M/s Himalayan Expressway Limited, Kalka V. ITO, Panchkula

ITA 690/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90268 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Diversion of income; Source of fund; Capital receipt; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 56; 10; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 690/CHD/2014 (ASSESSMENT YEAR : 2009-10) M/S HIMLAYAN EXPRESSWAY LIMITED, VS. THE INCOME TAX OFFICER, KALKA SADAN, KALKA SHIMLA ROAD, WARD NO.4, PINJORE, KALA. PANCHKULA. PAN: AAABCH9338L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR GARG RESPONDENT BY : SMT.RAJINDER KAUR, DR DATE OF HEARING : 21.07.2015 DATE OF PRONOUNCEMENT : 23.07.2015 O R D E R PER BHAVNESH SAINI, J.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), PANCHKULA DATED 16.5.2014 FOR ASSESSMENT YEAR 2009-10, CHALLENGING THE ORDER OF LEARNED CIT (APPE ALS) IN TREATING THE INTEREST OF RS.1,76,06,556/- ON FDRS A S INCOME FROM OTHER SOURCES. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAS TAKEN UP A PROJECT OF NHAI FOR BROADENING OF SE CTION OF 2 NATIONAL HIGHWAY 22. HOWEVER, DURING THE YEAR UNDE R CONSIDERATION, THE COMPANY HAS NOT COMMENCED ANY COMMERCIAL ACTIVITY AS THE PROJECT WAS UNDER CONSTR UCTION. ALL THE CONSTRUCTION COST AND RELATED EXPENSES HAVE BEEN CAPITALIZED. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 27.09.2009 DECLARING TOTAL INCOME OF RS.1,76,06,556/-. LATER, THE REVISED RETURN WAS FI LED BY THE ASSESSEE ON 29.03.2011 DECLARING NIL INCOME. T HE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SE CTION 143(3) AT AN INCOME OF RS.1,76,06,560/- BY TREATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES. 3. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE RECEIVED INTEREST ON BANK DEPOSITS/FDRS TO THE TUNE OF RS.1,76,06,556 /-. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY INTE REST EARNED ON FDR WITH BANKS SHOULD NOT BE TREATED AS I NCOME FROM OTHER SOURCES. THE ASSESSEE FILED REPLY WHERE IT WAS SUBMITTED THAT IN VIEW OF POSITION OF LAW AS LAID D OWN BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD. 236ITR 315 (SC) AND IN THE CASE OF INDIAN OIL PANIPAT CONSORTIUM LTD. VS. 1TO 315 ITR 255 BY HON'BLE DELH I HIGH COURT, THE ASSESSEE REVISED ITS RETURN OF INCO ME. IT WAS ALSO SUBMITTED THAT IN THE AUDITED ACCOUNTS THE INTEREST INCOME IN QUESTION STOOD SET OFF AGAINST T HE PREOPERATIVE EXPENSES. THE ASSESSEE CLAIMED THAT TH E REVISED RETURN OF INCOME WAS NOT ONLY WITH THE ACCO RDANCE 3 OF LAW BUT ALSO CONFIRMS TO THE COMPANY'S AUDITED ACCOUNTS. 4. AFTER CONSIDERING THE ASSESSEE'S REPLY, THE ASSESSING OFFICER RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMI CALS & FERTILIZERS LTD. 227 ITR 172 (SC) AND IN VIEW OF TH E FACTS AND CIRCUMSTANCES OF THE CASE, THE INTEREST INCOME OF RS.1,76,06,556/- WAS ASSESSED AS INCOME FROM OTHER SOURCES. 5. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E COMPANY WAS IN THE PROCESS OF IMPLEMENTING A ROAD CONSTRUCTION PROJECT AND THE ENTIRE CAPITAL INCLUDI NG BORROWED FUND BROUGHT INTO THE COMPANY WAS FOR THE PURPOSES OF INFUSION IN THE ROAD CONSTRUCTION PROJE CT. THE ASSESSEE EARNED INTEREST AMOUNTING TO RS.176 LACS B Y TEMPORARILY PLACING THE BORROWED FUNDS IN SHORT TER M DEPOSITS WITH SCHEDULED BANKS. THESE DEPOSITS CON TINUED TO FORM PART OF THE FUNDS REQUIRED FOR THE IMPLEMEN TATION OF THE PROJECT. THEY WERE NOT SPARE OR SURPLUS FUN DS. THE PURPOSE OF MAKING THE SHORT TERM DEPOSITS WAS T O MAKE EFFICIENT USE OF THE PROJECT CAPITAL AND TO TH EREBY REDUCE THE COST OF THE PROJECT TO THE EXTENT POSSIB LE. BY NO MEANS DID THEY REPRESENT FUNDS TAKEN AWAY FROM T HE PROJECT AS SURPLUS FUNDS TO CREATE AN INDEPENDENT S OURCE OF INCOME. THE FUNDS DEPLOYED IN SHORT TERM DEPOSIT S CONTINUED TO BE INEXTRICABLY LINKED WITH THE ROAD, 4 CONSTRUCTION PROJECT. THE INTEREST RECEIVED ON THES E DEPOSITS WAS, THEREFORE, A CAPITAL RECEIPT WHICH WE NT TO REDUCE THE COST OF THE PROJECT AND WAS RIGHTLY CRED ITED TO THE PRE-OPERATIVE EXPENDITURE. HOWEVER, THE AO WHIL E MAKING THE IMPUGNED ASSESSMENT HAS ASSESSED THE AFORESAID INTEREST AS INCOME FROM OTHER SOURCES. TH E APPELLANT RELIED UPON FOLLOWING JUDGMENTS:- I) INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO 315 ITR 255 (DEL) II) CIT VS. BOKARO STEEL LTD. 236 ITR 315 (SC) 6. THE ASSESSEE FURTHER SUBMITTED THAT IN VIEW OF THE RATIO OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF BOKARO STEEL LTD. (SUPRA), IF THE 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 , SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PREOPERATIVE EXPENSES. IN THE CASE OF THE ASSESSEE, THE FUNDS TEMPORARILY PLACED IN BANK DEPOSITS WERE NOT SURPLUS FUNDS AS WAS IN THE CASE IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPR A). THEY WERE FUNDS REQUIRED FOR IMPLEMENTING THE ROAD CONSTRUCTION PROJECT AND WERE, THEREFORE, INEXTRICA BLY CONNECTED WITH IT, AS WAS THE CASE IN INDIA OIL PANIPAT CONSORTIUM (SUPRA). HENCE, ANY INTEREST EARNED THEREFROM WAS A CAPITAL RECEIPT WHICH WENT T O 5 REDUCE THE COST OF THE PROJECT AND WAS RIGHTLY CRED ITED TO THE PREOPERATIVE EXPENDITURE. HENCE, THE SAME CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. 7. THE LEARNED CIT (APPEALS) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND MATERIAL ON RECORD DISMISSED THE APPEAL OF THE ASSESSEE. HIS FINDING S IN THE APPELLATE ORDER IN PARAS 6 AND 7 ARE REPRODUCED AS UNDER : 6. I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT. IT IS N OTED THAT THE ASSESSEE HAD CAPITAL INCLUDING BORROWED FUND FOR TH E PURPOSE OF ROAD CONSTRUCTION PROJECT. THE ASSESSEE COMPANY EAR NED INTEREST ON THE BANK DEPOSITS PARKED WITH BANKS OUT OF THE F UNDS BROUGHT IN BY WAY OF CAPITAL AND DEBT FOR THE PROJECT. THE INTEREST SO EARNED WAS ADJUSTED AGAINST THE PROJECT EXPENDITURE PENDING ALLOCATION AND APPLICATION FOR PROJECT EXPENDITURE. THE COMPANY SET OFF THE EARNED INTEREST INCOME AGAINST THE EXPE NDITURE BY PLACING RELIANCE ON THE JUDGMENTS OF HON'BLE SUPREM E COURT IN THE CASE OF BOKARO STEEL LTD. (SUPRA) AND INDIAN OI L PANIPAT CONSORTIUM LTD. (SUPRA) ON THE GROUND THAT INTEREST EARNED WAS 'INEXTRICABLY LINKED' WITH IMPLEMENTATION OF ROAD P ROJECT. 