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    Ait 2008 155 Itat

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    Nimalan
    1) The assessee company was in the process of setting up a hospital during the assessment years 1995-96, 1996-97, and 1997-98 and had not yet commenced business operations. 2) During this period, the assessee earned interest income from bank deposits of short-term surplus funds. 3) Relying on previous court precedents, the Income Tax Appellate Tribunal upheld the tax authorities' treatment of the interest income as taxable revenue income rather than allowing it to be set off against capital expenditures.

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    Ait 2008 155 Itat

    Uploaded by

    Nimalan
    37 views4 pages
    1) The assessee company was in the process of setting up a hospital during the assessment years 1995-96, 1996-97, and 1997-98 and had not yet commenced business operations. 2) During this period, the assessee earned interest income from bank deposits of short-term surplus funds. 3) Relying on previous court precedents, the Income Tax Appellate Tribunal upheld the tax authorities' treatment of the interest income as taxable revenue income rather than allowing it to be set off against capital expenditures.

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    1) The assessee company was in the process of setting up a hospital during the assessment years 1995-96, 1996-97, and 1997-98 and had not yet commenced business operations. 2) During this period, the assessee earned interest income from bank deposits of short-term surplus funds. 3) Relying on previous court precedents, the Income Tax Appellate Tribunal upheld the tax authorities' treatment of the interest income as taxable revenue income rather than allowing it to be set off against capital expenditures.

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    37 views4 pages

    Ait 2008 155 Itat

    Uploaded by

    Nimalan
    1) The assessee company was in the process of setting up a hospital during the assessment years 1995-96, 1996-97, and 1997-98 and had not yet commenced business operations. 2) During this period, the assessee earned interest income from bank deposits of short-term surplus funds. 3) Relying on previous court precedents, the Income Tax Appellate Tribunal upheld the tax authorities' treatment of the interest income as taxable revenue income rather than allowing it to be set off against capital expenditures.

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    of 4

    AIT-2008-155-ITAT

    IN THE INCOME TAX APPELLATE TRIBUNAL


    COCHIN BENCH, COCHIN

    BEFORE SHRI N. BARATHAVAJA SANKAR AND SHRI RIYAZ S. PADVEKAR

    ITA Nos. 14,15 & 16 (Coch)/2004


    (Assessment Years: 1995-96, 1996-97 & 1997-98)

    M/s. Central Travancore Specialists The Asstt. Commissioner of Income-tax,


    Hospital Ltd., Vs. Circle-1,
    Chengannur. Kottayam
    (Appellant) (Respondent)

    AIT Head Note: it is not the case of the assessee that the deposit kept with the bank
    had any nexus with the setting up of the plant. In fact, it is a surplus fund which
    were kept with the bank on which the assessee earned interest. interest earned by the
    assessee even during the construction period on the short term deposit kept with the
    bank is assessable as an income(Para 12)

    O R D E R

    PER RIYAZ S.PADVEKAR, JUDICIAL MEMBER:

    1. The assessee has filed these appeals challenging the orders of the Commissioner of
    Income-tax (Appeals)-II, Kochi for the Assessment Years 1995-96, 1996-97 & 1997-98.

    2. The assessee has filed concise grounds of appeal and only taken the following ground
    which is common in all the appeals:-

    "Ought not the lower authorities have held that interest} income etc. earned during
    the construction period or during his setting up of a factory is a capital receipt and
    set off against expenditure incurred during the said period."

    3. The- issue which arises for our consideration is regarding the taxability of interest
    received by the assessee company from bank deposit before the commencement of business
    of running of hospital. The assessee company" was in the process of setting up a modern
    specialist hospital, Mulakuzha, Chengannur during these three assessment years and the
    assessee company had not commenced the business. - The assessee received the following
    interest from the bank deposits in the respective assessment years:-

    Sr.No. Asst. Year interest received on bank


    deposit

    www.allindiantaxes.com -1-
    1. 1995-96 Rs. 6,15,510/-
    2. 1996-97 Rs. 16,88,290/-
    3. 1997-98 Rs. 6,46,290/-

    4. The Assessing Officer brought to tax the entire amount of bank interest received
    by the assessee under the head “income from other sources”. The assessee’s contention was
    that the interest income earned during the construction period is a capital receipt and the
    assessee has rightly set off the expenditure i.e. pre-operative expenditure incurred during
    the said period and the balance amount was capitalized. The AO rejected the assessee’s
    contention.

    5. The assessee challenged the impugned orders of the AO before the CIT (Appeals).
    The CIT (Appeals) was of the opinion that in view of the decision of the Hon' ble Supreme
    Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs, CIT 227 ITR 172,
    the AO has rightly brought to tax the interest received by the assessee even during the
    construction period of its hospital treating it as a revenue receipt. The CIT (Appeals),
    therefore, declined to interfere with the orders of the AO. Now, the assessee has
    challenged the impugned orders of the CIT (Appeals) before us.

