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\* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 854/2006
.... Appellant
WITH
ITA 257/2008
..... Appellant
WITH
ITA 275/2008
.... Appellant
Date of Decision: 15th January, 2009
CORAM:
HON'BLE MR. JUSTICE VIKRAMAJIT SEN HON'BLE MR. JUSTICE RAJIV SHAKDHER
- 1. Whether reporters of local papers may be allowed to see the Order? - 2. To be referred to the Reporter or not? - 3. Whether the Order should be reported in the Digest?
Admit.
After hearing learned counsel for the parties the following substantial questions of law are framed:-
- (a) Whether the Tribunal was correct in law in holding that the assessee could set-off interest earned from MPSEB deposit against interest paid on borrowings from GE Capital Service for the said purpose and capitalise the difference as preoperative expenses? - (b) Whether the Tribunal was correct in law in accepting the alternative plea of the assessee that even if interest earned on MPSEB deposit is held as 'income from other sources', the interest paid on borrowings could be set-off under Section 57(iii) of the Income Tax Act, 1961? - (c) Whether the Order passed by the learned ITAT is perverse.
These Appeals pertain to the Assessment Years (AY) 1999-2000, 2002-2003 and 2003-2004. The Assessee/Respondent had filed Returns declaring 'NIL' income, after setting-off interest
earned by it from short term deposits against interest paid on the capital borrowed by it, as per the following TABLE:
Relevant Assessment Year | Interest Paid | Interest Earned | Preoperative Expenditure Pending Capitalisation 1 | 2 | 3 | 4 1999-2000 | 4,22,50,205 | 2,79,73,601 | 1,42,76,604 2000-2001 | Not referred to 2001-2002 | -do- 2002-2003 | 7,39,72,162 | 5,00,06,026 | 29,79,75,019 2003-2004 | 9,24,29,121 | 6,12,52,861 | 3,11,76,260
The Assessing Officer (AO) applied the ratio of TuticorinAlkali Chemicals and Fertilizers Ltd. -vs- CIT, (1997) 227 ITR
172 and framed an assessment in which, inter alia, the interest earned was subjected to tax under the head – "Income from Other Sources". The Appeal for AY 2002-2003 was decided on 14.3.2005; and those for AY 1999-2000 and 2003-2004 by a common Order dated 24.7.2006 in which the previous Order dated 14.3.2005 was followed. The matter was, however, carried in Appeal to the ITAT. The Assessee's Appeal for AY 2002-2003 was allowed by Bench 'G' in terms of Orders dated 30.9.2005. The Appeals of the Respondent for AY 1999-2000 and 2003-2004 were dismissed by Bench 'C'.
interest paid by the MPSEB on the deposits. It was also of the view that Tuticorin Alkali was wrongly applied; that interest income had been permitted to be included in the cost of the project in Bokaro Steel Ltd. and Karnataka Power Corporation.
Having given the matter careful consideration, we are of the view that there is no perversity in the findings of fact returned by the ITAT. Tuticorin Alkali does not apply as the monies invested are not distinct to each other, and are not 'surplus funds'. In K. Ravindranathan Nair -vs- CIT, (2001) 247 ITR 178(SC): 2001(1) SCC 135 it has been prescribed that the Tribunal is the final fact finding forum and its decision can be questioned only if it partakes of a perverse nature, that is, it is indicative of an action, opinion or conclusion which could not reasonably be arrived at; that an incorrect conclusion is not invariably perverse unless it is palpably deliberate or mala fide.
In any event, the matter stands firmly concluded by the Judgment of the Supreme Court in CIT -vs- Karnal Cooperative Sugar Mills Ltd., (2000) 243 ITR 2 which is in these words:-
Leave granted.
In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of
the assessee's agreement with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest. The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. -vs- CIT, (1997) 227 ITR 172 will not be attracted. The more appropriate decision in the factual situation in the present case is in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315(SC). The appeal is dismissed. There will be no order as to costs.
As regards the assessee's alternative plea that even if interest income is treated as income from other sources, the interest paid on borrowings taken for the purpose of making the deposit with MPSEB will be available for set-off under Section 57(iii) of the Act, has to be accepted. The Tribunal has returned a finding of fact that the purpose for which loan was taken was to make a deposit with MPSEB. There is a direct nexus between taking of loan and the deposit by the assessee with the MPSEB. Therefore, undoubtedly, this expenditure was incurred wholly
ولي الله
and exclusively for the said purpose and hence, the deduction under Section 57(iii) of the Act will be available to the assessee.
Mr. R.D. Jolly, learned counsel for the Revenue, sought to rely upon CIT -vs- Shri Ram Honda Power Equip, (2007) 289 ITR 475 to support his submission that the interest received on deposit with MPSEB, by the assessee could only be assessed under the head 'income from other sources'. A careful perusal of paragraph 35 of the Judgment in Shri Ram Honda would show that a Division Bench of this Court that an assessee whose income is assessed under the head "Income from other sources" the assessee would be entitled to deduction in terms of Section 57(iii) of the Act provided there is direct nexus between expense incurred and income earned. The Tribunal has, therefore, according to us, applied the correct principles of law even on this aspect of the matter.
Both the questions are answered in favour of the assessee and against the Revenue. In the result the appeals are dismissed.
VIKRAMAJIT SEN, J.
RAJIV SHAKDHER, J.
JANUARY 15, 2009 tp+kk