COMMISSIONER OF INCOME TAX IV CHENNAI Vs. VGR FOUNDATIONS FLAT NO 6 31 II MAIN ROAD KASTURBA NAGAR CHENNAI 20

JUDGEMENT

(1.) THESE appeals are filed by the Revenue against the order of the Income-tax Appellate Tribunal, 'B' Bench, Chennai in I.T.A. Nos.5/Mds/2003 and 906/Mds/2003 dated 15.07.2004, raising the following common substantial question of law:- Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that interest on moneys borrowed for the period prior to the commencement of business can be allowed as deduction from the interest u/s 57 of the Act while computing "Income from Other Sources" in respect of the interest received"

(2.) THE facts leading to the above substantial question of law are as under: THE assessee is a Partnership Firm, engaged in the Real Estate business. THE relevant assessment years 1997-98 and 1998-99 and the corresponding accounting years ended on 31.03.1997 and 31.03.1998, respectively. A survey under Section 133A of the Income-tax Act ("Act" in short) was conducted on 27.1.2000. Notices under Section 148 were issued on 09.03.2000. THE assessee-firm filed "nil" Returns of Income and also filed letters stating that the Returns filed vide Acknowledgement No.8869 dated 14.02.2000 for the assessment year 1997-98 and Acknowledgement No.8871 dated 14.02.2000 for the assessment year 1998-99, have to be treated as Returns in response to the notices issued under Section 148 of the Act. Further, notices under Section 143(2) were issued on 20.11.2001. THE Assessing Officer noticed that the statements filed along with the Returns of income reveal that the assessee had incurred expenses prior to commencement of business and the assessee had also earned interest income from out of the fixed deposits with bank and the said income had been set off against the expenses. THE Assessing Officer was of the view that the interest received on short term deposits in bank during pre-production stage is assessable as income from other sources. Hence the same was considered as income from other sources, determining the total income at Rs.1,59,350/- and Rs.1,16,400/- for the assessment years 1997-98 and 1998-99, respectively. Aggrieved by the orders, the assessee filed appeals to the Commissioner of Income-tax (Appeals). THE C.I.T.(A) dismissed the appeals and confirmed the orders of the Assessing Officer. Aggrieved, the assessee filed appeals to the Income-tax Appellate Tribunal ("Tribunal" in short). THE Tribunal allowed the assessee's appeals and set aside the orders of the C.I.T.(A). Hence the present tax cases by the Revenue.

(3.) IN our opinion, in view of the above clear cut ruling by the Supreme Court it is necessary to give a finding of fact in regard to monies that were kept in deposit from out of the share application monies. IN the light of the Supreme Court decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra), it is only in the event of interest earned from out of deposits made from borrowed funds that it would be in the nature of income. Share application monies do not fall into the category of borrowed funds and do not involve payment of interest. IN effect share application monies etc. are gathered for being used in setting up of an industry, unit, purchase of assets, and so on. Till such time the money is required for deferment of various items, obviously the money has to be kept in deposit with a bank. Keeping the money in current account would not yield any interest income. It can therefore be seen that it is during the course of construction that the monies are kept in deposits with the bank. IN these circumstances in the light of the Supreme Court decisions in the cases of Bokaro Steel Ltd. (supra), Karnal Co-operative Sugar Mills Ltd. (supra) and Karnataka Power Corporation (supra), the claim of the assessee is reasonable and deserves to be accepted. We accordingly uphold the claim of the assessee and delete the addition of interest made to the income. The legal plea was not insisted upon."" From a reading of the above, it is seen that the Tribunal has followed the principles enunciated in the Supreme Court judgments in the case of C.I.T. Vs. Bokaro Steel Ltd. (236 ITR 315) and in the case of C.I.T. Vs. Karnataka Power Corporation (247 ITR 268) and came to the correct conclusion. The Revenue is unable to give any further materials or evidence and also not able to furnish information as to whether they have filed any appeal against their earlier order or not. 5. Under the circumstances, we do not find any error or legal infirmity in the order of the Tribunal so as to warrant interference. Hence, no substantial question of law arises for consideration of this Court and accordingly the tax cases are dismissed. Consequently, M.P.No.1 of 2007 in T.C.(A) No.610 of 2007 is closed. No costs.