6.1 THE FACTS OF THE CASE SHOW THAT COMPANY HAS TAKEN TERM LOANS FROM VARIOUS BANKS AND FINANCIAL INSTITUTION. THE PART OF BORROWED FUND WHICH WAS NOT IMMEDIATELY REQUIRED BY THE COMPANY WAS INVESTED IN TERM DEPOSITS WITH BANK ON WHICH IT HAS EARNED INTEREST. SO, IF THE FUNDS WERE NOT REQUIRED FOR CERTAIN PERIOD, IT WAS SURPLUS FUND FOR THAT PERIOD WHICH W AS UTILIZED FOR MAKING TERM DEPOSITS. THE FACTS OF THE CASES CITED BY THE APPELLANT ARE DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE. THE FACTS OF BOKARO STEEL LTD. (SUPRA) SHOWS THAT C OMPANY WAS 6 IN PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT, THE COMPANY WAS CHARGING RENT FROM ITS CONTRACTOR FOR WORKERS A ND STAFF EMPLOYED BY .CONTRACTOR FOR THE CONSTRUCTION WORK O F COMPANY. FURTHER, THERE WERE HIRE CHARGES FOR PLANT AND MACH INERY GIVEN TO CONTRACTORS FOR USE IN CONSTRUCTION WORK OF THE COMPANY. SIMILARLY, THERE WERE INTEREST INCOME FROM ADVANCES MADE TO CONTRACTORS AND ROYALTY FROM EXCAVATION. THE EARLIE R THREE RECEIPTS WERE ADJUSTED AGAINST CHARGES PAYABLE TO C ONTRACTOR AND HAD GONE TO REDUCE THE COST OF CONSTRUCTION. BA SED ON THESE FACTS, THE HON'BLE SUPREME COURT HELD THAT THESE RE CEIPTS WERE DIRECTLY CONNECTED WITH OR WERE INCIDENTAL TO THE W ORK OF CONSTRUCTION OF ITS PLANT UNDERTAKEN BY THE COMPANY . THIS WAS TO FACILITATE THE WORK OF CONSTRUCTION. AS THIS FACILI TY NOT BEEN PROVIDED BY THE COMPANY THE CONTRACTOR WOULD HAVE T O MAKE THEIR OWN ARRANGEMENTS AND THIS WOULD HAVE BEEN REF LECTED IN THE CHARGES ON THE CONTRACTOR FOR THE CONSTRUCTION WORK. THUS, THE HON'BLE SUPREME COURT GAVE THE FINDING THAT THE THREE RECEIPTS BEING INTRINSICALLY CONNECTED WITH CONSTRU CTION OF ASSESSES' S PLANT WOULD BE CAPITAL RECEIPT AND NOT INCOME OF COMPANY FROM ANY INDEPENDENT SOURCES. SIMILAR WAS T HE FINDING BY HON'BLE HIGH COURT OF DELHI IN THE CASE OF INDIA N OIL PANIPAT CONSORTIUM LTD. (SUPRA). 6.2 ON THE OTHER HAND, THE FACTS OF THE INSTANT CASE IS SIMILAR TO THE FACTS IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) WHERE THE HON'BLE SUPREME COURT HELD T HAT INTEREST EARNED ON SHORT TERM INVESTMENT OF FUNDS BORROWED F OR SETTING UP OF FACTORY DURING CONSTRUCTION OF FACTORY AND BEFOR E COMMENCEMENT OF BUSINESS HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND IT CANNOT BE SAID THAT INTEREST INCOME IS NOT TAXABLE ON GROUND THAT IT WOULD GO TO REDUCE INTEREST ON BORROWED AMOUNT WHIC H WOULD BE CAPITALIZED. THE DECISION OF HON'BLE SUPREME COURT WAS BASED ON THE FINDING IN THAT CASE AS UNDER :- 7 'THE TOTAL INCOME OF THE COMPANY IS CHARGEABLE TO T AX UNDER SECTION 4. THE TOTAL INCOME HAS TO BE COMPUTED IN A CCORDANCE WITH THE PROVISIONS OF THE ACT. SECTION 14 LAYS DOW N THAT FOR THE PURPOSE OF COMPUTATION, INCOME OF AN ASSESSEE HAS T O BE CLASSIFIED UNDER SIX HEADS. THE COMPUTATION OF INCOME UNDER EACH OF THE SIX HEA DS WILL HAVE TO BE MADE INDEPENDENTLY AND SEPARATELY. THERE ARE SPECIFIC RULES OF DEDUCTION AND ALLOWANCES UNDER EA CH HEAD. NO DEDUCTION OR ADJUSTMENT ON ACCOUNT OF ANY EXPEND ITURE CAN BE MADE EXCEPT AS PROVIDED BY THE ACT. THE BASIC PROPOSITION THAT HAS TO BE BORNE IN MIND IN THIS CASE IS THAT IT IS POSSIBLE FOR A COMPANY TO HAVE SIX DI FFERENT SOURCES OF INCOME, EACH ONE OF WHICH WILL BE CHARGEABLE TO INCOME TAX 'PROFIT AND GAINS OF BUSINESS OR PROFESSION' IS ONL Y ONE OF THE HEADS UNDER WHICH THE COMPANY'S INCOME IS LIABLE TO BE ASSESSED TO TAX. IF A COMPANY HAS NOT COMMENCED BUS INESS, THERE CANNOT BE ANY QUESTION OF ASSESSMENT OF ITS P ROFITS AND AGAINST OF BUSINESS. THAT DOES NOT MEAN THAT UNTIL AND UNLESS THE COMPANY COMMENCES ITS BUSINESS, ITS INCOME FROM ANY OTHER SOURCE WILL NOT BE TAXED. IF THE COMPANY, EVE N BEFORE IT COMMENCES BUSINESS, INVESTS THE SURPLUS FUND IN ITS HAND FOR PURCHASE OF LAND OR HOUSE PROPERTY AND LATER SE LLS IT AT PROFIT, THE GAIN MADE BY THE COMPANY WILL BE ASSESS ABLE UNDER THE HEAD CAPITAL GAINS'. SIMILARLY, IF A COMPANY P URCHASES A RENTED HOUSE AND GETS RENT, SUCH RENT WILL BE ASSES SABLE TO TAX UNDER SECTION 22 AS INCOME FROM HOUSE PROPERTY. LIKEWISE, A COMPANY MAY HAVE INCOME FROM OTHER SOURCES. IT MA Y BUY SHARES AND GET DIVIDENDS. SUCH DIVIDENDS WILL BE TA XABLE UNDER SECTION 56. THE COMPANY MAY ALSO, AS IN THIS CASE, KEEP THE SURPLUS FUND IN SHORT TERM DEPOSITS IN ORDER TO EAR N INTEREST. SUCH INTERESTS WILL BE CHARGEABLE U/S 56. 8 IN THE INSTANT CASE, THE COMPANY HAD CHOSEN NOT TO KEEP ITS SURPLUS CAPITAL IDLE, BUT HAD DECIDED TO INVEST IF FRUITFULLY. THE FRUITS OF SUCH INVESTMENT WILL CLEARLY BE OF THE RE VENUE NATURE. IF THE CAPITAL OF A COMPANY IS FRUITFULLY UTILIZED INSTEAD OF KEEPING IT IDLE, THE INCOME THUS GENERATED WILL BE OF THE REVENUE NATURE AND NOT ACCRETION OF CAPITAL. WHETH ER THE COMPANY RAISED THE CAPITAL BY ISSUE OF SHARES OR DEBENTURES OF BY BORROWING WILL NOT MAKE ANY DIFFER ENCE TO THIS PRINCIPLE. IF BORROWED CAPITAL IS USED FOR THE PURPOSE OF EARNING INCOME, THAT INCOME WILL HAVE TO BE TAXE D IN ACCORDANCE WITH LAW. INCOME IS SOMETHING WHICH FLOW S FROM THE PROPERTY. SOMETHING RECEIVED IN PLACE OF THE PR OPERTY WILL BE CAPITAL RECEIPT. THE AMOUNT OF INTEREST REC EIVED BY THE COMPANY FLOWS FROM ITS INVESTMENTS AND IS ITS INCOM E AND IS CLEARLY TAXABLE EVEN THROUGH THE INTEREST AMOUNT IS EARNED BY UTILIZING BORROWED CAPITAL. IT IS TRUE THAT THE COMPANY WILL HAVE TO PAY INTERE ST ON THE MONEY BORROWED BY IT. BUT THAT CANNOT BE A GROUND F OR EXEMPTION OF INTEREST EARNED BY THE COMPANY BY UTIL IZING THE BORROWED FUNDS AS ITS INCOME. THE INTEREST EARNED BY THE ASSESSEE WAS CLEARLY ITS INCOME AND UNLESS IT COULD BE SHOWN THAT NAY PROVISION LIK E SECTION 10 HAD EXEMPTED IT FROM TAX, IT WILL BE TAXABLE THE FACT THAT THE SOURCE OF INCOME WAS BORROWED MONEY DID NOT DETRACT ANYTHING FROM THE REVENUE CHARACTER OF THE RECEIPT. THE QUESTION OF ADJUSTMENT OF INTEREST PAYABLE BY THE C OMPANY AGAINST THE INTEREST EARNED BY IT WILL DEPEND UPON THE PROVISIONS OF THE ACT. THE EXPENDITURE WOULD HAVE B EEN DEDUCTIBLE AS INCURRED FOR THE PURPOSE OF BUSINESS IF THE ASSESSEE'S BUSINESS HAD COMMENCED. BUT THAT WAS NOT THE CASE IN THE INSTANT CASE. THE ASSESSEE MAY BE ENTIT LED TO CAPITALIZE THE INTEREST PAYABLE BY IT. BUT WHAT THE ASSESSEE 9 COULD NOT CLAIM WAS ADJUSTMENT OF THIS EXPENDITURE AGAINST INTEREST ASSESSABLE U/S 56. SECTION 57 SETS OUT IN ITS CLAUSES (I) TO (III) THE EXPENDITURE WHICH ARE ALLOWABLE AS DED UCTION FORM INCOME ASSESSABLE U/S 56. IT IS NOT THE CASE OF THE ASSESSEE THAT THE INTEREST PAYABLE BY IT ON TERM LOANS IS ALLOWABLE AS DEDUCTION U/S 57. THERE ARE SPECIFIC PROVISIONS OF THE ACT FOR SETTIN G OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME (SECTION 70), AS WELL AS SE TTING OFF OF LOSS FORM ONE HEAD AGAINST INCOME FROM ANOTHER (SEC TION 71). IN THE FACTS OF THIS CASE, THE COMPANY COULD NOT CL AIM ANY RELIEF SINCE ITS BUSINESS HAD NOT STARTED AND THERE COULD NOT BE ANY COMPUTATION OF BUSINESS INCOME OR LOSS INCURRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEAR. IN SUCH A SITUATION, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PU RPOSE OF SETTING UP ITS BUSINESS