COMMISSIONER OF INCOME TAX Vs. KANSARA MODLER LTD.

JUDGEMENT

(1.) THIS appeal has been filed by the Revenue, against the judgment of the Tribunal dt. 17th March, 2004, allowing the appeal of the assessee, relying upon the judgment of the Hon'ble Supreme Court, in CIT v. Karnal Co -operative Sugar Mills Ltd. : [2000]243ITR2(SC) , and holding, that the receipts in question, by way of interest, are incidental to the main business of the assessee, and the receipts are taken to be as capital receipt, and not income of the assessee from any independent source.

(2.) THE appeal was admitted by this Court, vide order dt. 23rd Aug., 2005, by framing the following substantial questions of law: I. Whether on the facts and in the circumstances of the case, the learned Tribunal was legally justified in holding that the receipts in question by way of interest were incidental to the main business of the assessee and the receipts are to be taken as capital receipts and not income of the assessee from any independent source despite assessee's failure to adduce any evidence in this regard? II. Whether on the facts and in the circumstances of the case, the learned Tribunal was legally justified in not applying the decision of the Hon'ble Supreme Court given in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT : [1997]227ITR172(SC) despite the same being fully applicable to the facts of the present case?

(3.) THE facts are not in dispute, that the assessee had got open LC (letter of credit) worth Rs. 10 crores from the bank, for the purchase of plant and machinery from foreign suppliers, and for that purpose the assessee deposited a sum of Rs. 1.5 crores with the bank, as margin money in the form of FDRs, on which the assessee earned interest to the tune of Rs. 6,22,877. On these facts, the precise question is, as to whether this receipt, is a revenue receipt liable to be taxed under Section 56, or is liable to be treated as capital receipt, so as to reduce the cost of the plant and machinery, within the meaning of Section 43(1) of the IT Act.