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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri N.V. Vasudevan
Date of concluding the hearing : November 23, 2016 Date of pronouncing the order : January 06, 2017 O R D E R Per Shri P.M. Jagtap, A.M.: This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals), Central-II, Kolkata dated 15.05.2012 and the solitary issue involved therein relates to the treatment to be given to the interest of Rs.5,30,247/- received by the assessee on FDRs in the year under consideration prior to the commencement of its business.
The assessee in the present case is a Company, which was incorporated on 02.09.2005 with the object of manufacturing of and dealing in the Steel & Iron as well as Electrical Power Generation and Supply. During the year under consideration, it had initiated planning and survey for setting up 500 MW Thermal Power Project in Burdwan District in West Bengal but there was no commencement of business activity. Pursuant to a search and seizure action conducted in the case of the assessee on 15.01.2009, a notice under section 153A was issued by the I.T.A. No. 1018/KOL./2012 Assessment Year: 2007-2008 Page 2 of 6 Assessing Officer on 29.09.2009 and assessment was completed vide an order dated 31.12.2010 passed under section 153A/143(3) of the Act. In the assessment so made, the treatment given by the assessee to the interest income of Rs.5,30,247/- earned on FDR with ICICI Bank during the year under consideration by adjusting the same against the pre- operative/Project expenses was not accepted by the Assessing Officer and the same was brought to tax by him in the hands of the assessee under the head “income from other sources” by relying on the decision of the Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Limited –vs.- CIT [227 ITR 172]. On appeal, the ld. CIT(Appeals) upheld the order of the Assessing Officer on this issue on the ground that the facts involved in the case of the assessee were more similar to the facts involved in the case of Tuticorin Alkali Chemicals and Fertilizers Limited (supra) relied upon by the Assessing Officer rather than the facts involved in the case of CIT –vs.- Bokaro Steel Limited [236 ITR 315 (SC)] on which reliance was placed by the assessee in support of its case on this issue. Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
At the time of hearing before us, the ld. Authorized Representative of the assessee has moved an application seeking adjournment. However, keeping in view that the assessee has already taken many adjournments in this case on one pretext or the other and while granting such adjournment earlier, the last opportunity was already given to the assessee, the request of the assessee for adjournment is not acceded to. This appeal is accordingly being disposed of ex-parte on merit after hearing the arguments of the ld. D.R. and perusing the relevant material available on record. It is observed that the only issue involved in this appeal is regarding the treatment to be given to the interest income of Rs.5,30,247/- earned by the assessee on FDRs during the pre-operative period and the relevant aspect that is to be considered in this context is whether the decision of the Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Limited (supra) is applicable in I.T.A. No. 1018/KOL./2012 Assessment Year: 2007-2008 Page 3 of 6 the facts of the assessee’s case as held by the Assessing Officer as well as by the ld. CIT(Appeals) or the decision of the Hon’ble Supreme Court in the case of Bokaro Steel Limited cited by the assessee before the ld. CIT(Appeals). In this regard, it is observed that the facts involved in the case of the assessee are more akin to the facts involved in the case of Tuticorin Alkali Chemicals and Fertilizers Limited (supra), inasmuch as, the assessee in the said case had taken term loans from various Banks and Financial Institutions for the purpose of setting off of its factories and the part of such borrowed funds, which was not immediately required by the Company, was kept invested in short-term deposit with Bank. During the relevant period, which was prior to the commencement of the trial production of the factories, the assessee had received interest income on the short-term deposit kept with Banks and such interest income was held to be chargeable to tax by the Hon’ble Supreme Court in the hands of the assessee under the head “income from other sources” by observing that interest income is always of a revenue nature, unless it is received by way of damages or compensation. It was held by the Hon’ble Supreme Court that income-tax is attracted at the point when the income is earned and taxability of income is not dependent upon its destination or the manner of its utilisation. It was held that it has to be seen whether at the point of accrual, the amount is of a revenue nature and if it is so, the amount will have to be taxed. It was also held by the Hon’ble Supreme Court that the question as to whether a receipt of money is taxable or not has to be decided according to the principles of law, and not in accordance with accountancy practice, which cannot override section 56 or any other provision of the Income Tax Act, 1961.