COULD NOT BE ALLOWED AS DED UCTION, NOR COULD IT BE ADJUSTED AGAINST ANY OTHER INCOME UNDER ANY OTHER HEAD. SIMILARLY, ANY INCOME FROM A NON BUSINESS SOU RCE COULD NOT BE SET Q/F AGAINST THE LIABILITY TO PAY INTERES T ON FUNDS BORROWED FOR THE PURPOSE OF PURCHASE OF PLANTS AND MACHINERIES EVEN BEFORE COMMENCEMENT OF BUSINESS OF THE ASSESSEE. FURTHER, NO ADJUSTMENT COULD BE ALLOWED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. HOWEVER DESIRABLE IT MAY BE, FROM THE POINT OF VIEW OF EQUITY, THIS A DJUSTMENT CANNOT BE MADE UNLESS THE LAW SPECIFICALLY PERMITS SUCH ADJUSTMENT. FURTHER, ANY ARGUMENT BASED ON ACCOUNTA NCY PRACTICE HAS LITTLE MERIT IF SUCH PRACTICE CANNOT B E JUSTIFIED BY ANY PROVISION OF THE STATUTE OR IS CONTRARY TO IT. THE COMPANY WAS AT LIBERTY TO USE THE INTEREST INCO ME AS IT LIKED. IT WAS UNDER NO OBLIGATION TO UTILIZE THIS I NTEREST INCOME TO REDUCE ITS LIABILITY TO PAY INTEREST OF ITS CRED ITORS. IT COULD 10 RE-INVEST THE INTEREST INCOME IN LAND OR SHARES, IT COULD PURCHASE SECURITIES, IT COULD BUY HOUSE PROPERTY, I T COULD ALSO SETUP ANOTHER LINE OF BUSINESS, IT MIGHT EVEN PAY D IVIDENDS OUT OF THIS INCOME TO ITS SHAREHOLDERS. THERE WAS N O OVERRIDING TITLE OF ANYBODY DIVERTING THE INCOME AT SOURCE TO PAY THE AMOUNT TO THE CREDITORS OF THE COMPANY. IT IS WELL SETTLED THAT TAX IS ATTRACTED AT THE POINT WHEN THE INCOME IS EARNED TAXABILITY OF INCOME IS NOT DEPENDENT UPON I TS DESTINATION OR THE MANNER OF ITS UTILIZATION. IT HA S TO BE SEEN WHETHER AT THE POINT OF ACCRUAL, THE AMOUNT IS OF T HE REVENUE NATURE AND IF SO, THE AMOUNT WILL HAVE TO BE TAXED. ' 6.3 IN VIEW OF THE FACTS OF THE CASE AND FINDING OF HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & F ERTILIZERS LTD. (SUPRA) WHICH IS FULLY APPLICABLE ON THE FACTS OF I NSTANT CASE, I AM IN AGREEMENT WITH THE AO THAT THE INTEREST INCOME EARN ED BY THE ASSESSEE COMPANY IS TAXABLE AS INCOME FROM OTHER SO URCES. THE INTEREST INCOME IS SEPARATELY CHARGEABLE TO TAX UND ER THE HEAD 'INCOME FROM OTHER SOURCES'. THE EARNING OF INCOME CANNOT B E SAID TO BE 'INTRINSICALLY LINKED' TO THE BORROWED FUND FOR THE CONSTRUCTION OF PROJECT. THUS, THE GROUNDS OF APPEAL ARE DISMISSED. 7. IN RESULT, APPEAL IS DISMISSED. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT (APPEAL S) AND SUBMITTED THAT THE DECISION OF THE HON'BLE SUPR EME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (SUPRA) DO NOT APPLY TO TH E FACTS OF THE CASE AND RELIED UPON THE DECISION OF THE HON 'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT CONSORTIUM LTD. VS. ITO(SUPRA) AND THE DECISION OF THE 11 HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BOKAR O STEEL LTD. (SUPRA). 9. ON THE OTHER HAND, THE LEARNED D.R FOR THE REVENUE RELIED UPON THE ORDERS OF THE AUTHORITIES B ELOW AND SUBMITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF HON'BLE SUPREME COURT I N THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZE RS LTD. VS. CIT (SUPRA). HE HAS ALSO RELIED UPON THE ORDE R OF THE I.T.A.T. CHANDIGARH BENCH IN THE CASE OF M/S HP POWER CORPORATION LTD. VS. DCIT IN ITA NO.169/CHD/2013 AND ITA NO.488/CHD/2012, IN WHICH ON IDENTICAL FACTS THE SIMILAR CLAIM WAS DISMISSED BY THE TRIBUNAL. COPY OF THE ORDER OF TRIBUNAL IS PLACED ON RECORD. THE LEARNED D.R FOR THE REVENUE, THEREFOR E, SUBMITTED THAT THE ISSUE IS COVERED AGAINST THE ASS ESSEE BY THE ABOVE JUDGMENTS. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ASSESSEE IN ITS SUBMISSIONS BEFORE THE LEARNED CIT (APPEALS) HAS CATEGORICALLY STATED THAT THE ASSESSE E EARNED INTEREST BY PLACING THE BORROWED FUNDS IN SH ORT TERM DEPOSITS WITH SCHEDULED BANKS. THE LEARNED C IT (APPEALS), THEREFORE, CORRECTLY NOTED THE FACTS OF THE CASE IN HIS FINDINGS THAT THE ASSESSEE COMPANY HAS TAKEN TERM LOANS FROM VARIOUS BANKS AND FINANCIAL INSTITUTIONS. THE PART OF THE BORROWED FUNDS WHICH WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE COMPANY WA S INVESTED IN TERM DEPOSITS WITH THE BANK ON WHICH 12 ASSESSEE HAS EARNED INTEREST. THESE FINDINGS OF FA CT RECORDED BY THE LEARNED CIT (APPEALS) HAVE NOT BEEN REBUTTED BY THE ASSESSEE THROUGH ANY MATERIAL ON RE CORD. IT IS, THEREFORE, CLEAR THAT THE BORROWED FUNDS WER E NOT REQUIRED BY THE ASSESSEE FOR BUSINESS PURPOSES. THEREFORE, THE SAME FUNDS WERE SURPLUS FUNDS IN NAT URE FOR THAT PERIOD WHICH WERE UTILIZED FOR MAKING TER M DEPOSITS ON WHICH THE ASSESSEE EARNED THE IMPUGNED INTEREST. THE SURPLUS FUNDS, THEREFORE, DEPLOYED I N SHORT TERM DEPOSITS COULD NOT BE INEXTRICABLY LINKED WITH THE ROAD CONSTRUCTION PROJECT. THEREFORE, WHATEVER SUBMISSIONS WERE RAISED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW WERE NOT PROVED THROUGH ANY MATER IAL ON RECORD. IN THE CASE OF INDIAN OIL PANIPAT CONS ORTIUM LTD. VS. ITO (SUPRA), IT WAS HELD THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR THE SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTURE. THEREFORE, THE INTEREST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COUL D NOT BE CLASSIFIED AS INCOME FROM OTHER SOURCES. THE LEARNED CIT (APPEALS) ALSO DISCUSSED THE FACTS OF C IT VS. BOKARO STEEL LTD. (SUPRA) IN HIS FINDINGS AND CORRE CTLY NOTED THAT THE FACTS OF THESE CASES RELIED UPON BY THE ASSESSEE ARE CLEARLY DISTINGUISHABLE. THE LEARNED CIT (APPEALS) ALSO CONSIDERED THE SIMILAR FACTS IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. C IT (SUPRA) AND RIGHTLY FOLLOWED THIS DECISION OF THE H ON'BLE SUPREME COURT FOR DISMISSING THE APPEAL OF THE ASSE SSEE. 13 IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTIL IZERS LTD. VS. CIT (SUPRA), IT WAS HELD THAT THE ASSESSEE HAD SURPLUS FUNDS IN ITS HANDS. IN ORDER TO EARN INCOM E OUT OF THE SURPLUS FUNDS, IT HAD INVESTED THE AMOUNT FO R THE PURPOSE OF EARNING INTEREST. THEREFORE, INTEREST WAS HELD TO BE REVENUE IN NATURE AND WOULD HAVE TO BE T AXED. SINCE THE FINDINGS OF FACT RECORDED BY THE LEARNED CIT (APPEALS) HAVE NOT BEEN REBUTTED THROUGH ANY MATERI AL THAT THE ASSESSEE HAD SURPLUS FUNDS WHICH WERE UTIL IZED FOR MAKING TERM DEPOSITS, THEREFORE, THE ABOVE DECI SION OF THE HON'BLE SUPREME COURT WAS CORRECTLY APPLIED AGAINST THE ASSESSEE. THE LEARNED D.R FOR THE REV ENUE ALSO RELIED UPON THE ORDER OF THE I.T.A.T. CHANDIGA RH BENCH IN THE CASE OF M/S HP POWER CORPORATION LTD. (SUPRA) IN WHICH IN PARAS 13 TO 26 IT WAS HELD AS U NDER : 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY NAMELY, HIMACHAL PRADESH POWER CORPORATION LIMITED (HPPCL) WAS INCORPORATED IN DECEMBER 2006 UNDER THE COMPANIES A CT 1956. ITS OBJECTIVES WERE TO PLAN, PROMOTE AND ORGANIZE T HE DEVELOPMENT OF ALL ASPECTS OF HYDROELECTRIC POWER ON BEHALF OF HIMACHAL PRADESH STATE GOVERNMENT (GOHP) AND HIMACHAL PRADES H STATE ELECTRICITY BOARD (HPSEB) IN THE STATE OF HIMACHAL PRADESH. THE GOHP AND HPSEB HAVE A 60:40 EQUITY PARTICIPATION IN THE ASSESSEE COMPANY. 