Angul Sukinda Railway Ltd. v. ITO [ITA Nos. 384 & 385/CTK/2019, dt. 3-11-2020] : 2020 TaxPub(DT) 4566 (Ctk-Trib)

Interest earned on fixed deposits during pre-commencement of project

Facts:

Assessee was a joint venture project to commission a railway line. There was corpus/capital contributions by JV partners and certain mobilization advances was also received from the customer. Interest on this was claimed to be not taxable by the assessee and would offset the cost of the project. Assessing officer sustained the additions as income from other sources. On higher appeal the Commissioner (Appeals) accepted the offset of the interest received on mobilization advances which was parked with interest earning instruments while did not concur with the interest on the fixed deposit receipts. On higher appeal --

Held in favour of the assessee that the interest during the pre-commencement project period cannot be taxed as income from other sources. It will reduce the capital investment. For verification of the amounts received as to whether these were treated as capital contributions and were capitalized; the case was remanded to the assessing officer for examination.

Applied:

Radhikapur (West) Coal and Mining Pvt. Ltd., I.T.A. Nos. 396-397/Ctk/2018, dated 21-10-2019;

Indian Oil Panipat Power Consortium Ltd. (2009) 315 ITR 255 (Del-HC) : 2009 TaxPub(DT) 1494 (Del-HC);

MJSJ Coal Limited v. ITO, I.T.A. Nos. 429/Ctk/2016, 68/Ctk/2017 & 107/Ctk/2018, dated 31-8-2018 : 2018 TaxPub(DT) 5912 (Ctk-Trib);

Posco India Pvt. Ltd. v. DCIT, ITA Nos. 186 and 460/Ctk/2011, 461/Ctk/2011;

ACIT v. M/s. Posco India Pvt. Ltd. and vice-versa, ITA Nos. 155 & 122/Ctk/2017, C.O. Nos. 07 & 08/Ctk/2017 : 2018 TaxPub(DT) 1349 (Ctk-Trib);

M/s. Kalinga Coal Mining Pvt. Ltd. v. ACIT, ITA Nos. 123 & 279/Ctk/2010;

Bongaigaon Refinery and Petrochemicals Ltd. v. CIT (2001) 251 ITR 329 (SC) : 2001 TaxPub(DT) 1536 (SC);

NTPC Sail Power Co. Pvt. Ltd. v. CIT in ITA No. 1238/2011 (Delhi-HC) : 2012 TaxPub(DT) 3140 (Del-HC);

PCIT v. M/s. NTPC Tamil Nadu Energy Co. Ltd., ITA No. 233/2018 & CM Appl. No. 7162/2018, ITA No. 234/2018 & CM Appl. No. 7163/2018;

Solarfield Energy Pvt. Ltd. v. ITO, ITA No. 5189/Mum/2016 : 2019 TaxPub(DT) 5146 (Mum-Trib);

BTW-Atlanta Transformers India Pvt. Ltd. v. ACIT, ITA Nos. 1642 & 1643/Ahd/2018;

ITO v. CMDC ICPL Coal Ltd., ITA No. 271/RPR/2014 : 2018 TaxPub(DT) 6739 (Rai-Trib);

M/s. Saville Hospital & Research Centre Pvt. Ltd. v. ITO, ITA No. 491/JP/2018 : 2019 TaxPub(DT) 7698 (Jp-Trib);

M/s. Haridaspur Paradip Railway Company Limited v. DCIT in ITA No. 383/Ctk/2019, Order, dated 12-10-2020;

PCIT v. M/s. Banknote Paper Mill India Pvt. Ltd. in ITA No. 690/2017 (Kar-HC).

Dissented:

Tuticorin Alkali Chemicals v CIT (1997) 227 ITR 172 (SC) : 1997 TaxPub(DT) 1304 (SC)

In Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) : 1999 TaxPub(DT) 1094 (SC), the Supreme Court held that "if income is earned, whether by way of Interest or in any other manner on funds which are otherwise "inextricably linked" to the setting up of the plant, such income is required to be capitalised to be set off against pre-operative expenses."

Editorial Note: The number of judgments cited and dealt in make it a one stop referencer on this topic.