PCIT Vs International Coal Ventures Pvt Ltd (Delhi High Court)
Delhi High Court held that the interest received on borrowed funds, which were temporarily held in interest bearing deposit, is a part of the capital cost and is required to be credited to Capital Work-in-Progress.
Facts- During the course of the assessment proceedings, the AO noticed that the Assessee had earned an amount of ₹11,45,92,550/- in respect of the funds received from its promoters. The Assessee had also paid interest to its promoters amounting to ₹11,14,73,651/-. According to the AO, the difference between the interest earned and interest paid was chargeable to tax as ‘income from other sources’. Accordingly, the AO passed the assessment order determining the Assessee’s total income at ₹31,18,900/-.
ITAT held that the interest earned from the deposit was not chargeable to tax under the head income from other sources and accordingly, set aside the order of the CIT(A) as well as the AO.
Conclusion- In the present case, there is no dispute that the Assessee was set up to acquire resources to ensure supply of coal. At the material time it was in the process of negotiation for acquiring a coal mine, to set up its business, and thus called for capital from its shareholders for the purpose of payment of the acquisition costs. It is the part of the said funds that were kept in the short-term fixed deposit in the bank for pending payment of the construction. However, the attempt to acquire the coal mine was aborted and thus the amounts borrowed were repaid to RINL. It is not disputed that the funds in question were not surplus funds of the Assessee, the same were called for and were earmarked for acquisition of a coal mine overseas. The said coal mine was to be the Assessee’s undertaking as the Assessee was formed for the purpose of acquiring and operating a coal mine overseas.
