ACIT, Ernakulam v. Roads & Bridges Dev. Corpn of Kerala Ltd., Ernakulam

ITA 1013/COCH/2008 | 2002-2003
Pronouncement Date: 31-05-2010

Appeal Details

RSA Number 101321914 RSA 2008
Assessee PAN AABCR7841Q
Bench Cochin
Appeal Number ITA 1013/COCH/2008
Duration Of Justice 1 year(s) 5 month(s) 11 day(s)
Appellant ACIT, Ernakulam
Respondent Roads & Bridges Dev. Corpn of Kerala Ltd., Ernakulam
Appeal Type Income Tax Appeal
Pronouncement Date 31-05-2010
Appeal Filed By Department
Bench Allotted DB
Tribunal Order Date 31-05-2010
Date Of Final Hearing 12-04-2010
Next Hearing Date 12-04-2010
Assessment Year 2002-2003
Appeal Filed On 19-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TR IBUNAL COCHIN BENCH COC HIN BEFORE S/SHRI N.VIJAYAKUMARAN JM AND SANJAY ARORA AM I.T.A. NO. 1013 & 1014/COCH./2008 ASSESSMENT YEARS :2002-03 & 2004-05 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1(3) ERNAKULAM. VS. M/S. ROADS & BRIDGES DEVELOPMENT CORPORATION OF KERALA LTD. 2 ND FLOOR PREETHY BLDG. M.V. ROAD PALARIVATTOM COCHIN - 682 025. [PAN: AABCR 7841Q] (REVENUE-APPELLANT) (ASSESSEE-RESPONDENT) REVENUE BY DR. BABU JOSEPH SR. DR ASSESSEE BY SHRI R.RAJASEKHARAN CA O R D E R PER SANJAY ARORA AM THESE ARE SET OF TWO APPEALS BY THE REVENUE ARISING OUT OF THE ORDERS BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-II KOCHI (CI T(A) FOR SHORT) FOR THE ASSESSMENT YEAR (A.Y.) 2002-03 (DATED 30.9.2008) AN D A.Y. 2004-05 (DATED 14.10.2008). AS THE APPEALS RAISE THE SAME ISSUE T HESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A COMMON ORDER. 2.1 THE ISSUE IN APPEAL IS WHETHER THE INTEREST ON MOBILISATION ADVANCES RECEIVED BY THE ASSESSEE IN THE SUM OF RS. 106.80 LAKHS AND RS. 182.43 LAKHS FOR THE TWO YEARS RESPECTIVELY IS CAPITAL OR REVENUE IN NATURE. THE ASSESSEE-COMPANY IS A PUBLIC SECTOR COMPANY ENGAGED IN THE CONSTRUCTION AND DEVELOPMENT OF INFRASTRUCTURE PROJECTS LIKE ROADS AND BRIDGES; ITS DOMINANT ACTIVITY BEING CONS TRUCTION OF ROADS OVER-BRIDGES IN LIEU OF LEVEL CROSSINGS IN THE STATE OF KERALA. TH E WORK IS EXECUTED THROUGH CONTRACTORS ENGAGED PER THE PROCESS OF INVITING TEN DERS. THE COMPANY AS A PART OF THE PREVALENT PRACTICE PAYS 10% OF THE CONTRACT VALUE AS WHAT IS CALLED A `MOBILISATION ADVANCE TO THE CONTRACTORS FOR MOBILISING MEN AND MATERIALS AT THE SITE. THE COMPANY ITA NOS. 1013 1014/COCH./2008 2 ALSO CHARGES INTEREST ON THE OUTSTANDING AMOUNT OF THE ADVANCE FROM THE CONTRACTORS AT THE RATE OF FOURTEEN PER CENT. (14%) PER ANNUM. THE ADVANCE AS WELL AS THE INTEREST AMOUNT IS RECOVERED FROM THE RUNNING ACCOUNT OF THE CONTRACTORS AGAINST WORK EXECUTED. THE ASSESSEE CREDITED THE SAID INTEREST TO CAPITAL WORK-IN-PROGRESS ON THE PREMISE THAT IT GOES TO REDUCE ITS COST. TOWARD THE SAME IT RELIED ON THE DECISION IN THE CASE OF CIT VS. BOKARO STEEL LTD. 236 ITR 315 (SC). THE SAME HOWEVER WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER (A.O.) I N WHOSE VIEW THE DECISION IN THE CASE OF TUTICORIN ALKIES AND CHEMICALS LTD. V. CIT 227 ITR 172 (SC) APPLIED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. FURTHER THE S AME STOOD