Indian Oil Panipat Power Consortium Limited Vs ITO (Delhi High Court)
In Indian Oil Panipat Power Consortium Limited Vs ITO, the Delhi High Court adjudicated appeals filed under Section 260A of the Income Tax Act, 1961 against a Tribunal order concerning Assessment Years 2001–02 and 2002–03. The central issue was the tax treatment of interest earned on share capital that had been temporarily invested in fixed deposits pending acquisition of land for a proposed power project.
The assessee, a joint venture between Indian Oil Corporation and Marubeni Corporation of Japan, was incorporated to establish a power plant in Panipat, Haryana. Share capital, including additional contributions, was infused specifically for acquiring land and developing infrastructure. However, due to legal complications relating to land title, the funds were temporarily parked in a fixed deposit with Tokyo Mitsubishi Bank. This resulted in interest earnings of Rs. 1.65 crore and Rs. 1.54 crore for the relevant assessment years.
The Assessing Officer treated this interest as “income from other sources,” relying on the Supreme Court’s decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. and Autokast Ltd., thereby disallowing its adjustment against pre-operative expenses. On appeal, the Commissioner of Income Tax (Appeals) found that the funds were placed in deposits only to maintain liquidity until required for project purposes. The CIT(A) held that the interest income was “inextricably linked” with the setting up of the power plant and, therefore, constituted a capital receipt to be capitalized against pre-operative expenses, following the ratio in CIT vs Bokaro Steel Ltd.