14. ON 31.7.2007 I.E. DURING HE ASSESSMENT YEAR 200 8-09, TWO OTHER COMPANIES I.E. M/S KINNAR KAILASH POWER CORPO RATION LTD. AND M/S PABBER VALLEY POWER CORPORATION LTD., WERE MERGED WITH THE ASSESSEE AND ALL THE ASSETS AND LIABILITIES OF THOSE COMPANIES WERE TAKEN OVER AT BOOK VALUES BY THE ASSESSEE. T HE ASSESSING OFFICER ON PERUSAL OF THE BALANCE SHEET AS ON 31.3. 2008 NOTED THAT THERE WERE NO FIXED ASSETS WITH THE ASSESSEE AS ON 1.4.2007 AND 14 THE ENTIRE ASSETS EXCEPT FOR SOME OFFICE EQUIPMENTS WERE RECEIVED ON MERGER FROM HE AMALGAMATING COMPANIES. THE ASS ESSEE HAD NOT MADE ANY INVESTMENT IN ASSETS TO SET UP POWER P LANT DURING THE SAID YEAR. THE INCIDENTAL EXPENDITURE INCURRED DUR ING THE YEAR WERE IN THE NATURE OF ADMINISTRATIVE EXPENSES, APAR T FROM SOME NOMINAL EXPENSES ON SURVEY AND INVESTIGATION AND CO NSULTANCY FEE. THE PROCESS OF SETTING UP OF POWER PLANT HAD NOT CO MMENCED DURING THE RELEVANT YEAR. THE ASSESSING OFFICER FURTHER NOTED THAT THE BANK DEPOSITS WERE MADE NOT ONLY FROM THE SHARE CAP ITAL BUT ALSO FROM THE FUNDS OF THE AMALGAMATING COMPANIES, WHICH IN TURN WERE TRANSFERRED TO THE ASSESSEE ON MERGER. THE ASSESS EE DURING THE ASSESSMENT YEAR 2008-09 IN ADDITION TO THE SHARE CA PITAL HAD RECEIVED ADDITIONAL FUNDS OF RS.12.37 CRORES FROM D ELHI JAL BOARD WHICH WERE SHOWN UNDER THE HEAD CAPITAL RESERVE IN THE BALANCE SHEET. THE ISSUE WHICH ARISES BEFORE US IN THIS R EGARD WAS WHETHER THE INTEREST EARNED ON FDRS IN SUCH CIRCUMS TANCES COULD BE SAID TO BE INEXTRICABLY LINKED TO THE PROFITS AN D GAINS OF THE BUSINESS AND WHETHER THE INTEREST INCOME COULD BE S ET OFF AGAINST THE PRE-OPERATIVE EXPENSES, WHICH DO NOT INCLUDE AN Y EXPENDITURE ON SETTING UP OF THE PLANT. 15. IN ASSESSMENT YEAR 2009-10 THE ASSESSEE IN THE ANNUAL REPORT HAD DECLARED THAT THOUGH IT WAS IMPLEMENTING NUMBER OF PROJECTS IN THE STATE OF HIMACHAL PRADESH BUT NONE OF THE SA ID PROJECTS HAD COMMENCED. AT PAGE 14 OF THE ANNUAL REPORT FOR THE FINANCIAL YEAR 2008-09 IT WAS DECLARED THAT SAWKR KUDDH HYDROELECT RIC PROJECT WOULD COMMENCE GENERATION OF ELECTRICITY AT THE END OF THE YEAR 2012. AT PAGE 33 OF THE ANNUAL REPORT THE AUDITORS HAD ALSO OBSERVED THAT THE PROFIT & LOSS ACCOUNT HAD NOT BEE N PREPARED AS THE COMPANY HAD NOT STARTED THE COMMERCIAL OPERATIO N. HOWEVER, STATEMENT SHOWING INCIDENTAL EXPENDITURE DURING THE CONSTRUCTION PERIOD WAS PREPARED. DURING THE ASSESSMENT YEAR 20 09-10 THE EXPLANATION OF THE ASSESSEE BEFORE THE ASSESSING OF FICER IS REPRODUCED AT PAGE 3 OF THE ASSESSMENT ORDER IN WHI CH THE ASSESSEE HAD EXPLAINED THAT ON THE ONE HAND THE STATE GOVERN MENT OF HIMACHAL PRADESH HAD CONTRIBUTED FUNDS TO THE ASSES SEE AS SHARE CAPITAL FOR USE IN CONSTRUCTION OF SEVERAL POWER GE NERATION PROJECTS AND SINCE THE CONSTRUCTION OF THE PROJECTS HAD GOT DELAYED ON ACCOUNT OF CERTAIN REASONS, THE FUNDS WERE UTILI ZED FOR MAKING 15 SHORT TERM DEPOSITS WITH THE BANK FOR EARNING SOME INTEREST. THE SAID INTEREST EARNED WOULD IN TURN REDUCE THE COST OF THE PROJECTS. THEREFORE, THE SAME CONSTITUTES CAPITAL RECEIPT. FURTHER IT WAS EXPLAINED BY THE ASSESSEE TO THE ASSESSING OFFICER THAT IN ADDITION THE ASSESSEE WAS ALSO CONSTRUCTING RENUKA DAM PROJE CT ON BEHALF OF THE CENTRAL GOVERNMENT ON NO PROFIT AND NO LOSS BASIS. THE SAID PROJECT WAS DECLARED AS A NATIONAL PROJECT AND THE ENTIRE FUNDS REQUIRED FOR THE CONSTRUCTION OF THE SAID PRO JECT WERE PROVIDED BY THE DELHI JAL BOARD ON BEHALF OF CENTRA L GOVERNMENT. THE SAID FUNDS WERE UTILIZED FOR MAKING FDRS AGAINS T WHICH INTEREST INCOME WAS EARNED. THE ASSESSEE DURING T HE ASSESSMENT YEAR 2009-10 HAD RECEIVED INTEREST INCOME OF RS.27. 64 CRORES WHICH WAS SET OFF AGAINST THE INCIDENTAL EXPENSES. 16. THE ANALYSIS OF THE ABOVE SAID FACTS REFLECTS T HAT THE ASSESSEE COMPANY WAS IN THE PROCESS OF SETTING UP OF POWER P ROJECTS IN THE STATE OF HIMACHAL PRADESH FOR WHICH THE FUNDS WERE ALLOCATED BY THE STATE GOVERNMENT AS SHARE CAPITAL AND FURTHER F UNDS WERE RECEIVED FROM DELHI JAL BOARD FOR THE CONSTRUCTION OF RENUKA DAM PROJECT ON BEHALF OF CENTRAL GOVERNMENT. SINCE BO TH THE PROJECTS HAD NOT COMMENCED, THE FUNDS LYING WITH THE ASSESSE E WERE PARKED IN SHORT TERM DEPOSITS IN THE BANK AND INTEREST EAR NED THEREUPON. THE TAXABILITY OF SUCH INTEREST IN THE HANDS OF THE ASSESSEE IS THE QUESTION RAISED IN THE PRESENT APPEAL. THE TAXABI LITY OF A PARTICULAR RECEIPT OR INCOME IS TO BE DETERMINED IN ACCORDANCE WITH THE NATURE AND CHARACTER OF THE RECEIPT/INCOME . THERE IS NO MERIT IN THE PLEA OF THE ASSESSEE THAT SINCE THE IN COME EARNED IS TO BE UTILIZED IN A PARTICULAR MANNER, THE SAME PARTAK ES THE CHARACTER OF A CAPITAL RECEIPT. THE RECEIPT IS WHETHER CAPI TAL OR REVENUE IN NATURE, IS TO BE DETERMINED IN LINE WITH THE PROVIS IONS OF INCOME TAX ACT AND ALSO KEEPING IN MIND THE NATURE AND CHA RACTER OF THE SAID RECEIPT/INCOME. ANOTHER PLEA RAISED BY THE A SSESSEE WAS THAT THE INTEREST EARNED ON THE BANK DEPOSITS WAS TO BE CONSIDERED AS ADDITIONAL EQUITY OF THE COMPANY AND THE SAID INTER EST BELONGS TO THE STATE GOVERNMENT AND NOT TO THE ASSESSEE. THE ASSESSEE IN SUPPORT THEREOF PLACED RELIANCE ON THE MINUTES OF 1 5 TH MEETING OF THE BOARD OF DIRECTORS OF THE ASSESSEE HELD ON 20.2 .2009 AT SHIMLA AND REFERRED TO ITEM NO.2 OF THE SUPPLEMENTARY/ADDI TIONAL AGENDA ITEMS DEALT WITH THE ISSUE OF INTEREST EARNED/ACCRU ED ON THE 16 AMOUNTS RECEIVED FROM HE STATE GOVERNMENT AS CAPITA L. AS PER THE ASSESSEE IT WAS DECIDED IN THE SAID BOARD MEETING T HAT THE INTEREST EARNED WAS TO BE CONVERTED INTO EQUITY FROM THE HIM ACHAL PRADESH GOVERNMENT. THE CIT (APPEALS) UNDER PARA 4.4 AT P AGES 6 AND 7 HAS REPRODUCED THE ITEM NO.2 OF THE SUPPLEMENTARY/A DDITIONAL AGENDA ITEMS RECORDED IN THE SAID MINUTES WHEREIN T HE ISSUE OF INTEREST EARNED/ACCRUED ON THE AMOUNTS RECEIVED FRO M THE STATE GOVERNMENT AS EQUITY AND AMOUNTS RECEIVED FROM HE G OVERNMENT OF DELHI ON ACCOUNT OF CONSTRUCTION OF RENUKA DAM PROJ ECT, WHICH IN TURN HAVE BEEN UTILIZED FOR MAKING SHORT TERM DEPOS ITS WITH THE BANK, WAS TAKEN UP AND AFTER DISCUSSION WITH THE TA X CONSULTANT, THE MANAGING DIRECTOR INFORMED IN THE MEETING THAT THE ADVANCE TAX IS TO BE PAID ON SUCH INTEREST. THE CIT (APPE ALS) HAS REPRODUCED THE RELEVANT PORTION OF THE MINUTES OF M EETING AND THE SAME ARE NOT BEING REPRODUCED FOR THE SAKE OF BREVI TY. THE ASSESSEE HAS FILED COPY OF THE SAID MEETING AT PAGE S 72 TO 84 OF THE PAPER BOOK WITH THE RELEVANT ITEM NO.2 AT PAGES 83 AND 84 OF THE PAPER BOOK. IN THE SAID MEETING TWO DECISIONS WE RE TAKEN BY THE MEMBERS OF THE ASSESSEE BOARD, THAT THE ADVANCE TAX DUE ON THE SAID INTEREST EARNED BY THE ASSESSEE IS TO BE PAID AND FURTHER THE AMOUNT IS TO BE CLAIMED AS REFUND WHILE FILING THE INCOME TAX RETURN BY TAKING THE PLEA THAT THE INTEREST EARNED IS TO BE CONVERTED INTO EQUITY FOR THE MONEY COMING FROM HIMACHAL PRAD ESH GOVERNMENT AND IS NOT THE INCOME OF THE ASSESSEE AN D THE INTEREST ON MONEY FROM DELHI GOVERNMENT HAS TO BE SPENT ON T HE WORK ITSELF. 