF INCOME TAX (APPEALS ) AND HAVE BEEN CONFIRMED BY THE INCOME TAX APPELLATE TRI BUNAL TO THE EFFECT THAT THE FUNDS WERE INEXTRICABLY CONN ECTED WITH THE SETTING UP OF THE POWER PLANT OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE REVENUE HAS ALSO NOT BEEN A BLE TO POINT OUT ANY PERVERSITY IN SUCH FINDING AND, THERE FORE, THE FACTUAL FINDINGS HAVE TO BE TAKEN AS THOSE ACCEPTED BY THE INCOME TAX APPELLATE TRIBUNAL WHICH IS THE FINAL FA CT FINDING AUTHORITY IN THE INCOME TAX REGIME. THAT BEING THE CASE, THE DECISION OF THE DIVISION BENCH IN INDIAN OIL PANIPA T POWER CONSORTIUM LTD. (SUPRA) WOULD SQUARELY APPLY TO THE FACTS OF THE PRESENT CASE AND THE TRIBUNAL WAS RIGHT IN APPL YING THE SAME. 13. IN THE PRESENT CASE, THERE IS A FINDING O F FACT THAT THE MONEY PLACED IN THE FIXED DEPOSIT WAS INEXTRICA BLY LINKED WITH THE SETTING UP OF THE POWER PLANT. THUS , THE REVENUE GENERATED ON ACCOUNT OF INTEREST ON THE SAI D FIXED DEPOSITS WOULD BE IN THE NATURE OF A CAPITAL RECEIP T AND NOT A REVENUE RECEIPT. THIS CASE HAS BEEN DECIDED ON TH E BASIS OF THIS PRINCIPLE AND NOT ON THE BASIS THAT THE SOU RCE OF THE FUNDS WAS THROUGH RAISING OF SHARE CAPITAL AND NOT THROUGH BORROWINGS. 2.16 THE COORDINATE BENCH IN CASE OF ADANI POWER LT D. V. ASSISTANT COMMISSIONER OF INCOME-TAX, RANGE-1, AHMEDABAD [2015] 61 TAXMANN.COM 355 (AHMEDABAD - TRIB.) HAS HELD AS UNDER: 2.16 FROM THE ABOVE, IT IS EVIDENT THAT THE HON'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 LTD. (SUPRA). THE CONCLUSION OF THE DELHI HIGH COURT IS IN FACT THE LAW WHICH EMERG ES AS PER THE DECISION OF HON'BLE APEX COURT. THEREFORE, IN OUR O PINION, THE CIT(A) WAS NOT JUSTIFIED IN IGNORING THE DECISION O F HON'BLE DELHI HIGH COURT BY SIMPLY MENTIONING THAT THE ISSUE IS C OVERED BY THE DECISION OF HON'BLE APEX COURT IN THE CASE OF TUTIC ORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA). AFTER CONSIDE RING 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 CLEAR U PON A PERUSAL OF THE FACTS AS FOUND BY THE AUTHORITIES BELOW THAT TH E FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR THE SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTUR E. THEREFORE, THE INTEREST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CLASSIFIED AS INCOME F ROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PR IOR TO COMMENCEMENT OF BUSINESS, IT WAS IN THE NATURE OF C APITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST THE PR E-OPERATIVE EXPENSES.' THAT, THE RATIO OF THE ABOVE FINDING OF THE HON'BLE DELHI HIGH COURT WOULD BE SQUARELY APPLICABLE TO THE FACT S OF THE ASSESSEE'S CASE, BECAUSE ADMITTEDLY IN THE CASE UND ER APPEAL BEFORE US THE SHARE CAPITAL AS WELL AS LOANS WERE R AISED FOR THE ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 18 SPECIFIC PURPOSE OF SETTING UP OF THE POWER GENERAT ION 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 BUSINESS WAS IN THE NATURE OF CAPIT AL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST THE PR E-OPERATIVE EXPENSES. THE ASSESSEE HAS ALREADY SET OFF THE INTE REST INCOME AGAINST THE PREOPERATIVE EXPENSES WHICH IS TITLED A S 'PROJECT DEVELOPMENT EXPENDITURE'. IN VIEW OF ABOVE, WE ARE OF THE OPINION THAT THE INTEREST INCOME OF RS.1,35,87,158/- AS WEL L AS RS.1,64,07,481/- WAS A CAPITAL RECEIPT NOT CHARGEAB LE TO TAX DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, GROUND N OS. 1 OF THE ASSESSEE'S APPEAL IS ALLOWED. 