FOLLOWED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. COCHIN SHIPYARD LTD. (2000) 158 CTR (KER.) 208. FURTHER ON THE SAID COURT IN THE CASE OF NANJI TOPANBHAI & CO. VS. ASST. CIT 243 ITR 192 (KER.) HELD THAT INTEREST ON DEPOSITS GIVEN AS COLLATERAL SECURITY FOR FUNDING BUSINESS LOANS IS ALSO NOT INCOME FROM BUSI NESS BUT ONLY INCOME FROM OTHER SOURCES. SEVERAL OTHER DECISIONS BY THE HONBLE JUR ISDICTIONAL HIGH COURT STOOD RELIED UPON BY THE A.O. IN BRINGING THE IMPUGNED AMOUNTS T O TAX AS INCOME FROM OTHER SOURCES: K.P. RAVINDRANATHAN NAIR V. DY. CIT 262 ITR 669 (KER.) ABAD ENTERPRISES V. CIT 253 ITR 319 (KER.) CIT V. JOSE THOMAS 253 ITR 553 (KER.) CIT V. VAIKUNDAM RUBBER CO. LTD. 241 ITR 50 (KER.) K. NANDAKUMAR V. ITO 204 ITR 856 (KER.) SOUTHERN CASHEW EXPORTERS V. CIT 183 CTR (KER.) 172 CIT V. G. SATHEESH NAIR 183 CTR (KER.) 175 CIT V. COCHIN REFINERIES LTD . 154 ITR 345 (KER.) COLLIS LINES (P.) LTD. V. CIT 135 ITR 390 (KER.) 2.2 IN APPEAL HOWEVER THE ASSESSEE FOUND FAVOUR W ITH THE LD. CIT(A) WHO WAS OF THE VIEW THAT THE DECISION IN THE CASE OF BOKARO STEEL LTD . (SUPRA) WAS SQUARELY APPLICABLE IN THE FACTS OF THE CASE. THE ADVANCE AT THE RATE OF 10% OF THE CONTRACT VALUE IS ONLY IN TERMS OF THE CONTRACT AND THUS ARISES OUT OF THE CONTRACTUAL OBLIGATION ITA NOS. 1013 1014/COCH./2008 3 ASSUMED. IT IS AS SUCH INTRINSICALLY RELATED TO T HE CONSTRUCTION PROJECT AND THE DECISION IN THE CASE OF BOKARO STEEL LTD. WOULD BECOME APPLICABLE REPRODUCING THE RELEVANT PART THEREOF. THE SECOND ISSUE BEFORE THE LD. CIT(A) RELATED TO THE EXIGIBILITY OF THE SAID INTEREST TO DEDUCTION U/S. 80IA OF THE INCOME-TAX A CT 1961 ('THE ACT' HEREINAFTER) WHICH STOOD DENIED BY THE AO ON THE GROUND THAT THE SAME DOES NOT REPRESENT PROFIT DERIVED FROM THE ASSESSEES INDUSTRIAL UNDERTAKING AND IN FACT IS ASSESSABLE AS INCOME FROM OTHER SOURCES RELYING ON THE DECISION IN THE CASE OF CIT V . STERLING FOODS 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 (SC). THE SAME STOOD NOT ADJUDICATED BY HIM BEING INFRUCTUOUS IN VIEW OF HIS HOLDING THE INTEREST RECEIVED AS CAPITAL IN NATURE. AGGRIEVED THE REVENUE IS IN APPEAL. 3. BEFORE US LIKE SUBMISSIONS STOOD RAISED BY EITH ER SIDE EACH RELYING ON THE ORDER OF THE AUTHORITY BELOW AS FAVOURABLE TO IT. THE LD. DR IN ADDITION PLACED RELIANCE ON THE DECISION IN THE CASE OF TOTGARS COOPERATIVE SOCIETY LTD. VS. CIT 322 ITR 283 (SC). THE LD. AR ON THE OTHER HAND WOULD SUBMIT THAT THE ASSESSEE- COMPANY IS A NODAL AGENCY FOR THE GOVERNMENT OF KER ALA FOR DEVELOPMENT OF INFRASTRUCTURE IN THE STATE. IT ACTS ONLY AS A FACI LITATOR EXECUTING THE PROJECTS ON BUILD OPERATE TRANSFER (BOT) BASIS. THE AO HAD FAILED TO CONSIDER THE DECISION IN THE CASE OF BOKARO STEEL LTD. (SUPRA). 4. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD AS WELL AS THE CASE LAW CITED. 