In the case of Bokaro Steel Limited (supra), the nature of income received by the assessee before commencement of its business, on the other hand, was entirely different as is evident from the relevant portion of the judgement of the Hon’ble Supreme Court passed in the said case, which is extracted hereunder:- ./2012 Assessment Year: 2007-2008 Page 4 of 6 “(1) During this period the company had given to the contractors quarters for the residence of the staff and workers employed by the contractors who had been engaged by the assessee-respondent for carrying out the work of construction. The assessee charged the contractors for the use of the quarters so given to the contractors for the residence of his workmen who were engaged in the construction activity of the assessee's plant.
(2) Secondly, during the assessment years in question the assessee had entered into supplementary agreements with its contractors under which the assessee had made certain advances to the contractors to enable them to execute the large scale construction work smoothly. The assessee had agreed to advance these advances to the contractors on payment of interest. The contractors thus did not have to raise funds from outside agencies. For the assessee-company, this arrangement primarily meant payment in advance of the amounts of the contractors' bills for which the asseessee-company had charged interest. This interest was later adjusted against the dues of the contractors.
(3) For the purpose of the construction work the assessee had given on hire certain plant and machinery to the contractors. Against the letting of plant and machinery the assessee received from the contractors income in the form of hire charges. It was not the business of the assessee-company to let out plant and machinery to others. The assessee-company permitted its use only to its own contractors for the construction work done by the contractors for the assessee-company. The Tribunal has found that the assessee-company charged hire charges for such use of plant and machinery in order to cover the maintenance and wear and tear of the plant and machinery belonging to the assessee.
(4) The assessee-company allowed the contractors to use the stones lying on the assessee's land for construction work. The stones lying on the assessee's company's land were the capital assets of the assessee-company. The assessee charged the contractor a certain amount by way of royalty for excavation and use of these stones for construction work.
(5) The assessee had, during the assessment year 1971-72 shown in its accounts as income from interest a certain sum said to have been accrued to the assessee from M/s Hindustan Steel Limited for eight locomotives supplied by the assessee-company to M/s Hindustan Steel Limited. The assessee-company, however, reversed this entry in the next year because eight new locomotives were supplied by M/s Hindustan Steel Limited to the assessee and no interest income actually accrued to the assessee”.
It is thus clear that the issue involved in the case of Bokaro Steel Limited before the Hon’ble Supreme Court was not regarding the treatment to be given to the interest earned by the assessee on surplus fund kept with the Bank before the commencement of the business as is involved in the present case and, therefore, the ratio of the decision rendered in the said case by the Hon’ble Supreme Court cannot be applied I.T.A. No. 1018/KOL./2012 Assessment Year: 2007-2008 Page 5 of 6 in the case of the assessee. As a matter of fact, the assessee in the said case had also invested the amount borrowed for the construction work, which was not immediately required, in short-term deposit and earned interest thereon. The said interest was brought to tax in the hands of the assessee as income under the head “income from other sources” and this treatment given by the revenue authorities was accepted by the assessee as specifically noted by the Hon’ble Supreme Court in its judgment. After taking note of the same, it was observed by the Hon’ble Supreme Court in its judgment passed in the case of Bokaro Steel Limited (supra) that this issue, in any case, stood concluded by a decision of the Court in the case of Tuticorin Alkali Chemicals & Fertilizers Limited (supra). It is thus clear that the issue relating to the treatment to be given to the interest income earned by the assessee on FDRs kept with Bank before the commencement of business is squarely covered against the assessee by the decision of the Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Limited (supra) and respectfully following the same, we uphold the impugned order of the ld. CIT(Appeals) confirming the action of the Assessing Officer in bringing to tax interest income in question in the hands of the assessee under the head “income from other sources”.
In the result, the appeal of the assessee is dismissed. Order pronounced in the open Court on January 06, 2017.