INCOME TAX ACT, 1961

Section 56(2)

Income from other sources - Taxability - Interest income earned by assessee from margin money deposit with bank for availing of bank guarantee, letter of credit facilities for procurement of equipment and other material for setting up of power plant -

Assessee was a company engaged in power generation. During the relevant period under assessment, assessee was under the process of setting up Coal based power plant at Orissa. During the said process, assessee eanred interest of Rs. 2.65 crore on deposits of margin money with banks. Assessee reduced said interest income from capital work-in-progress and not offered same for separately for taxation in return of income. AO treated said income as Income from other sources.Held: Interest income earned by assessee from margin money deposit with bank for availing of bank guarantee, letter of credit facilities for procurement of equipment and other material for setting up of power plant was inextricably linked with the power project and it partook the character of capital receipt to be reduced from CWIP and, therefore, AO was not justified in taxing the same as income from other sources.

Followed:CIT v. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) : 1999 TaxPub(DT) 1094 (SC) and CIT v. Karnal Co-operative Sugar Mills Ltd. (2000) 243 ITR 2(SC) : 2000 TaxPub(DT) 625 (SC). Relied: Solarfield Energy (P) Ltd. v. ITO ITA Nos. 5189-90/Mum/2016, dt. 16-7-2019] : 2019 TaxPub(DT) 5146 (Mum-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

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