Elgen (India) Pvt. Ltd. Vs. ITO (ITAT Hyderabad)
In case the share capital is brought for specific purpose for the implementation of the particular project, and interest is earned by temporarily depositing in the bank, such income can be treated as capital receipt. In the given case, assessee has brought the share capital only for the implementation/ commencement of the power project. Since, it could not proceed with the implementation, under constraint, it kept the unutilized funds in the bank; in that process it has earned interest; By following the ratios of Hon’ble Supreme Court, the funds kept in bank under constraint and the funds are inextricably linked to the project, such income can be treated as capital receipt. At the same time, the findings of Delhi High court in the similar circumstances as in the case under consideration are fully applicable to the case in hand. Therefore, in our considered view, the assessee is eligible to treat the interest as capital receipt. Whether the assessee can utilize this receipt to set off the other pre- implementation expenses, in our view, we have already treated the interest receipts as capital in nature and the pre- commencement expenses are also capital expenditure, the assessee can set off such expenses.
