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| The Tax Publishers2020 TaxPub(DT) 4264 (Del-Trib) INCOME TAX ACT, 1961
Section 4
If the funds have been raised for the purpose of acquisition of capital asset and if such funds have been put in FDRs temporarily, then any interest earned on funds temporarily parked in FDRs is inextricably linked with the acquisition of asset and the same should be held as capital receipts only and is permitted to be set off against the capital expenditure as per the provisions of Income Tax Act.
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Income - Capital or revenue receipt - Interest earned on funds temporarily parked in FDRs -
Assessee was a company running a five-star hotel in Goa. During the year under consideration, the hotel of the assessee was in process of construction. It took an ECB for funding the said construction and which was parked in the FDRs during the year. It deducted interest earned on FDR as per the balance sheet and netted the financial cost. AO made an addition holding the interest earned on FDRs as 'income from other sources'. Held: ECB loan which is to be utilized for capital expenditure only, then, any interest earned on funds temporarily parked in FDRs is inextricably linked with the setting up of hotel of the assessee, and the same should be held as capital receipts only and is permitted to be set off against the capital expenditure as per the provisions of Income Tax Act.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2013-14
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