| The Tax Publishers2020 TaxPub(DT) 0444 (Del-Trib) INCOME TAX ACT, 1961
Section 4
Where funds were raised for setting up of hotel of assessee, the interest earned on such funds temporarily parked in FDRs was inextricably linked with the setting up of hotel of the assessee, which would be held as capital receipt and was permitted to be set off against the capital expenditure.
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Income - Capital receipt or revenue receipt - Interest earned on funds temporarily parked in FDRs being inextricably linked with setting up of hotel -
Assessee-company took a loan for the purpose of acquisition of capital asset, i.e., renovation and refurbishment of hotel. It temporarily parked the loan in FDRs till utilization for fixed asset/capital expenditure strictly in compliance with the RBI instruction. It earned interest income on the said FDRs, which was netted of against the interest paid and the net amount of interest was added to the pre-operative expenses pending capitalization, i.e., in capital WIP. AO took the view that since the assessee had not commenced any business, therefore, the interest income earned on the loan parked in FDRs before commencement of business would be assessable as income from other sources. Held: It is settled position that if funds have been raised for the purpose of setting up of a plant or acquisition of capital asset then the funds have to be inextricably linked with the activities of the plant and if such funds have been put in FDRs, then interest received will be a capital receipt and cannot be taxed as income from other sources. In instant case, since funds were raised for setting up of hotel of assessee, the interest earned on such funds temporarily parked in FDRs was inextricably linked with the setting up of hotel of the assessee, which would be held as capital receipt and was permitted to be set off against the capital expenditure.
REFERRED : Challapalli Sugars Ltd. v. CIT (1975) 98 ITR 167 (SC) : 1975 TaxPub(DT) 0275 (SC), Tuticorin Alkali Chemical & Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) : 1997 TaxPub(DT) 1304 (SC), CIT v. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC): 1999 TaxPub(DT) 1094 (SC), CIT v. Karnal Cooperative Sugar Mills Ltd. (2000) 243 ITR 2 (SC): 2000 TaxPub(DT) 0625 (SC), CIT v. Karnataka Power Corporation (2001) 247 ITR 268 (SC): 2001 TaxPub(DT) 0524 (SC), NTPC Sail Power (2012) 210 Taxman 358 (Del): 2012 TaxPub(DT) 3140 (Del-HC), Pr. CIT v. Facor Power Ltd. [ITA No. 1011/2015]: 2016 TaxPub(DT) 1063 (Del-HC)
FAVOUR : In assessee's favour
A.Y. : 2012-13
IN THE ITAT, DELHI G BENCH AT NEW DELHI
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