Pre-commencement Interest income is capital receipt
Assessee’s have been incorporated on 03-01-2011 with the object of generation of electricity from non-conventional sources, the project of which is proposed in the state of Karnataka and for this purpose investments have been received in the form of equity capital of the assessee companies and equity shares were issued on 13-07-2011. It was submitted that the assessee’s faced certain bottle-necks in implementing the envisaged power projects such as delays in wind resource assessment as well as evacuation and load flow studies, difficulties in contour survey in particular, wind power generation sites, inability to obtain necessary enhancement of sites capacities based on various studies of wind data. It was also submitted that these bottlenecks have stalled the project for the time being and consequently, the equity funds, which were procured for the project and were dishonest idle pending allocation and utilization for the project, had been placed in fixed deposits in the banks from which interest income was earned during the year of account and therefore, assessee companies treated such interest income as capital receipt which would reduce the cost of project. It was therefore, submitted that the interest income earned on deposits in bank during pre-production period be treated as capital receipt and be reduced from project cost. The A.O, however, was not convinced with the assessee’s contentions and held the entire interest income has to be assessed under the head “income from other sources”
ITAT held that the interest income earned from the fixed deposits of the equity fund is to be treated as capital receipt which goes to reduce the project cost. The interest earned on funds primarily bought for infusion in the business could not be classified as “income from other sources”.
ITO Vs KSK Wind Energy Halagali Benchi Pvt. Ltd. (ITAT Hyderabad)
ITA Nos. 1098/Hyd/2017