Case Law Details
Brief facts
Assessee Company, a Himachal Pradesh Govt undertaking, received fund from Govt of Himachal Pradesh towards purchase of Transmission. Due to certain legal entanglements said Transmission could not be purchased for some time and during that time the fund so received was kept by Assessee Company in bank deposits accounts. The Assessee Company earned interest on such deposits in bank but did not consider the same as Income while filing its Return of Income of the year. While doing the scrutiny assessment for the year AO treated the interest received from bank as revenue receipt and charge tax on the same.
Arguments by Assessee
Before AO, Assessee argued that it could not utilize the funds only due to certain legal formalities and hence it cannot be said that it had surplus funds. Assessee placed its reliance on the Delhi High Court decision in the case of Indian Oil Panipat Consortium Power ltd 315 ITR 255. In this case Delhi High Court has held that the interest was earned by the assessee prior to commencement of business and is in the nature of capital receipt. Hence this interest was required to be set off against pre-operative expenses. Assessee argued that since it has received interest prior to purchase of Transmission and the fund was specifically received for such purchase, hence the interest received should be treated as capital receipt and be allowed to be reduced from the cost of Transmission.
Arguments by Revenue
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