2.17 FURTHER, WE DRAWN GUIDANCE FROM THE DECISION O F HONBLE RAJASTHAN HIGH COURT IN CASE OF COMMISSIONER OF INC OME-TAX-I V. KANSARA MODLER LTD. [2012] 20 TAXMANN.COM 641 (RAJ. ) WHEREIN IT WAS HELD THAT: '13. IN THAT VIEW OF THE MATTER, WHAT WE ARE REQUIR ED TO CONSIDER IS, AS TO WHETHER THE TRIBUNAL WAS LEGALLY JUSTIFIED IN NOT APPLYING THE JUDGMENT RENDERED IN TUTICORIN' S CASE (SUPRA), OR THAT, THE TRIBUNAL WAS JUSTIFIED IN APP LYING THE JUDGMENTS GIVEN IN BOKARO STEEL, AND KARNAL COOPERA TIVE SUGAR MILL'S CASE. IF THIS QUESTION WERE TO COME OR IGINALLY BEFORE US, PERHAPS WE MIGHT HAVE TAKEN A TASK OF UNDERTAKING THE EXERCISE, AS TO WHICH OF THE VIEWS IS REQUIRED TO BE FOLLOWED, AND MAY BE, THAT WE MIGHT HAVE COME TO ANY CONCLUSION, EITHER WAYS. IN SUCH CIRCUMSTANCES, WHEN THE LEARNED TRIBUNAL, AFTER EXA MINING ALL THE THREE JUDGMENTS, IN TUTICORIN'S CASE (SUPRA ), KARNAL COOPERATIVE SUGAR MILL'S CASE (SUPRA), AND BOKARO S TEEL'S CASE (SUPRA), HAS EXAMINED THE QUESTION, AND FOUND KARNAL COOPERATIVE'S CASE (SUPRA) TO BE THE NEAREST, AND L ATEST CASE, ON FACTS, IN OUR VIEW, IT CANNOT BE SAID, THA T THE TRIBUNAL WAS WHOLLY WRONG IN ADOPTING THIS COURSE. IT WOULD HAVE BEEN EQUALLY THE SAME SITUATION, IF THE LEARNE D TRIBUNAL WOULD HAVE ADOPTED THE OTHER LINE OF REASO NING, FOLLOWING THE JUDGMENT IN TUTICORIN'S CASE (SUPRA). 14. THEREFORE, WHEN THERE ARE TWO SETS OF JUDGMENTS OF HON'BLE SUPREME COURT, PROCEEDING ON DIFFERENT LINES OF REASONINGS, AND BOTH STAND ON THEIR OWN LOGICAL FO OTING, AND IN THAT EVENT, IF THE LEARNED TRIBUNAL HAS ACCE PTED ONE LINE OF REASONING, SUPPORTED BY ONE SET OF JUDGMENT S, IT CANNOT BE SAID, THAT THE LEARNED TRIBUNAL WAS LEGAL LY NOT JUSTIFIED IN FOLLOWING THE DECISION, AS FOLLOWED BY IT, SIMPLY BECAUSE IT MIGHT HAVE BEEN POSSIBLE, OR MIGHT BE MO RE APPROPRIATE TO FOLLOW THE OTHER SET OF JUDGMENT, BY FOLLOWING THE OTHER LINE OF REASONING. 2.18 FROM THE ABOVE, IT IS EVIDENT THAT THERE ARE T WO SETS OF JUDGMENTS OF HON'BLE SUPREME COURT, PROCEEDING ON DIFFERENT LINES OF REASONINGS. THE HONBLE DELHI H IGH COURT IN CASE OF INDIAN OIL PANIPAT CONSORTIUM LTD (SUPRA ) HAS CONSIDERED AND INTERPRETED THE DECISIONS OF HONBLE ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 19 SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS (SUPRA) AS WELL AS BOKARO STEEL LTD (SU PRA). AFTER ANALYZING BOTH THE DECISIONS OF HONBLE SUPREME COU RT, IT HELD THAT THE TEST WHICH PERMEATES THROUGH THE JUD GMENT OF THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD.'S CASE (SUPRA ) IS THAT IF FUNDS H AVE BEEN BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE 'SURPLUS' AND THEN BY VIRTUE OF THAT CIRCUMSTANCE T HEY ARE INVESTED IN FIXED DEPOSITS THE INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE HEAD 'INCOME FRO M OTHER SOURCES'. ON THE OTHER HAND THE RATIO OF THE SUPREM E COURT JUDGMENT IN BOKARO STEEL LTD.'S CASE (SUPRA) TO OUR MIND IS THAT IF INCOME IS EARNED, WHETHER BY WAY OF INTERES T OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE 'INEX TRICABLY LINKED' TO THE SETTING UP OF THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PRE-OPERATI VE EXPENSES. 