Interest from surplus fund taxable as income from other sources

Brief of the Case

ITAT Chandigarh held in the case M/s Himlayan Expressway Limited vs. ITO that it is clear that the borrowed funds were not required by the assessee for business purposes. Therefore, the same funds were surplus funds in nature for that period which was utilized for making term deposits on which the assessee earned the interest. The surplus funds, therefore, deployed in short term deposits could not be inextricably linked with the road construction project. Further in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT [1997] 227 ITR 172, the apex court held that where the assessee had surplus funds in its hands and in order to earn income out of the surplus funds, it had invested the amount, the interest earned was held to be revenue in nature and would have to be taxed. Since the findings of fact recorded by the CIT (A) have not been rebutted through any material that the assessee had surplus funds which were utilized for making term deposits, therefore, the above decision of the Hon’ble Supreme Court was correctly applied against the assessee. Hence interest income on surplus funds is assessable as income from other sources.

Facts of the Case

The assessee has taken up a project of NHAI for broadening of sect ion of National Highway 22. However during the year under consideration, the company has not commenced any commercial activity as the project was under construction. All the construction cost and related expenses have been capitalized. The assessee company filed its return of income on 27.09.2009 declaring total income of Rs.1,76,06,556/- . Later, the revised return was filed by the assessee on 29.03.2011 declaring NIL income. The Assessing Officer completed the assessment under sect ion 143(3) at an income of Rs.1,76,06,560/- by treating the interest income as income from other sources. The Assessing Officer relied on the judgment of Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT [1997] 227 ITR 172.

Contention of the Assessee

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