| The Tax Publishers2022 TaxPub(DT) 3997 (Ahd-Trib) INCOME TAX ACT, 1961
Section 14A
Where assessee-company was formed primarily for the purpose of four laning of Rohtak Panipat highway and funds available with the assessee were to be utilized primarily for the above purpose for which it was set up; the interest/gains earned by the assessee during pre-commencement were inextricably linked with setting up of capital structure of the assessee and there was a direct nexus of funds and income from interest and mutual funds out of temporary investments and accordingly, CIT(A) was justified in holding that the said receipts could not be taxed as 'Income from other sources'.
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Head of income - Business income or Income from other sources - Interest income earned on FD and gain from sale of mutual fund -
Assessee-company was incorporated as a Special Purpose Vehicle (SPV) for four laning of Rohtak-Panipal section in state of Haryana. It earned interest on fixed deposits of funds temporarily invested in bank during its pre-construction period and also made gains on sale of mutual funds during year under consideration. AO treated the said receipts as 'Income from other sources'. On appeal, the assessee submitted that when the income was from temporary investments for the reason that the funds could not be immediately put to use for the purpose for which they were taken and if the receipts were inextricably linked to be setting up of a project, then it would be capital receipt not liable to tax. Accordingly, the CIT(A) held that the receipts in question could not be taxed as 'Income from other sources'.Held: Assessee-company, which was formed primarily for the purpose of four laning of Rohtak Panipat highway and funds available with the assessee were to be utilized primarily for the above purposes for that it was set up. Consequentially, the interest/gains earned on fixed deposits/sale of mutual funds was also be to be utilized for the said purpose. Therefore, interest/gains earned by the assessee during pre-commencement were inextricably linked with setting up of capital structure of the assessee and there was a direct nexus of funds and income from interest and mutual funds out of temporary investments. Accordingly, CIT (A) was justified in holding that the receipts in question could not be taxed as 'Income from other sources'.
REFERRED : CIT v. Bokaro Steel Limited (1999) 236 ITR 315 (SC) : 1999 TaxPub(DT) 1094 (SC), Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) : 1997 TaxPub(DT) 1304 (SC), CIT Bangalore, The Dy. CIT, Circle-11 (2) Bangalore v. Bangalore Metro Rail Corporation Ltd. (2022) 135 Taxmann.com 268 (Karn-HC) : 2022 TaxPub(DT) 1189 (Karn-HC), Indian Oil Panipat Power Consortium Limited, New Delhi v. ITO (2009) 315 ITR 255 (Del.) : 2009 TaxPub(DT) 1494 (Del-HC), ITO Wd-2 (3), Kolkata v. Kolkata Metro Rail Corpn. Ltd. (2019) 102 Taxmann.com 419 (Kol-Trib.) : 2018 TaxPub(DT) 96 (Kol-Trib) and Adani Power Ltd, Ahmedabad v. ACIT (2015) 61 Taxmann.com 355 (Ahd-Trib) : 2015 TaxPub(DT) 3050 (Ahd-Trib).
FAVOUR : In assessee's favour.
A.Y. : 2013-14
IN THE ITAT, AHMEDABAD BENCH
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