PCIT Vs International Coal Ventures Pvt. Ltd. (Delhi High Court)
The case before the Delhi High Court involved an appeal by the Revenue challenging an order of the Income Tax Appellate Tribunal (ITAT), which had allowed the assessee’s appeal for Assessment Year 2012–13. The dispute centered on whether interest earned on funds placed in short-term deposits during the pre-commencement phase of business was taxable as “income from other sources” under Section 56 of the Income Tax Act, 1961.
The assessee, a joint venture company formed by public sector undertakings, was established to acquire and develop a coal mine overseas. During the relevant period, it received substantial funds from its promoters for this purpose. These funds were temporarily placed in fixed deposits pending their utilization, generating interest income. The assessee also paid interest to one of its promoters on such funds.
The Assessing Officer (AO) treated the net difference between interest earned and interest paid as taxable income under the head “income from other sources.” The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this approach and further disallowed deduction of interest paid, determining a significantly higher taxable income.
The ITAT, however, allowed the assessee’s appeal, holding that the funds were received for business purposes and were linked to acquisition of a capital asset. It concluded that interest earned was not taxable as income from other sources but should be adjusted against capital work-in-progress (CWIP).