17. THE ASSESSEE HAD FURTHER PLACED ON RECORD THE S ANCTION ORDERS OF ALLOCATION OF FUNDS BY THE HIMACHAL PRADE SH GOVERNMENT AND ALSO THE DELHI JAL BOARD AT PAGES 85 TO 96 OF T HE PAPER BOOK. THE PERUSAL OF THE DIFFERENT SANCTION ORDERS REFLEC TS THE MONEY TO HAVE BEEN ACCORDED TO THE ASSESSEE AGAINST EQUITY S HARES OF STATE GOVERNMENT OR FOR UTILIZATION FOR THE SPECIFIC PROJ ECTS. IT IS ALSO MENTIONED IN THE SAID SANCTION ORDERS AS TO WHERE T HE MONEY CANNOT BE UTILIZED IN THE YEAR OF GRANT, THEN THE S AME COULD BE RE- APPROPRIATED FOR PROVIDING EQUITY TO HYDRO POWER PR OJECTS. WHILE RELEASING THE FUNDS THE SANCTION ORDERS TALKS OF IT S UTILIZATION FOR A SPECIFIC PURPOSE AND RECOGNIZES THAT THE SAME MAY N OT BE UTILIZED FOR THE SAID PURPOSE DURING THE YEAR OF ITS GRANT A ND MAY BE 17 REALLOCATED IN THE SUCCEEDING YEAR. HOWEVER, THE SAID GRANT ORDERS ARE SILENT ABOUT THE UTILIZATION OF THOSE FU NDS BY THE ASSESSEE DURING THE INTERVENING PERIOD I.E. FROM T HE DATE OF ALLOTMENT TO ITS UTILIZATION. THE ASSESSEE DURING BOTH THE YEARS UNDER APPEAL HAD ADMITTEDLY NOT COMMENCED ITS ACTI VITIES AND THE MONEY WHICH IT HAD RECEIVED FROM THE H.P. STATE GOV ERNMENT AND FROM DELHI JAL BOARD ON BEHALF OF GOVERNMENT OF DEL HI WAS UTILIZED FOR MAKING SHORT TERM DEPOSITS IN BANK ON WHICH INTEREST WAS EARNED. 18. DURING THE COURSE OF HEARING, THE LEARNED A.R. FOR THE ASSESSEE WAS ASKED TO PRODUCE ANY AGREEMENT OR ANY LETTER TO THE EFFECT THAT THE INTEREST EARNED ON SUCH DEPOSITS IS TO BE REVERTED BACK OR PARTAKE THE CHARACTER OF FUNDS ALLOCATED TO THE ASSESSEE BY WAY OF ANY AGREEMENT OR ANY SANCTION LETTER. THE LEARNED A.R. FOR THE ASSESSEE THOUGH SOUGHT ADJOURNMENT ON THIS BEHA LF BUT HE WAS UNABLE TO FILE ANY EVIDENCE TO JUSTIFY ITS CLAIM TH AT THE SAID INTEREST EARNED ON FDRS IS NOT THE PROPERTY OF THE ASSESSEE BUT IS THE PROPERTY OF THE PRINCIPALS WHO HAD ALLOCATED TH E SAID FUNDS TO THE ASSESSEE. IN THE ABSENCE OF THE SAME AND IN V IEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO MERIT IN THE PLEA RAISED BY THE ASSESSEE. THE INTEREST INCOME EARNED BY TH E ASSESSEE DURING THE CAPTIONED ASSESSMENT YEARS IS INCLUDIBLE AS INCOME OF THE ASSESSEE AND IS TO BE ASSESSED AS INCOME FROM O THER SOURCES IN THE HANDS OF THE ASSESSEE. MERELY BECAUSE THE SAI D INTEREST INCOME IN FUTURE WOULD BE UTILIZED FOR CARRYING ON THE BUSINESS OF THE ASSESSEE OR APPLIED TO THE PROJECTS UNDERTAKEN BY THE ASSESSEE, DOES NOT MAKE THE SAID INTEREST INCOME AS CAPITAL R ECEIPT IN THE HANDS OF THE ASSESSEE AS THE UTILIZATION OF THE INC OME OR THE RECEIPT DOES NOT DETERMINE THE NATURE OF THE RECEIPTS. TH E INTEREST INCOME RECEIVED BY THE ASSESSEE DURING THE PRE-OPERATION P ERIOD IS ASSESSABLE AS INCOME FROM OTHER SOURCES IN THE HAND S OF THE ASSESSEE IN VIEW OF THE RATIO LAID DOWN BY THE HON' BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS L TD. VS. CIT (SUPRA). THE HON'BLE SUPREME COURT (SUPRA) HELD AS UNDER: IF A PERSON BORROWS MONEY FOR BUSINESS PURPOSE BUT UTILIZES THAT MONEY TO EARN INTEREST, HOWEVER TEMPO RARILY, THE INTEREST SO GENERATED WILL BE HIS INCOME. THIS INC OME CAN BE UTILIZED BY THE ASSESSEE WHICHEVER MAY HE LIKES. H E MAY OR 18 MAY NOT DISCHARGE HIS LIABILITY TO PAY INTEREST WIT H THIS INCOME. MERELY BECAUSE IT WAS UTILIZED TO REPAY TH E INTEREST ON THE LOAN TAKEN BY THE ASSESSEE, IT DID NOT CEASE TO BE HIS INCOME. THE INTEREST EARNED BY THE ASSESSEE COULD HAVE BEEN USED FOR MANY OTHER PURPOSES. IF THE ASSESSEE PURC HASED A HOUSE OR DISTRIBUTED DIVIDEND OR PAID SALARY TO ITS EMPLOYEES WITH THE MONEY RECEIVED AS INTEREST WILL THE INTERE ST AMOUNT BE TREATED AS NOT HIS INCOME? THIS IS NOT A CASE OF DIVERSION OF INCOME BY OVERRIDING TITLE. THE ASSESSEE WAS EN TIRELY AT LIBERTY TO DEAL WITH THE INTEREST AMOUNT AS HE LIKE D. THE APPLICATION OF THE INCOME FOR PAYMENT OF IT COULD N OT AFFECT ITS TAXABILITY IN ANY WAY. 19. THE PLEA OF THE LEARNED A.R. FOR THE ASSESSEE B EFORE US WAS THAT THE SAID DECISION OF THE HON'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (SUPRA) HAD BEEN REVERSED BY THE HON'BLE SUPREME COURT IN CIT VS. BO KARO STEEL LTD. [236 ITR 315 (SC). IN THE FACTS OF THE SAID CASE THE ASSESSEE COMPANY HAD ADVANCED MONEY TO CONTACTORS, WHO WERE TO ERECT IRON AND STEEL PLANT FOR THE ASSESSEE. ON THESE ADVANCE S TO THE CONTRACTORS, THE ASSESSEE WAS PAID SOME INTEREST. THE COMPANY WAS ALSO RECEIVING HIRE CHARGE ON THE PLANT AND MAC HINERY LET OUT TO THE CONTRACTORS AND HOUSING QUARTERS LEASED TO T HE EMPLOYEES. THE HON'BLE SUPREME COURT HELD THAT THE RATIO OF TU TICORIN ALKALI CHEMICALS AND FERTILIZERS LTD., SUPRA, WAS NOT APPL ICABLE TO SUCH FACTS. THE RELEVANT EXTRACT FROM THE JUDGMENT OF T HE HON'BLE SUPREME COURT IN THE CASE OF BOKARO STEEL LTD., SUP RA, IS AS UNDER: HOWEVER, WHILE INTEREST EARNED BY INVESTING BORROW ED CAPITAL IN SHORT-TERM DEPOSITS IS AN INDEPENDENT SO URCE OF INCOME AND NOT CONNECTED WITH THE CONSTRUCTION ACTI VITIES OR BUSINESS ACTIVITIES OF THE ASSESSEE, THE SAME CANNO T BE SAID IN THE PRESENT CASE WHERE THE UTILIZATION OF VARIOUS A SSETS OF THE COMPANY AND HE PAYMENTS RECEIVED FOR SUCH UTILIZATI ON ARE DIRECTLY LINKED WITH THE ACTIVITY OF SETTING UP OF THE STEEL PLANT OF THE ASSESSEE. THESE RECEIPTS ARE INEXTRIC ABLY LINKED WITH THE SETTING UP OF THE CAPITAL STRUCTURE OF THE ASSESSEE COMPANY. THEY MUST, THEREFORE, BE VIEWED AS CAPITA L RECEIPTS GOING TO REDUCE THE COST OF CONSTRUCTION. 20. THE LEARNED A.R. FOR THE ASSESSEE HAS FURTHER P LACED RELIANCE ON DECISION OF THE HON'BLE DELHI HIGH COURT IN INDI AN OIL PANIPAT CONSORTIUM LTD. VS. ITO [(2009) 315 ITR 255 (DEL)], IN THE FACTS OF WHICH THE FUNDS IN THE FORM OF SHARE CAPITAL WER E INFUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPM ENT OF INFRASTRUCTURE. THE HON'BLE DELHI HIGH COURT HELD THAT SINCE 19 INTEREST EARNED BY INDIAN OIL PANIPAT CONSORTIUM LT D. WAS INEXTRICABLY LINKED WITH SETTING UP OF THE PLANT OF THE ASSESSEE, IT CONSTITUTED A CAPITAL RECEIPT IN THE HANDS OF THE A SSESSEE . 