Interest earned on Borrowed Funds kept for acquiring coal mine is not revenue receipt even if coal mine is aborted, borrowings are repaid: Delhi HC
Pr. CIT vs. International Coal Ventures Pvt Ltd
Case Number: ITA 1174/2018
Facts:
1. The assessee/ Respondent, is, essentially, a joint venture company formed as a special purpose vehicle (SPV) by five public sector undertakings (PSUs), and is incorporated with the purpose of ensuring adequate and dependable coal supply for its promoter companies.
2. For such purpose, the assessee would acquire resources including a coal mine overseas to secure supply of coal to its promoters. In pursuance of the same, the assessee received huge equity contribution, and the funds received were kept in a short-term fixed deposit yielding interest.
3. The assessee claimed that it had called funds from shareholders and promoters for the purpose of acquisition of coal mine overseas. The assessee received a sum of 157 crores from RINL as call money. The amount was kept in a fixed deposit with a bank. Those fixed deposits yielded interest of Rs.11,45,19,580/- and the assessee claimed that it had also incurred Rs.4,48,78,068/- on day-to-day expenses as well as for preparation of the project report.
4. However, attempt to acquire the coal mine was aborted and thus the amounts borrowed were repaid to RINL.
5. The assessee thereafter filed its return declaring Nil income. According to the AO, the difference between the interest earned and interest paid was chargeable to tax as income from other sources. Accordingly, the AO passed assessment order determining assessee’s total income at Rs.31,18,900/-.
Hon Delhi HC held as below:
1. The said coal mine was to be the assessee’s undertaking as the assessee was formed for the purpose of acquiring and operating a coal mine overseas.
2. The funds in question were not surplus funds of assessee, and the same were called for and were earmarked for acquisition of a coal mine overseas.
3. The interest received on borrowed funds, which were temporarily held in interest bearing deposit, is a part of the capital cost and is required to be credited to Capital Work In Progress.
4. The Revenue’s appeal is dismissed since the funds in question were not surplus funds but funds that were called for and earmarked for a specific purpose of acquiring a coal mine.
The copy of the order is as under:
