HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 144 / 2017 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/s. Road Infrastructure Development Corporation of Rajasthan Limited, 1st Floor, LIC New Investment Building, Bhawani Singh Road, Jaipur ----Respondent For Appellant(s) : Mr. K.D. Mathur for Mr. R.B. Mathur For Respondent(s) : Mr. Sanjay Jhanwar HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 18/07/2017 1. By way of this appeal, appellant has challenged judgment and order of Tribunal whereby Tribunal has partly allowed appeal of assessee and his income which was earned on FDR was taken as business income. 2. Counsel for appellant has framed following substantial question of law:- Whether in facts and circumstances of case and law ITAT was justified in deleting addition of Rs.3,37,76,623/- made by assessing officer on account of income from other source ignoring fact that assessee capitalized interest income received from FDR s thereby reducing cost of fixed assets. 3. While considering matter, tribunal has observed as (2 of 4) [ITA-144/2017] under:- 4. We have heard rival contentions and perused material available on record. issue under consideration for both years relate to treatment of interest received prior to commencement of commercial operations of specified mega road projects. As per Revenue, same is to be brought to tax under head income from other sources. As per assessee, it is in nature of capital receipt and will be required to be set off against pre-operative expenditure capitalized under head Capital work in progress and same cannot be brought to tax under head income from other sources. said issue has been examined at great length by Coordinate Bench in its decision referred supra and therein decision of Hon ble Supreme Court in case of Tuticorin Alkali Chemicals and Fertilizers (227 ITR 172) as well as decision in case of Bokaro steel Ltd (236 ITR 316) has been duly considered. relevant findings of Coordinate Bench in assessee s own case in ITA No.628/JP/2014 for A.Y. 2009-10 dated 11.08.2016 are reproduced as under: 2.18 From above, it is evident that there are two sets of judgments of Hon ble Supreme Court, proceedings on different lines of reasonings. Hon ble Delhi High Court in case of Indian Oil Panipat Consortium Ltd. (supra) has considered and interpreted decisions of Hon ble Supreme Court in case of Tuticorin Alkali Chemicals & Fertilizers (supra) as well as Bokaro Steel Ld. (supra). After analyzing both decisions of Hon ble Supreme court, it held that test which premeates through judgment of Supreme Court in Tuticorin Alkali Chemicals & fertilizers Ltd s case (supra) is that if funds have been borrowed for setting up of plant and if funds are surplus and then by virtue of that circumstance they are invested in fixed deposits income earned in form of interest will be taxable under head income from other sources . On other hand ratio of Supreme court judgment in Bokaro Steel Ltd. s case (supra) to our mind is that if income earned, whether by way of interest or in any other manner on funds which are otherwise inextricably linked to setting up of plant such income is required to be capitalized to be set off against pre- operative expenses. 2.19 facts in instant case are pari materia with facts of Indian Oil Panipat (supra) and ratio decidendi of Hon ble Delhi High Court in that case will squarely apply to facts of assessee. In instant case, undisputedly, funds have (3 of 4) [ITA-144/2017] been borrowed for specific purpose of execution of mega road projects and as per loan agreement executed between consortium of bankers and assessee dated 23.11.2005, all disbursements shall be deposited in trust and retention account which shall be subject to strict control and verification by Senior lenders and all disbursements shall be utilized solely for purposes of implementation of project and no other purpose. funds are thus inextricably linked to setting up of mega road projects and interest earned on such borrowed funds infused in business could not be classified as income from other sources. We also note distinguishing feature in instant case that assessee is not all liberty to use interest so earned as per its will and discretion unlike case in Tuticorin Alkali Chemicals & Fertilizers (supra) and interest has to be used solely for purposes of implementation of specified projects only. impugned interest receipt of Rs. 35,39,479/- on such borrowed funds relates to mega road projects/stretches which were under construction and completed road projects/stretches upto date of commencement of commercial operations. Therefore, interest received prior to commencement of commercial operations of specified mega road projects will be in nature of capital receipt and will be required to be set off against pre-operative expenditure capitalized under head income from other sources . Hence, ground no.1 of assessee is allowed. 5. Undisputedly, there are no changes in facts and circumstances of case. No contrary authority has been brought to our notice subsequent to above decision of Coordinate Bench or fact that said decision of Coordinate Bench has been stayed by Hon ble High Court. In view of similar facts and circumstances of case and respectfully following decision of Coordinate Bench in assessee s own case (supra), we hold that interest received prior to commencement of commercial operations of specified mega road projects will be in nature of capital receipt and will be required to be set off against pre- operative expenditure capitalized under head Capital work in progress and same cannot be brought to tax under head income from other sources . 4. However, Mr. Mathur has taken us to order of AO wherein assessing officer while considering income (4 of 4) [ITA-144/2017] observed as under:- 3. However, without prejudice, we would like to reiterate here that even if this is considered as income from other source, net effect would be that gross block of road will be increased by equivalent amount and whatever is income from other sources would be set off against loss from current year s business and profession as company has started operation during year and there would be no demand of tax. reply of assessee has been considered but is not acceptable. assessee has parked its spare funds in FDRs in Banks and interest there from can not considered as business receipts. assessee received interest during preceding years also which shows that assessee was having spare funds to invest in FDRs wherefrom it earned interest. Merely commencement of business alone can not change of treatment of income. 5. He further contended that investment was surplus amount. 6. In our considered opinion, amount which was lying with assessee was required to be invested in project. said amount cannot be kept for long time ideally in view of fact that principal amount which was kept for business purpose has been kept for investment purpose ideally. 7. We are in complete agreement with conclusion reached by tribunal. No substantial question of law arises. Hence, appeal stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Bmg/26 Pr. Commissioner of Income-tax, Jaipur-II, Jaipur v. Road Infrastructure Development Corporation of Rajasthan Limited