21. THE CIT (APPEALS) HAD ALSO MADE A REFERENCE TO ANOTHER DECISION OF THE HON'BLE DELHI HIGH COURT IN INTERN ATIONAL MARKETING LTD. VS. ITO [(2007) 292 ITR 504 (DEL)] W HEREIN IT WAS HELD THAT INTEREST EARNED IN PRE-OPERATIVE STAGE OF THE BUSINESS TO BE TAXABLE IN THE HANDS OF THE ASSESSEE. 22. THE CIT (APPEALS) VIDE PARA 11 HAD HELD THAT TH E FACT SITUATION IN THAT CASE WAS VERY SIMILAR TO THE CASE BEFORE HON'BLE DELHI HIGH COURT IN INTERNATIONAL MARKETING LTD. VS . ITO (SUPRA) AND WHERE SURPLUS FUNDS WERE PARKED WITH DIFFERENT COMPANIES AND THE HON'BLE HIGH COURT APPLIED THE RATIO LAID DOWN IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (SUPRA) TO BRING THE INTEREST TO TAX. 23. IN ORDER TO DECIDE THE ISSUE AND TO APPLY THE R ATIO LAID DOWN BY THE HON'BLE SUPREME COURT OR OTHER VARIOUS HIGH COURTS, THE FIRST PARAMETER TO BE APPLIED IS THE FACTS OF THE C ASE. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FA CTS BEFORE THE HON'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (SUPRA) AND APPLYING THE RATIO LAID DO WN BY THE HON'BLE APEX COURT WE HOLD THAT THE INTEREST EARNED BY THE ASSESSEE BY PARKING ITS FUNDS IN SHORT TERM DEPOSIT S WITH THE BANK IS ASSESSABLE AS INCOME FROM OTHER SOURCES. WE FI ND NO MERIT IN THE RELIANCE PLACED UPON THE DECISION OF THE HON'BL E DELHI HIGH COURT BY THE LEARNED A.R. FOR THE ASSESSEE IN INDIA N OIL PANIPAL CONSORTIUM LTD. VS. ITO (SUPRA) AS THE FACTS OF THE SAID CASE WERE AT VARIANCE. WE ALSO FIND NO MERIT IN THE PLEA OF THE ASSESSEE THAT THE INTEREST EARNED BY THE ASSESSEE IS TO BE INFUSE D AS SHARE CAPITAL AND/OR TO BE RETURNED TO THE PRINCIPALS WHO HAD HAD ADVANCED THE LOANS TO THE ASSESSEE AS THE ASSESSEE HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO ESTABLISH ITS CLAIM. MERELY BECAU SE THE MONEY IN FUTURE WOULD BE UTILIZED FOR CAPITAL EXPENDITURE DO ES NOT MAKE THE RECEIPTS AS CAPITAL RECEIPTS IN THE HANDS OF THE AS SESSEE. 24. THE MUMBAI BENCH OF THE TRIBUNAL IN WHISTLING W OODS INTERNATIONAL LTD. VS. ITO (SUPRA) HAD CONSIDERED S IMILAR ISSUE 20 AND ALSO ADJUDICATED THE SUBMISSIONS MADE THEREIN T HAT THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT I N TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (SUPRA) HAD BEEN DILUTED BY THE HON'BLE SUPREME COURT WHILE DECIDING THE CASE IN CIT VS. BOKARO STEEL LTD. (SUPRA) AND OTHER CASES. THE RELEVANT PARAS ARE AS UNDER: 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY IN THE LIGHT OF THE MATERIAL ON RECORD AS WELL AS DECISIONS CITED BY TH E PARTIES. IN THE CASE OF M/S TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. V/S. CIT [SUPRA] THE HON'BLE SUPREME COURT OBSERVED AS UNDER: THE ASSESSEE WAS A COMPANY INCORPORATED ON 3RD DEC ., 1971 FOR THE PURPOSE OF, INTER ALIA, MANUFACTURING HEAVY CHEMICALS SUCH AS AMMONIUM CHLORIDE AND SODA ASH. THE TRIAL PRODUCTION OF THE FACTORIES OF THE COMPANY COMMENCED ON 30TH JUNE, 1982. FOR THE PURPOSE OF SETTING UP OF THE FACTORIES, THE COMPANY HAD TAKEN TERM LOANS FROM VARIOUS BANKS AND FINANCIAL I NSTITUTIONS. THAT PART OF THE BORROWED FUNDS WHICH WAS NOT IMMEDIATELY REQUIRED B Y THE COMPANY WAS KEPT INVESTED IN SHORT-TERM DEPOSITS WITH BANKS. SUCH IN VESTMENTS WERE SPECIFICALLY PERMITTED BY THE MEMORANDUM AND ARTICLES OF ASSOCIA TION OF THE COMPANY. THE COMPANY HAD ALSO DEPOSITED CERTAIN SUMS WITH THE TA MIL NADU ELECTRICITY BOARD. IT HAD ALSO GIVEN INTEREST-BEARING LOANS TO ITS EMPLOYEES TO PURCHASE VEHICLES. UPTO THE ASST. YR. 1980- 81, INTERESTS EA RNED BY THE COMPANY FROM THE VARIOUS LOANS GIVEN BY THE COMPANY AND ALSO FROM TH E BANK DEPOSITS WERE SHOWN AS INCOME AND WAS TAXED ACCORDINGLY. FOR THE ACCOUN TING YEAR ENDING ON 30 TH JUNE, 1981, (ASST. YR. 1982-83), THE ASSESSEE RECEI VED A TOTAL AMOUNT OF INTEREST OF RS. 2,92,440. IN ITS RETURN OF INCOME FILED ON 2 2ND JUNE, 1982, THE COMPANY DISCLOSED THE SAID SUM OF RS. 2,92,440 AS 'INCOME F ROM OTHER SOURCES'. IT ALSO DISCLOSED BUSINESS LOSS OF RS. 3,21,802. AFTER SET TING OFF THE INTEREST INCOME AGAINST BUSINESS LOSS, THE COMPANY CLAIMED THE BENE FIT OF CARRY FORWARD OF NET LOSS OF RS.29,360. THE COMPANY LATER ON REALISED IT S MISTAKE AND ON 26TH DEC., 1984, IT FILED A REVISED RETURN SHOWING BUSINESS LO SS OF RS. 3,21,802. IT CLAIMED THAT ACCORDING TO THE ACCEPTED ACCOUNTING PRACTICE, INTEREST AND FINANCE CHARGES ALONG WITH OTHER PRE-PRODUCTION EXPENSES WILL HAVE TO BE CAPITALISED, AND THAT, THEREFORE, THE INTEREST INCOME OF RS.2,92,440 SHOUL D GO TO REDUCE THE PRE- PRODUCTION EXPENSES (INCLUDING INTEREST AND FINANCE CHARGES), WHICH WOULD ULTIMATELY BE CAPITALISED. IN THIS CONNECTION, THE COMPANY HIGHLIGHTED THE FACT THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASST. YR. 1982-83, IT HAD INCURRED A SUM OF RS. 1,13,06,068 AS AND BY WAY OF INTEREST AN D FINANCE CHARGES, WHICH HAD TO BE CAPITALISED ALONG WITH OTHER PRE-PRODUCTION E XPENSES. IN OTHER WORDS, ACCORDING TO THE ASSESSEE, THE INTEREST INCOME OF R S.2,92,440 WAS NOT EXIGIBLE TO TAX. THE ITO REJECTED THE ASSESSEES CLAIM THAT THE INTEREST INCOME WAS NOT EXIGIBLE TO TAX. THE VIEW OF THE ITO WAS UPHELD BY THE CIT(A). THE COMPANY S FURTHER APPEAL TO THE TRIBUNAL WAS DISMISSED. WE AR E ALSO CONCERNED IN THIS CASE WITH THE ASST. YR. 1983-84. DURING THE PREVIOUS YEA R RELEVANT TO THIS ASSESSMENT YEAR, THE ASSESSEE HAD RECEIVED INTEREST INCOME OF RS.1,08,336. THE ASSESSEE THIS ASSESSMENT YEAR, THE ASSESSEE HAD RECEIVED INTEREST INCOME OF RS. 1,08,336. THE ASSESSEE FILED ITS RETURN IN WHICH IT CLAIMED THAT THE INTEREST INCOME OF 1,08,336 SHOULD GO TO 13 REDUCE THE PRE- PRODUCTION EXPENSES INCLUDING THE INTEREST AND FINANCE CHARGES WHICH WOULD ULTIMATELY BE CAPITALIS ED. THE INCOME-TAX OFFICER REJECTED THE ASSESSEES CLAIM THAT THE INTEREST INC OME WAS NOT EXIGIBLE TO TAX. THE VIEW OF THE ITO WAS UPHELD BY THE CIT[A] . THE COMPANYS FURTHER APPEAL TO THE INCOME TAX APPELLATE TRIBUNAL WAS DISMISSED. IN VIEW OF THE CONFLICT OF DECISIONS BETWEEN THE MADRAS AND ANDHRA PRADESH HIG H COURTS., THE TRIBUNAL 21 REFERRED THE QUESTION REGARDING TAXABILITY OF INCOM E, DIRECTLY TO THE SUPREME COURT. ON THE ABOVE FACTS, IT WAS HELD AS UNDER: THE COMPANY HAD SURPLUS FUNDS IN ITS HANDS. IN ORDE R TO EARN INCOME OUT THE SURPLUS FUNDS, IT INVESTED THE AMOUNT FOR THE PURPO SE OF EARNING INTEREST. THE INTEREST THUS EARNED IS CLEARLY OF REVENUE NATURE A ND WILL HAVE TO BE TAXED ACCORDINGLY. THE ACCOUNTANTS MAY HAVE TAKEN SOME OT HER VIEW BUT ACCOUNTANCY PRACTICE IS NOT NECESSARILY GOOD LAW. THIS CASE NOT A CASE OF DIVERSION OF INCOME BY OVERRIDING TITLE. THE ASSESSEE WAS AT LIBERTY TO DEAL WITH THE INTEREST AMOUNT AS IT LIKED. THE APPLICATION OF THE INCOME FOR PAYM ENT OF INTEREST WOULD NOT AFFECT ITS TAXABILITY IN ANY WAY. THE COMPANY COULD NOT CL AIM ANY RELIEF. UNDER SECTION 70 OR SECTION 