M/S Bharat Oman Refineries Ltd vs. Income Tax Officer Bhopal

1 I.T.A. No.16/2001 24/9/2014. Shri Mukesh Agrawal, learned counsel for the appellant. Shri Sanjay Lal, learned counsel for the respondents. This appeal has been admitted for considering the following substantial question :- “Whether the income from interest could be taxed holding it to be covered from prima facie adjustment under Section 143(1)(a) of the Act:? With regard to the same appellant M/s Bharat Oman Refineries Ltd. all these questions were considered in ITA No.238/2012 and by a detailed order passed on 29.4.2013 following question was considered and answered by this Court against Assessee and the prayer was rejected:- “(ii) Whether the Tribunal was correct in law in holding that the interest earned by the assessee by short term investment of zero coupon debentures funds is liable to income tax as income from other sources”? In the aforesaid case, the matter was so considered by a Bench of this Court :- The main contention of the appellant before this Court is that aforesaid amount was zero coupon money and was parked 2 I.T.A. No.16/2001 with the banks and the interest earned on the amount was not liable to income tax as income from other sources, but the interest could have been treated as income from the business and could have been assessed because it will reduce cost of construction of the industries and thereby will reduce the capital invested by the appellant. Apart from this, the amount of Rs.500 Crores was parked with the bank to satisfy the debt equity ratio as was necessary to be maintained as per condition imposed by the bank. Reliance is placed to a judgment of Madras High Court in Commissioner of Income Tax Vs. VGR Foundations reported in (2008) 298 ITR 132 (Mad) and submitted that in view of the law down in Para 5 of the judgment, this appeal may be admitted for final hearing. Shri Sanjay Lal, learned counsel appearing for revenue opposed the aforesaid contention and submitted that the controversy involved in this case is squarely covered by a judgment of Apex Court in Tuticorin Alkali Chemicals & Fertilisers Ltd. Vs. CIT (1997) 227 ITR 3 I.T.A. No.16/2001 172(SC) and a Division Bench judgment of this Court in M.P. State Industries Corporation Ltd. vs Commissioner of Income Tax reported as (1968) 69 ITR 824 (MP) and submitted that this appeal does not involve any substantial question of law as suggested by the appellant. Per contra, Shri Purohit, learned senior advocate submitted that there are divergent views of the Supreme Court as find place in Commissioner of Income Tax vs Karnal Co- operative Sugar Mills Ltd. (2000) 243 ITR 2 (SC), Commissioner of Income Tax vs Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) and Commissioner of Income Tax Vs. Karnataka Power Corporation (2001) 247 ITR 268 (SC), so this appeal may be admitted on the aforesaid substantial questions of law. In reply to it, Shri Lal, learned counsel for revenue submitted that recently a Division Bench of High Court of Bombay have considered all the aforesaid judgments in Shree Krishna Polyster Ltd. Vs. Deputy Commissioner of Income Tax (2005) 274 ITR 21 (Bom.) and relying on the 4 I.T.A. No.16/2001 judgment in Tuticorin Alkali Chemicals & Fertilizers (supra) held that such interest can be treated as an income from other sources and was not a business income. We have considered the rival contentions of the parties and find that in Tuticorin

Alkali

Chemicals

& Fertilizers (supra), the Apex Court considering the legal position held that the interest earned by the assessee before commencement of business on short term deposits with banks, even out of term loans secured from financial institutions, is an income chargeable under the head "income from other sources" and would not go to reduce the interest payable by the assessee which would be capitalised after the commencement of commercial production. The Apex Court have held that it was an income from other sources and shall be liable to be taxed accordingly. The Division Bench of this Court considering similar controversy in M.P. State Industries Corporation (supra) held that the interest earned by investing the surplus share money in bank deposits, 5 I.T.A. No.16/2001 such interest is taxable as income from other sources and not as business income. The Division Bench of Bombay High Court in Shree Krishna Polyster Ltd (supra) have also considered the legal position and held that the interest on short term deposits with bank by investing surplus fund acquired in public issue invested in short term bank deposits did not spring or emanate from the business activity of the assessee, hence it cannot be considered as business income and is liable as income from other sources. The Bombay High Court considered all the judgments including the judgment in Tuticorin Alkali Chemicals & Fertilizers (supra), Division Bench's judgment of this Court in M.P. State Industries Corporation (supra) and held that such income is an income from other sources and cannot be treated as an income from business and held that the said interest is liable to be taxed. As the Division Bench of this Court have considered this question in M.P. State Industries Corporation (supra) and have decided the question, we do not find any reason to differ with the 6 I.T.A. No.16/2001 aforesaid. So we find that this appeal does not involve aforesaid substantial questions of law for our consideration and accordingly we dismiss this appeal at admission stage. At this stage, Shri G.N.Purohit, learned Senior Counsel submitted that the appellant may be granted leave to file an SLP before the Apex Court, but considering the fact that the controversy is squarely covered by the judgment of the Apex

Court

in Tuticorin

Alkali Chemicals & Fertilizers (supra) and M.P. State Industries Corporation (supra) of the Division Bench of this Court, we do not find that it is a fit case for filing an SLP before the Apex Court. The prayer made by the appellant is rejected. “ In the present case also the question is identical except that it is couched in a different word to say that it is covered under the provisions of adjustment as provided under Section 143 (1)(a). Once the income from interest is held liable to be taxed, there is no question of adjustment under Section 143 (1)(b) as the tax on the income even by way of interest has to be paid and no further adjustment is permissible. 7 I.T.A. No.16/2001 Accordingly, for the grounds and reasons already indicated by the Coordinate Bench of this Court, in the order passed on 29.4.2013 in ITA No.238/2012, the question framed is answered against the assessee and the apeal dismissed. (Rajendra Menon) (Anil Sharma) Judge Judge mrs.mishra