2.19 THE FACTS IN THE INSTANT CASE ARE PARI MATERIA WITH THE FACTS OF THE INDIAN OIL PANIPAT (SUPRA) AND THE RAT IO DECIDENDI OF HONBLE DELHI HIGH COURT IN THAT CASE WILL SQUARELY APPLY TO THE FACTS OF THE ASSESSEE. IN THE INSTANT CASE, UNDISPUTEDLY, THE FUNDS HAVE BEEN BORROWED FO R THE SPECIFIC PURPOSE OF EXECUTION OF THE MEGA ROAD PROJ ECTS AND AS PER THE LOAN AGREEMENT EXECUTED BETWEEN THE CONSORTIUM OF BANKERS AND THE ASSESSEE DATED 23.11. 2005, ALL THE DISBURSEMENTS SHALL BE DEPOSITED IN THE TRU ST AND RETENTION ACCOUNT WHICH SHALL BE SUBJECT TO STRICT CONTROL AND VERIFICATION BY THE SENIOR LENDERS AND ALL DISBURSE MENTS SHALL BE UTILISED SOLELY FOR THE PURPOSES OF IMPLEM ENTATION OF THE PROJECT AND NO OTHER PURPOSE. THE FUNDS ARE THU S INEXTRICABLY LINKED TO THE SETTING UP OF THE MEGA R OAD PROJECTS AND INTEREST EARNED ON SUCH BORROWED FUNDS INFUSED IN THE BUSINESS COULD NOT BE CLASSIFIED AS INCOME FROM OTHER SOURCES. WE ALSO NOTE A DISTINGUISHING F EATURE IN THE INSTANT CASE THAT THE ASSESSEE IS NOT AT LIBERT Y TO USE THE INTEREST SO EARNED AS PER ITS WILL AND DISCRETION U NLIKE THE CASE IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS (S UPRA) AND THE INTEREST HAS TO BE USED SOLELY FOR THE PURPOSES OF IMPLEMENTATION OF THE SPECIFIED PROJECTS ONLY. THE IMPUGNED INTEREST RECEIPT OF RS. 35,39,479/- ON SUC H BORROWED FUNDS RELATES TO THE MEGA ROAD PROJECTS/ST RETCHES WHICH WERE UNDER CONSTRUCTION AND THE COMPLETED ROA D PROJECTS/STRETCHES UP TO THE DATE OF COMMENCEMENT O F COMMERCIAL OPERATIONS. THEREFORE, THE INTEREST RECE IVED PRIOR TO COMMENCEMENT OF COMMERCIAL OPERATIONS OF T HE SPECIFIED MEGA ROAD PROJECTS WILL BE IN THE NATURE OF CAPITAL RECEIPT AND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE- OPERATIVE EXPENDITURE CAPITALIZED UNDER THE HEAD C APITAL WORK-IN-PROGRESS AND THE SAME CANNOT BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. HENCE, GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 20 3. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD.AO IN DOUBLE TAXATION OF INTEREST INCOME OF RS. 1,64,07,481/- 6. IN THE ABOVE MENTIONED LAW, THE HONBLE ITAT HAS DISCUSSED THE LAW RELIED BY THE LD. REPRESENTATIVE OF THE ASSESSEE. T HE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. IN THE INSTANT CASE, THE ASSESSEE COMPANY HAS BEEN INCORPORATED FOR SETTING UP OF INF RASTRUCTURE FACILITIES BEING CONSTRUCTION OF TOLL ROAD BETWEEN HAZARIBAG A ND RANCHI WHICH IS UNDER CONSTRUCTION. THE ASSESSEE EARNED THE INTERES T INCOME UPON THE BORROWED FUNDS OF RS.46,03,457/- WHICH WAS DEDUCTED FROM THE BORROWING COST TO ARRIVE AT THE FIGURE OF CAPITAL W ORK-IN-PROGRESS OF RS.1,86,25,83,284/-. THE PROMOTERS OF THE COMPANY H AD INTRODUCED MONEY BY WAY OF SHARE CAPITAL AND ALSO OBTAINED CRE DIT FACILITIES FROM THE BANKS AND INSTITUTIONS. THE TOTAL FUNDS WERE EXCLUS IVELY MEANT FOR USE FOR SETTING UP OF THE INFRASTRUCTURE FACILITY. THE