    6. We have heard the parties. The learned Authorised Representative for the
    assessee reiterated the arguments which were advanced before the CIT (Appeals). The Id.
    AR also relied on the following precedents:-

    (i) CIT Vs. Bokaro Steel Ltd. 236 ITR 315 (SC)

    (ii) CIT Vs. Karnal Co-operative Sugar Mills Ltd. 243 ITR 2 (SC)

    (iii) Tuticorin Alkali Chemicals & Fertilizers Vs. CIT 227 ITR 172(SC)

    (iv) ITA Vs. A. V. Photochem Pvt. Ltd. ITA No.4955(Mum)/1999 (BCAJ)

    7. Per contra, the ld. DR supported the orders of the authorities below.

    8. The short controversy before us is in respect of the treatment to be given to the


    interest received by the assessee on the bank deposit before the commencement of its
    business. The assessee did not treat the said interest as its income before the AO. The
    assessee deducted the pre- operative expenses from the gross amount of bank interest in
    the respective assessment years and capitalized the net amount treating it as a capita:
    receipt. The other facts of this case are not in dispute.

    9. In the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra), the petitioner-
    assessee had borrowed term loan from various banks and financial institutions for setting up
    a factory and the part of the borrowed funds which was not immediately required by the
    company was invested in the short term deposit with the bank. On that amount, the
    assessee received interest. The trial production of the assessee commenced on June 30,

    www.allindiantaxes.com -2-
    1982. Up to the assessment year 1980-81, the interest earned by the assessee from the
    bank deposit was shown as income and the same was taxed. Subsequently, the assessee filed
    the revised return stating that there was a mistake and interest charges along with the
    other pre-operative expenses should have been capitalized and therefore, the interest
    income received by the assessee should have been reduced by the pre-production expenses
    which would ultimately be capitalized. The Hon'ble Supreme Court held as under:-

    "In the case before us, the company had surplus funds in its hands. In order to earn
    income out of the surplus funds, it invested the amount for the purpose of earning
    Ii interest. The interest thus earned is clearly of revenue nature and will have to be
    taxed accordingly. The accountants may have taken some other view but accountancy
    practice is not necessarily good law. In B. S. C. Footwear's case [1972] 83 ITR 269,
    the House of Lords had no hesitation in holding that the accounting practice for
    calculating its profit followed by the assessee and accepted by the Revenue for 30
    years could not be treated as sanctioned by law and was not acceptable for the
    purpose of computation of taxable income.”

    10. In the case of Bokaro Steel Ltd. (supra), different assessment years were involved
    but on the issue in respect of interest on the short term deposit, the Hon’ble Supreme
    Court has held as under:-

    "During these assessment years, the respondent assessee had invested the amounts
    borrowed by it for the construction work which were not immediately required in
    short-term deposits and earned interest. It has been held in these proceedings that
    the receipt of interest amounts to income of the assessee from other sources. The
    assessee has not filed any appeal from this finding which is given against it. In any
    easel this question is no w concluded by a decision of this court in Tuticorin Alkali
    Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172. Hence, we are not called
    upon to examine that issue.”

    11. In the case of Karnal Co-op. Sugar Mills Ltd. (supra), the assessee has deposited
    money to open a letter of credit for the purchase of machinery required for setting up its
    plant in terms of the assessee's agreement with the supplier and it was on the money so
    deposited that some interest had been earned by the assessee. The Hon'ble Supreme Court
    held that the deposit of the money by the assessee in that case was directly linked with the
    purchase of the plant and machinery and hence any income earned on said deposit is
    incidental to the acquisition of the asset for the setting up of plant and machinery.

    12. As far as the facts of the present case are concerned, it is not the case of the
    assessee that the deposit kept with the bank had any nexus with the setting up of the plant.
    In fact, it is a surplus fund which were kept with the bank on which the assessee earned
    interest. In our opinion, the principles laid down by the Hon’ble Supreme Court in the case
    of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra) are squarely applicable and
    interest earned by the assessee even during the construction period on the short term
    deposit kept with the bank is assessable as an income which the AO has done and the

    www.allindiantaxes.com -3-
    CIT(Appeals) has rightly upheld. We do not find any reason to interfere with' the order of
    the CIT(Appeals) on this issue which is accordingly, confirmed.

    13. In the assessment year 1995-96, the assessee has taken one more ground on the
    issue of limitation. The ld. AR submitted that as per instructions, of his client, he is not
    pressing the said ground. In view of above, the said ground is rejected.

    14. In the result, all the appeals of the assessee are dismissed.

    www.allindiantaxes.com -4-

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