71 SINCE ITS BUSINESS HAD NOT STARTED AND THERE COULD NOT BE ANY COMPUTATION OF BUSINESS INCOME OR LOSS INCURRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEARS. IN SUCH A SITUATION, THE EXPENDIT URE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF SETTING UP ITS BUSINESS COULD NO T BE ALLOWED AS DEDUCTION, NOR COULD IT BE ADJUSTED AGAINST ANY OTHER INCOME UNDER ANY OTHER HEAD. SIMILARLY ANY INCOME FROM A NON-BUSINESS SOURCE COULD NOT BE SET OFF AGAINST THE LIABILITY TO PAY INTEREST ON FUNDS BORROWED FOR THE PURPOSE O F PURCHASE OF PLANT AND MACHINERY EVEN BEFORE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE. IN THE DETAILED DISCUSSION WHILE ADJUDICATION THIS MATTER, THE HON'BLE SUPREME COURT HAD ALSO OBSERVED AT PAGE 179 AS UNDER: THE BASIC PROPOSITION THAT HAS TO BE BORNE IN MIND IN THIS CASE IS THAT IT IS POSSIBLE FOR A COMPANY TO HAVE SIX DIFFERENT SOURCE S OF INCOME, EACH ONE OF WHICH WILL BE CHARGEABLE TO INCOME TAX. PROFITS AND GAINS OF BUSINESS OR PROFESSION IS ONLY ONE OF THE HEADS UNDER WHICH THE COMPANYS INCOME IS LIABLE TO BE ASSESSED TO TAX. IF A COMPANY HAS NOT COMMENC ED BUSINESS, THERE CANNOT BE ANY QUESTION OF ASSESSMENT OF ITS PROFITS AND GAINS OF BUSINESS. THAT DOES NOT MEAN THAT UNTIL AND UNLESS THE COMPANY COMMENCES IT S BUSINESS, ITS INCOME FROM ANY OTHER SOURCE WILL NOT BE TAXED. IF THE COMPANY, EVEN BEFORE IT COMMENCES BUSINESS, INVESTS THE SURPLUS FUND IN ITS HAND FOR PURCHASE OF LAND OR HOUSE PROPERTY AND LATER SELLS IT AT PROFIT, THE GAIN MAD E BY THE COMPANY WILL BE ASSESSABLE UNDER THE HEAD CAPITAL GAINS . SIMIL ARLY, IF A COMPANY PURCHASES A RENTED HOUSE AND GETS RENT, SUCH RENT WILL BE ASS ESSABLE TO TAX UNDER S. 22 AS INCOME FROM HOUSE PROPERTY. LIKEWISE, A COMPANY MAY HAVE INCOME FROM OTHER SOURCES. IT MAY BUY SHARES AND GET DIVIDENDS. SUCH DIVIDENDS WILL BE TAXABLE UNDER S. 56 OF THE ACT. THE COMPANY MAY ALSO, AS IN THIS CASE, KEEP THE SURPLUS FUND IN SHORT-TERM DEPOSITS IN ORDER TO EARN INTERE ST. SUCH INTERESTS WILL BE CHARGEABLE UNDER S. 56 OF THE ACT. THUS, IT IS CLEAR FROM THE ABOVE DISCUSSION THAT IF WHENEVER AN ASSESSEE IS IN THE PROCESS OF SETTING UP OF THE BUSINESS, IF ANY, INCO ME ARISES UNDER ANY OF THE HEADS EXCEPT UNDER THE HEAD PROFITS AND GAINS OF BU SINESS, THEN SUCH INCOME HAS TO CHARGED TO TAX UNDER THAT PARTICULAR HEAD. 13. THE LD. COUNSEL OF THE ASSESSEE HAD VEHEMENTLY ARGUED THAT THIS PRINCIPLE WAS DILUTED BY HON'BLE SUPREME COURT WHILE DECIDING THE ISSUE IN THE CASE OF BOKARO STEEL LTD. [SUPRA], KARNAL CO-OPERATIVE SUGA R MILL LTD. [SUPRA] AND CIT VS. KARNATAKA POWER CORPORATION [SUPRA]. BUT HAVING READ THESE JUDGMENTS VERY CAREFULLY, WE FIND THAT THE LD. DR IS RIGHT TH AT IN THESE LATER THREE DECISIONS WERE RENDERED BECAUSE OF DISTINGUISHABLE FACTS. IN THE CASE OF BOKARO STEEL LTD. [SUPRA], THE ISSUE WAS WHETHER RENT RECEIVED FROM C ONTRACTORS AGAINST HOUSES GIVEN FOR STAFF OF CONTRACTORS, MACHINE HIRE CHARGE S RECEIVED FROM MACHINES GIVEN BY THE ASSESSEE COMPANY AND INTEREST RECEIVED 15 FROM CONTRACTORS ON ADVANCES MADE BY THE ASSESSEE COMPANY TO SUCH CONTR ACTORS, WAS ASSESSABLE TO 22 TAX. THE HON'BLE SUPREME COURT OBSERVED THAT THESE RECEIPTS BASICALLY PERTAIN TO ARRANGEMENTS MADE BY THE ASSESSEE WITH CONTRACTORS PERTAINING TO THE WORK OF CONSTRUCTION. TO SMOOTHLY EXECUTE THE WORK, SOME FA CILITIES WERE EXTENDED BY THE ASSESSEE COMPANY TO THE CONTRACTORS TO FACILITATE T HE WORK OF CONSTRUCTION AND THUS THESE RECEIPTS HAVE BEEN CORRECTLY ADJUSTED BY THE ASSESSEE COMPANY AGAINST THE CHARGES PAYABLE TO CONTRACTORS. IT WAS ALSO OBSERVED THAT HAD THE ASSESSEE NOT MADE THESE ARRANGEMENTS AND HAD THE CO NTRACTORS MADE THESE ARRANGEMENTS, CHARGES TO THE COMPANY WOULD HAVE BEE N MORE. IT IS SIGNIFICANT TO NOTE THAT IN THIS CASE ITSELF ONE MORE ISSUE WAS TH ERE, I.E. INTEREST RECEIVED FROM INVESTMENTS MADE OUT OF BORROWED FUNDS WHICH WERE N OT IMMEDIATELY REQUIRED. THIS INTEREST WAS HELD TO BE TAXABLE BY FOLLOWING T HE DECISION OF M/S TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. V/S. CIT [SUPRA ]. IN FACT, WE ARE REPRODUCING THE PARA GIVEN AT PAGE-321 OF THE REPORT- DURING THESE ASSESSMENT YEARS, THE RESPONDENT ASSE SSEE HAD INVESTED THE AMOUNTS BORROWED BY IT FOR THE CONSTRUCTION WORK WH ICH WERE NOT IMMEDIATELY REQUIRED, IN SHORT-TERM DEPOSITS AND EARNED INTERES T. IT HAS BEEN HELD IN THESE PROCEEDINGS THAT THE RECEIPT OF INTEREST AMOUNTS TO INCOME OF THE ASSESSEE FROM OTHER SOURCES. THE ASSESSEE HAS NOT FILED ANY APPEA L FROM THIS FINDING WHICH IS GIVEN AGAINST IT. IN ANY CASE, THIS QUESTION IS NOW CONCLUDED BY A DECISION OF THIS COURT IN OF M/S TUTICORIN ALKALI CHEMICALS & FERTIL ISERS LTD. V/S. CIT [1997] 227 ITR 172. HENCE, WE ARE NOT CALLED UPTO TO EXAMI NE THAT ISSUE. 14. THUS, IT IS CLEAR THAT AS FAR AS INTEREST RECEI VED FROM SHORT TERM DEPOSITS WHICH WERE NOT IMMEDIATELY REQUIRED, WERE HELD TO B E TAXABLE FOLLOWING THE DECISION OF M/S TUTICORIN ALKALI CHEMICALS & FERTIL ISERS LTD. V/S. CIT [SUPRA]. ONLY THOSE SUMS WHICH WERE RECEIVED FROM CONTRACTOR S, WHICH WE CAN SAY WERE INEXTRICABLY CONNECTED WITH THE CONSTRUCTION ACTIVI TIES, WERE HELD TO BE NOT TAXABLE, RATHER THAN THEY WERE HELD TO BE REDUCED F ROM THE TOTAL CAPITAL EXPENDITURE. 15. IN THE CASE OF KARNAL CO-OPERATIVE SUGAR MILL L TD. [SUPRA], INTEREST WAS RECEIVED ON THE MONEY DEPOSITED TO OPEN A LETTER OF CREDIT FOR PURCHASE OF MACHINERY WHICH IS AGAIN DIRECTLY CONNECTED WITH TH E PURCHASE OF MACHINE AND THAT IS WHY THE RATIO OF BOKARO STEEL LTD. [236 ITR 315] WAS MADE APPLICABLE. IN THE CASE OF CIT VS. KARNATAKA POWER CORPORATION [SU PRA], THE FIRST QUESTION REFERRED BEFORE THE HON'BLE COURT WAS AS UNDER- '(1) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IS RIGHT IN LAW IN UPHOLDING THE ORDER OF THE CIT(A) W HO DELETED THE ADDITION OF RS. 1,30,44,518 BEING INTEREST RECEIPTS AND HIRE CHARGE S FROM CONTRACTORS BY HOLDING THAT THE SAME ARE IN THE NATURE OF CAPITAL RECEIPTS WHICH WOULD GO TO REDUCE CAPITAL COST ? FROM THE QUESTION ITSELF IT IS CLEAR THAT IN THIS C ASE THE ISSUE WAS REGARDING INTEREST RECEIPTS AND HIRE CHARGES FROM THE CONTRAC TS AND THAT IS WHY THE PRINCIPLE LAID DOWN IN BOKARO STEEL LTD. [SUPRA] WA S FOLLOWED. 