COMMISSIONER OF INCOME TAX Vs. KOSHIKA TELECOM LTD.

JUDGEMENT

(1.) THE respondent -assessee is engaged in the business of operating cellular mobile telephone services. In terms of a license awarded in its favour for operation of the said services in the States of Uttar Pradesh, Bihar, Orissa and West Bengal, the assessee was required to provide finance and performance (of) bank guarantees to the Department of Telecommunications. The assessee appears to have arranged these bank guarantees from IFCL, NICL and Lord Krishna Bank. These institutions had in connection with the furnishing of the guarantees required deposit of margin money by the assessee. Interest earned/accrued on these margin money deposits became the subject -matter of a dispute in the asst. yr. 1996 -97. The AO was of the view that interest on such deposits had to be taxed as income from other sources. Reliance was in support of that view placed by the AO on a Supreme Court decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC).

(2.) IN appeal, the view taken by the AO was reversed by the CIT(A) who held that the deposit of margin money with the banks was inextricably linked to the requirement of furnishing bank guarantees by the assessee. The deposits could not therefore be deemed to be parking of surplus funds so as to render any income earned on the same exigible to tax as income from other sources. Reliance in support of that view was placed upon two decisions of Supreme Court in CIT vs. Bokaro Steel Ltd. (1999) 151 CTR (SC) 276 : (1999) 236 ITR 315 (SC) and CIT vs. Karnal Co -operative Sugar Mills Ltd. (2000) 161 CTR (SC) 241 : (2000) 243 ITR 2 (SC).

(3.) A further appeal by the Revenue filed before the Tribunal having failed, the former is in appeal before us under s. 260A of the IT Act.