Case Law Details
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
The ld counsel of the assessee submitted the decision of the Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT [1997] 227 ITR 172 do not apply to the facts of the case and relied upon the decision of the Hon’ble Delhi High Court in the case of Indian Oil Panipat Consortium Ltd. Vs. ITO 315 ITR 255 and the decision of the Hon’ble Supreme Court in the case of CIT Vs. Bokaro Steel Ltd. 236ITR 315 (SC).
Contention of the Revenue
The ld counsel of the revenue submitted that the issue is covered against the assessee by the judgment of Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT [1997] 227 ITR 172 . He has also relied upon the order of the ITAT. Chandigarh Bench in the case of M/s HP Power Corporation Ltd. Vs. DCIT in ITA No.169/Chd/2013 and ITA No.488/Chd/2012, in which on identical facts the similar claim was dismissed by the Tribunal.
Held by CIT (A)
CIT (A) dismissed the appeal of the assessee. It was held that the facts of the case show that company has taken term loans from various banks and financial institution. The part of borrowed fund which was not immediately required by the company was invested in term deposits with bank on which it has earned interest. So, if the funds were not required for certain period, it was surplus fund for that period which was utilized for making term deposits. the facts of the instant case is similar to the facts in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. [1997] 227 ITR 172 (SC) where the Hon’ble Supreme Court held that interest earned on short term investment of funds borrowed for setting up of factory during construction of factory and before commencement of business has to be assessed as income from other sources and it cannot be said that interest income is not taxable on ground that it would go to reduce interest on borrowed amount which would be capitalized.
Further the earning of income cannot be said to be ‘intrinsically linked’ to the borrowed fund for the construction of project. The interest income is separately chargeable to tax under the head ‘income from other sources’.
Held by ITAT
ITAT held 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 impugned interest. The surplus funds, therefore, deployed in short term deposits could not be inextricably linked with the road construction project. Therefore, whatever submissions were raised by the assessee before the authorities below were not proved through any material on record.
In the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT [1997] 227 ITR 172, apex court held that the assessee had surplus funds in its hands. In order to earn income out of the surplus funds, it had invested the amount for the purpose of earning interest. Therefore, interest was held to be revenue in nature and would have to be taxed. Since the findings of fact recorded by the learned CIT (Appeals) 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.
Further in the case of M/s HP Power Corporation Ltd., ITA No.169/Chd/2013 and ITA No.488/Chd/2012 ITAT Chandigarh held that the facts of the present case are similar to the facts before the apex court in Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT and applying the ratio laid down by apex court, we hold that the interest earned by the assessee by parking its funds in short term deposits with bank is assessable as income from other sources. Merely because the money in future would be utilized for capital expenditure does not make the receipts as capital receipts in the hands of the assessee.
Considering the facts of the case in the light of the above decision, it is clear that the issue is squarely covered against the assessee by the judgment of the Hon’ble Supreme Court in the case of Tuticorin AlkalI Chemicals & Fertilizers Ltd. Vs. CIT as well as by the order of the ITAT. Chandigarh Bench in the case of M/s HP Corporation Ltd. We, therefore, do not find any error in the order of the learned CIT (Appeals) in holding that the interest income earned by the assessee company is taxable as “income from other sources”
Accordingly appeal of the assessee dismissed.