16. WE FURTHER FIND THAT HON'BLE SUPREME COURT HAS AGAIN FOLLOWED THE DECISION OF M/S TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD . V/S. CIT [SUPRA] IN THE CASE OF CIT VS. COROMANDAL CEMENTS LTD. [234 ITR 412]. IN THIS CASE THE HEAD NOTE READS AS UNDER: AGAINST THE JUDGMENT OF THE ANDHRA PRADESH HIGH CO URT REFUSING TO CALL FOR A REFERENCE OF THE QUESTION WHETHER THE TRIBUNAL WAS RIGHT IN HOLDING THAT INTEREST EARNED ON SHORT-TERM BANK DEPOSITS DURING THE PRE-P RODUCTION STAGE COULD NOT BE TREATED AS INCOME FROM OTHER SOURCES AND SHOULD GO TOWARDS THE PROJECT COST, 23 THE REVENUE FILED AN APPEAL TO THE SUPREME COURT. T HE SUPREME COURT, FOLLOWING ITS OWN JUDGMENT IN OF M/S TUTICORIN ALKA LI CHEMICALS & FERTILISERS LTD. V/S. CIT [1997] 227 ITR 172, ALLOWED THE APPEA L OF THE REVENUE AND SET ASIDE THE JUDGMENT OF THE HIGH COURT. THUS, IT IS CLEAR THAT WHENEVER INTEREST IS RECEIVE D DURING PREPRODUCTION STAGE FROM SHORT TERM DEPOSITS, SAME HAS TO BE TAXED AS I NCOME FROM OTHER SOURCES. THIS DECISION HAS BEEN AGAIN FOLLOWED BY THE HON'BL E SUPREME COURT IN THE CASE OF CIT VS. AUTOKAST LTD. [248 ITR 110]. THE HEAD NO TE OF THIS DECISIONS READS AS UNDER- FROM THE DECISION OF THE KERALA HIGH COURT (SEE [1 998) 229 ITR 789) HOLDING THAT WHERE THE ASSESSEE KEPT THE MONEY BORROWED FRO M THE INDUSTRIAL DEVELOPMENT BANK OF INDIA FOR PURCHASE OF PLANT AND MACHINERY IN SHORT-TERM DEPOSITS IN BANKS AND USED IT IN BILL DISCOUNTING U NTIL PAYMENT FOR THE PLANT AND MACHINERY, THE INTEREST EARNED ON THE DEPOSITS WAS NOT TAXABLE IN THE HANDS OF THE ASSESSEE AS INCOME FROM OTHER SOURCES BUT WOULD GO TO REDUCE THE ACTUAL COST OF THE PLANT AND MACHINERY. THE DEPARTMENT TOO K AN APPEAL TO THE SUPREME COURT, THE SUPREME COURT REVERSED THE DECISION OF T HE HIGH COURT HOLDING THAT THE INTEREST WAS TAXABLE IN THE HANDS OF THE ASSESS EE. THIS JUDGMENT HAS BEEN RENDERED ON NOVEMBER 21, 200 0 I.E., MUCH AFTER THE DECISION OF BOKARO STEEL LTD. [SUPRA] WHICH WAS REN DERED ON SEPTEMBER 3, 1999 AND THE DECISION IN THE CASE OF CIT VS. KARNATAKA P OWER CORPORATION [SUPRA] WHICH WAS RENDERED ON JULY 27, 2000. THUS, IT IS CL EAR THAT THE PRINCIPLES LAID DOWN IN OF M/S TUTICORIN ALKALI CHEMICALS & FERTILI SERS LTDS CASE [SUPRA] WERE NEVER DILUTED AND THE DECISIONS OF BOKARO STEEL LTD . [SUPRA] AND KARNAL CO- OPERATIVE SUGAR MILL LTD. [SUPRA] AND CIT VS. KARNA TAKA POWER CORPORATION [SUPRA], OPERATES IN DIFFERENT FIELD. AS FAR AS THE DECISION OF TRIBUNAL IN THE CASE OF SHAPOORJI PALLONJI POWER CO. LTD. VS. ITO [SUPRA ] IS CONCERNED, THE TRIBUNAL MADE THE DISTINCTION FROM OF M/S TUTICORIN ALKALI C HEMICALS & FERTILISERS LTDS PRINCIPLE [SUPRA], BECAUSE MONEY WAS DEPOSITED AS S ECURITY DEPOSIT WITH THE ELECTRICITY BOARD WHICH WAS PART OF THE CONDITION O F THE CONTRACT WHICH THE ASSESSEE COMPANY WAS TO EXECUTE BY WAY OF CONSTRUCT ION OF POWER PLANT FOR THE GOVERNMENT OF MADHYA PRADESH BUT THAT CONTRACT COUL D NOT BE EXECUTED. THEREFORE, THIS DECISION IS CLEARLY DISTINGUISHABLE , PARTICULARLY IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT. 17. AS FAR AS THE SECOND LIMB OF THE ARGUMENT IS CO NCERNED, TO WHICH THE LD. COUNSEL OF THE ASSESSEE HAS REFERRED TO THE DECISIO N OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSO RTIUM LIMITED VS. ITO [SUPRA], IT WAS OBSERVED BY THE HON'BLE DELHI COURT AT PLACITUM AS UNDER: 4. IT IS IMPORTANT TO NOTE THAT THE TRIBUNAL WITHO UT HOLDING THAT THE FINDING OF FACT OF THE COMMISSIONER OF INCOME-TAX (APPEALS), T HAT THE INTEREST EARNED WAS INEXTRICABLY LINKED WITH THE SETTING UP OF THE PO WER PLANT REVERSED THE DECISION OF THE COMMISSIONER OF INCOME-TAX (APPEALS)BY MAKIN G A BALD OBSERVATION THAT THE 'DEPOSIT OF SHARE CAPITAL HAS NO OR VERY REMOTE CONNECTION WITH SETTING UP OF PLANT AND MACHINERY'. THE TRIBUNAL FURTHER OBSERVED THAT IT WAS AN INDEPENDENT INCOME EARNED IN A SIMILAR FASHION AS WAS THE CASE IN TUTICORIN ALKALI CHEMICALS [1997] 227 ITR 172 (SC). FROM THE ABOVE, IT IS CLEAR THAT THERE WAS ALREADY A FINDING BY THE FIRST APPELLATE AUTHORITY THAT INTEREST EARNED WAS INEXTRICABLY LIN KED WITH THE SETTING UP OF THE POWER PLANT. WHEREAS IN THE CASE BEFORE US, THERE I S NO SUCH FINDING AND THE FUNDS RAISED THROUGH SHARE CAPITAL WHICH WERE NOT R EQUIRED FOR THE CONSTRUCTION 24 OF THE TRAINING INSTITUTE HAS BEEN PLACED WITH BANK S AND OTHER COMPANIES AS SHORT TERM DEPOSITS. 18. AS FAR AS THE DECISION IN THE CASE OF CIT VS. A SPENTECH INDIA (P) LTD. [SUPRA] IS CONCERNED, AGAIN THE FACTS ARE QUITE DISTINGUISH ABLE. IN THAT CASE THE ASSESSEE HAD CLAIMED EXPENDITURE OF RS.2.53 CRORES AGAINST T HE MEAGER INCOME OF RS.4,93,343/-. THE ASSESSEE WAS ENGAGED IN THE BUSI NESS OF SOFTWARE DEVELOPMENT AND THE EXPENDITURE WAS MAINLY INCURRED ON ACCOUNT OF EMPLOYEES SALARY AMOUNTING TO RS.1.72 CRORES, TRAVELLING COST OF RS.30.61 LAKHS AND OTHER ADMINISTRATIVE EXPENSES OF RS.39.65 LAKHS. THUS, IT IS CLEAR THAT ASSESSEE HAD ALREADY STARTED GENERATING INCOME BECAUSE RECEIPTS WERE ALSO SHOWN AT RS.4,93,343/- AND THE OTHER EXPENSES WERE CLAIMED A S REVENUE EXPENDITURE AND WERE NOT CLAIMED AS REDUCTION FROM CAPITAL EXPENDIT URE AS HAS BEEN DONE IN THE CASE BEFORE US. 19. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT BOT H THE DECISIONS OF HON'BLE DELHI HIGH COURT ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE BEFORE US. THUS, IT IS CLEAR THAT IN THE CASE BEFORE US, ASSES SEE WAS STILL CONSTRUCTING THE BUILDING FOR THE INSTITUTE WHICH WAS TO ESTABLISH F OR TRAINING OF PEOPLES. DURING THIS PHASE, ASSESSEE HAS RAISED A SHARE CAPITAL AND FUNDS RAISED FROM SUCH SHARE CAPITAL HAVE BEEN INVESTED IN FIXED DEPOSIT RECEIPT S OF THE BANKS AS WELL AS DEPOSITS WITH VARIOUS COMPANIES AND ASSESSEE HAS EA RNED INTEREST ON THE SAME. THE SAME HAS TO BE TAXED AS INCOME FROM OTHER SOUR CES IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F M/S TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. V/S. CIT [SUPRA], WHIC H WE HAVE DISCUSSED IN DETAIL. 25. WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT (APPEALS) RELATING TO ASSESSMENT YEAR 2009-10 AND RELIANCE PL ACED ON VARIOUS CASE LAWS AND UPHOLDING BOTH THE ORDERS OF THE CIT (APPEALS) WE DISMISS THE GROUNDS OF APPEAL RAISED B Y THE ASSESSEE IN BOTH THE APPEALS. 26. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE DISMISSED. 11. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISION, IT IS CLEAR THAT THE ISSUE IS S QUARELY COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALK ALI CHEMICALS & FERTILIZERS LTD. VS. CIT (SUPRA) AS WEL L AS BY THE ORDER OF THE I.T.A.T. CHANDIGARH BENCH IN THE C ASE OF M/S HP CORPORATION LTD. (SUPRA). WE, THEREFORE, D O NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT (APP EALS) 25 IN HOLDING THAT THE INTEREST INCOME EARNED BY THE ASSESSEE COMPANY IS TAXABLE AS INCOME FROM OTHER SOURCES. THE APPEAL OF THE ASSESSEE HAS NO MERIT AND THE SAME IS ACCORDINGLY, DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JULY, 2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23 RD JULY, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH