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| The Tax Publishers2022 TaxPub(DT) 1189 (Karn-HC) : (2022) 441 ITR 0113 : (2022) 285 TAXMAN 0491 INCOME TAX ACT, 1961
Section 28
Income generated out of earlier release of State Government for its project would have to be converted into State's equity towards the project and the same cannot be counted as income of BMRCL and there was no profit motive as the entire fund entrusted and the interest accrued therefrom has to be utilized only for the purpose of the scheme, accordingly, it has to be capitalized and cannot be considered as revenue receipts.
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Business income - Revenue or capital receipt - Investment of funds in fixed deposits and mutual funds before commencement of operation -
Assessee was established with the approval of Government of India, for the imple-mentation of a rail-based mass rapid transit system which was called as BMRCL. Cost of the project was to be financed by both the Union and the State Government. Assessee had received funds during the assessment year 2007-08 which were not immediately required for execution of the project and the same was invested in fixed deposit and mutual funds. Assessee offered only the income contended that the dividend income on mutual funds received from Bank and UTI were exempt under section 10(35). AO rejecting the contention of the assessee brought the income that was earned by the company through deposits to tax. Held: Unutilized funds of the project, before the commencement of the functional operation of the project, was invested by the assessee in fixed deposits and mutual funds as per the directions of the Government. Income generated out of earlier release of State Government for its project would have to be converted into State's equity towards the project and the same cannot be counted as income of BMRCL. Thus, there was no profit motive as the entire fund entrusted and the interest accrued therefrom has to be utilized only for the purpose of the scheme. Accordingly, it has to be capitalized and cannot be considered as revenue receipts.
Relied:Bongaigaon Refinery and Petrochemicals Ltd. v. CIT (2001) 251 ITR 329 (SC) : 2001 TaxPub(DT) 1536 (SC),CIT v. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) : 1999 TaxPub(DT) 1094 (SC), CIT v. Karnataka State Agricultural Produce Processing and Export Corporation Ltd. (2015) 377 ITR 496 (Karn) : 2015 TaxPub(DT) 2648 (Karn-HC), CIT v. Karnataka Urban Infrastructure Development and Finance Corporation (2006) 284 ITR 582 (Karn) : 2006 TaxPub(DT) 1384 (Karn-HC) CIT v. Karnataka Urban Infrastructure Development and Finance Corporation (2009) 315 ITR 301 (Karn) : 2009 TaxPub(DT) 1273 (Karn-HC)
REFERRED :
FAVOUR : Against the assessee.
A.Y. : A.Ys. 2007-08 & 2008-09
IN THE KARNATAKA HIGH COURT
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