LEND ERS DISBURSED THE FUNDS AT SPECIFIED INTERVALS AND THE SAID FUNDS WERE REQUIRE D TO BE USED FOR THE PURPOSE OF SETTING UP OF THE PROJECT. NEEDLESS TO S AY THAT THE ON ACCOUNT OF THE TIME DIFFERENCE, THE FUNDS MAY LIES WITH THE BANK RESULTANTLY EARNING THE INTEREST INCOME IN DISPUTE. THESE FUNDS WERE DE POSIT IN THE BANK FOR A SHORT PERIOD FOR THE PURPOSE OF UTILIZING THE SAME IN THE PROJECT. EVENTUALLY, RAISING THE INTEREST IS CLEARLY ON ACCO UNT OF BUSINESS EXIGENCY. TAKING INTO ACCOUNT, ALL THE FACTS AND CIRCUMSTANCE S, WE ARE OF THE VIEW THAT THE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE H ENCE THE SAME IS HEREBY ORDERED TO BE SET ASIDE AND WE TREAT THE INTEREST I NCOME AS BUSINESS INCOME OF THE ASSESSEE. 9. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW TH AT INTEREST EARNED FROM TIME DEPOSITS KEPT IN BANKS OUT OF SURP LUS FUNDS OF PROJECT IS RIGHTLY REDUCED FROM CAPITAL WORK-IN-PRO GRESS. THEREFORE, WE DIRECT THE LD. AO TO DELETE ADDITIONS MADE TOWAR DS INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.7 AND 8 OF ASSESSEE APPEAL IS DISALLOWANCES OF E XPENSES U/S 37(1) OF THE I.T.ACT, 1961. THE ASSESSEE HAD INCURR ED TOTAL EXPENDITURE UNDER THE HEAD OTHER EXPENSES OF RS. 38 ,78,373/-. THE SAID EXPENDITURE WAS DEBITED INTO PROFIT AND LOSS A CCOUNT AND WAS NOT TREATED AS A PART OF CAPITAL WORK-IN-PROGRESS, WHILE FILING THE RETURN OF INCOME. THE ASSESSE HAD DISALLOWED THE SA ME, WHILE ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 21 COMPUTING THE INCOME UNDER THE HEAD INCOME FROM BUS INESS AND PROFESSION. EVEN BEFORE THE LD. AO, THE ASSESEE HA S NOT MADE ANY CLAIM FOR DEDUCTION TOWARDS SAID EXPENDITURE U/S 37 (1) OF THE I.T.ACT, 1961. HOWEVER, BEFORE THE LD.CIT(A), THE ASSESSEE H AS FILED AN ADDITIONAL GROUND, ON THE GROUND THAT ALTHOUGH, SAI D EXPENDITURE IS AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE I.T.ACT, 1961, BUT THE SAME WAS ERRONEOUSLY DISALLOWED IN THE COMPUTATION OF IN COME. THE LD.CIT(A) HAS ADMITTED ADDITIONAL GROUND FILED BY T HE ASSESSEE, BUT, WHILE ADJUDICATING THE ISSUE BY CONSIDERING THE NAT URE OF EXPENDITURE DEBITED INTO THE PROFIT AND LOSS ACCOUNT, HE HAS AL LOWED A SUM OF RS.2,90,600/- OUT OF TOTAL EXPENDITURE OF RS.38,78, 373/-. FURTHER, THE LD.CIT(A) HAS ALLOWED DEDUCTIONS TOWARDS DIRECTORS FEES OF RS.70,000/- AND AUDIT FEES OF RS.2,20,600/-, ON THE GROUND THAT THE ABOVE MENTIONED EXPENSES ARE REQUIRED TO BE INCURRE D TO MAINTAIN THE CORPORATE STATUS OF THE ASSESSEE, EVEN THOUGH T HE BUSINESS ACTIVITY WAS NOT COMMENCED DURING THE YEAR UNDER CO NSIDERATION. THE BALANCE EXPENDITURE HAS BEEN DISALLOWED, ON THE GROUND THAT THEY ARE NOT RELATED TO MAINTAINING THE CORPORATE S TATUS OF THE ASSESEE. 11. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN ALLOWED PARTIAL RELIEF TO THE ASSESSEE TOW ARDS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, EVEN THOUGH, THE NATURE OF EXPENDITURE ARE SUCH THAT THE Y ARE REQUIRED TO BE INCURRED TO MAINTAIN CORPORATE STATUS OF THE ASS ESEE, WHETHER OR NOT IS THERE ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION. THE LD. AR, FURTHER SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE, IF THE CLAIM OF THE DEDUCTION IS NOT ACCEPTED, THEN THE SAID SUM OF RS. 35,87,773/- BE ADDED TO CAPITAL WO RK-IN-PROGRESS. ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 22 12. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORT ED ORDER OF THE LD.CIT(A). 13 . WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MA TERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. IT IS AN ADMITTED FACT THAT ANY EXPENDITURE INCURRED FOR DAY TO DAY MAINTENANCE OF CORPORATE STATUS OF THE ASSESEE NEED S TO BE ALLOWED AS REVENUE EXPENDITURE, WHETHER OR NOT ANY BUSINESS ACTIVITY, INCLUDING INCOME FROM BUSINESS IS GENERATED DURING THE YEAR UNDER CONSIDERATION. BUT, IN ORDER TO CONSIDER THOSE EXPE NDITURE AS REVENUE EXPENDITURE DEDUCTIBLE U/S 37(1), THE ASSES SEE SHALL BEYOND THE DOUBT PROVE THAT THE SAID EXPENDITURE AR E IN THE NATURE OF GENERAL ADMINISTRATIVE AND OTHER EXPENSES, WHICH AR E REQUIRED TO BE INCURRED TO MAINTAIN CORPORATE STATUS OF THE ASSESS EE. IN THIS CASE, THE LD.CIT(A) AFTER CONSIDERING THE NATURE OF EXPE NDITURE AND ITS RELEVANCE FOR MAINTAINING THE CORPORATE STATUS OF T HE ASSESSEE HAS ALLOWED DIRECTORS FEES OF RS. 70,000 AND AUDIT FEE S OF RS.2,20,600/-, ON THE GROUND THAT THE ABOVE MENTIONED EXPENSES AR E REQUIRED TO BE INCURRED TO MAINTAIN THE CORPORATE STATUS OF THE ASSESSEE. THE BALANCE EXPENDITURE HAS BEEN DISALLOWED, ON THE GRO UND THAT THEY ARE NOT RELATED TO MAINTAINING THE CORPORATE STATUS OF THE ASSESSEE. THE ASSESSEE HAS FURNISHED DETAILS OF EXPENDITURE, AS PER FINANCIAL STATEMENTS PREPARED FOR THE YEAR. ONGOING THROUGH, THE NATURE OF EXPENDITURE DEBITED INTO THE PROFIT AND LOSS ACCOUN T UNDER THE HEAD OTHER EXPENSES, WE FIND THAT THEY ARE ALL GENERAL E XPENSES, WHICH ARE NOT DIRECTLY RELATED TO MAINTAIN THE CORPORATE STATUS OF THE ASSESEE. THEREFORE, WE ARE OF THE CONSIDERED VIEW T HAT THE LD.CIT(A) WAS RIGHT IN ALLOWING ONLY DIRECTORS FEE S AND AUDIT FEES OUT ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 23 OF TOTAL EXPENDITURE DEBITED UNDER THE HEAD OTHER E XPENDITURE AND DISALLOWED BALANCE AMOUNT, ON THE GROUND THAT THEY ARE NOT RELATED MAINTAINING THE CORPORATE STATUS OF THE ASSESSEE. I NSOFAR AS, ALTERNATE GROUND OF THE ASSESEE THAT IF, THE CLAIM OF THE DEDUCTION IS NOT ACCEPTED TOWARDS SAID EXPENDITURE, THEN THE SA ID SUM MAY BE ADDED TO CAPITAL WORK-IN-PROGRESS. NO DOUBT, THE AS SESSEE IS ENTITLED FOR DEDUCTION TOWARDS CERTAIN EXPENDITURE INCURRED, EITHER AS REVENUE EXPENDITURE OR IF SAID EXPENDITURE IS NOT I N THE NATURE OF REVENUE EXPENDITURE, THE SAME NEEDS TO BE CAPITALIZ ED TO WORK-IN- PROGRESS. SINCE, WE HELD THAT REMAINING EXPENDITURE IS NOT IN THE NATURE OF REVENUE EXPENDITURE, WHICH COULD BE ALLOW ED U/S 37(1), THE LD. AO IS DIRECTED TO ADD THE BALANCE EXPENDITURE T O CAPITAL WORK-IN- PROGRESS ACCOUNT. WE ORDERED ACCORDINGLY. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 /01 /2020 SD/- (RAM LAL NEGI) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 22/01/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI ITA NO.6696/MUM/2017 HAZARIBAGH RANCHI EXPRESSWAY LTD. 24 BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//