4.1 WE WOULD FIRSTLY ADDRESS THE ISSUE ON FIRS T PRINCIPLES; THE INVOCATION OF THE DIFFERENT DECISIONS WHICH STAND RELIED UPON BY BOT H THE SIDES WOULD ONLY FOLLOW BEING SUPPORTIVE TO THE FACTUAL FINDINGS IN THE CAS E. `INCOME IS SOMETHING THAT FLOWS FROM A PROPERTY WHILE `CAPITAL IS SOMETHING RECEI VED IN LIEU THEREOF. CLASSICAL EXAMPLES OF `INCOME WOULD BE FRUIT FROM A TREE CR OP FROM LAND MILK FROM COW PRODUCE OF A FACTORY REMUNERATION AGAINST LABOUR ETC. ALSO INCOME IS SUBJECT TO THE ITA NOS. 1013 1014/COCH./2008 4 CHARGE OF TAX AT THE POINT OF ITS ACCRUAL AND WOUL D NOT DEPEND ON ITS DESTINATION OR THE MANNER OR ITS UTILIZATION. INTEREST INCOME IS PER SE REVENUE IN NATURE ARISE AS IT DOES FROM THE USER OF THE FINANCIAL RESOURCE OR CAPITAL OF ONE BY ANOTHER AT A COST SO THAT IT IS NOT AN ACCRETION TO CAPITAL BUT A GAIN THAT ARIS ES THERE-FROM ON IT BEING UTILIZED FRUITFULLY INSTEAD OF BEING KEPT IDLE. THAT IT FOLL OWS AN UNDERSTANDING OR A CONTRACTUAL ARRANGEMENT TO THAT EFFECT WOULD BE OF NO CONSEQUE NCE RATHER MAKE IT ALL THE MORE SO; THE FORM EVEN OTHERWISE SELDOM LEADING TO THE D ETERMINATION OF THE CHARACTER OF THE RECEIPT WHICH IN THE CASE OF INTEREST OTHER THAN WHERE AWARDED BY WAY OF COMPENSATION OR DAMAGES SO THAT IT IS RECEIVED TOW ARD A PROPERTY OR ITS LOSS THUS ASSUMING THE NATURE OF A CAPITAL RECEIPT ALWAYS BE ARS THE CHARACTER OF INCOME [REFER: TUTICORIN ALKIES AND CHEMICALS LTD. (SUPRA)]. 4.2 THE ADVANCES IN THE PRESENT CASE ARE ADMITT EDLY GIVEN TO FACILITATE THE EXECUTION OF THEIR WORK BY THE CONTRACTORS SO THAT THEY COULD MOBILIZE ME N AND MATERIALS INCLUDING EQUIPMENT WHICH THEY WOULD REQUIRE FOR T HE PURPOSE. THE SAME THUS IS ESSENTIALLY IN THE NATURE OF A FINANCING ARRANGEMEN T WITH A VIEW TO ENABLE PROPER AND TIMELY EXECUTION OF THE WORK I.E. WHICH THEY ARE EVEN OTHERWISE OBLIGED TO DO AND FURTHER ONLY AT A COST TO THEM SO THAT IT HAS COM MERCIAL CONSIDERATIONS ATTACHED TO IT. WHY A CONTRACTOR WITH ACCESS TO SUFFICIENT FUNDS OR TO A LOWER COST OF BORROWING MAY WELL CHOOSE NOT TO AVAIL THE ADVANCE OR AVAIL IT AT A LOWER AMOUNT . IN OTHER WORDS THE SCOPE OF THE ARRANGEMENT BEING TOWARD FINANCING THE WORK EVEN IF IT WERE TO BE CONSIDERED AS THE ASSESSEES OBLIGATION WHICH AGAI N ONLY STEMS FROM THE CONSIDERATION OF PROVIDING SOME AND UNIFORMLY AT T HAT SUPPORT TO THE CONTRACTORS HIRED THE `GAIN ASSOCIATED THEREWITH COULD NEVER BE TREATED AS FORMING AN INTEGRAL PART OF THE PROJECT COST WHICH MAY THUS GO TO REDU CE THE SAME. A FINANCE COST BY DEFINITION IS ONE WHICH ARISES ON ACCOUNT OF LACK OF OWN FUNDS OR CAPITAL VIS--VIS THAT REQUIRED SO THAT IT WOULD DEPEND ON THE AVAILABILI TY OF FUNDS. THE ARRANGEMENT THUS IS AN IMPOSED ONE SECONDARY TO THE PRIMARY TASK EVEN IF IT IS ENABLING IN NATURE. A CONTRACTOR MAY STILL FACE SHORTAGE OF CAPITAL AND RESORT TO ADDITIONAL BORROWING FOR THE PURPOSE. THEN AGAIN IS THE QUESTION OF THE RATE O F INTEREST WHICH IS BEING CHARGED AT A ITA NOS. 1013 1014/COCH./2008 5 COMMERCIAL RATE. THE FUNDS UTILIZED LIKE-WISE WOU LD IMPACT THE PROJECT IN THE SAME MANNER WHILE THE BORROWING RATE COULD WELL BE DIFF ERENT LEADING TO A `REDUCTION IN PROJECT COST AT DIFFERENT AMOUNTS. IT IS ONLY DIREC T COSTS AND WHICH WOULD REMAIN SAME ACROSS ALL FINANCING PATTERNS THAT CAN BE CONSIDER ED AS PART OF THE COST OF THE PROJECT. THAT THE PRACTICE STANDS INSTITUTIONALIZED OR MORE OR LESS SO AS IT APPEARS AGAIN WOULD BE BESIDES THE POINT AS THAT WOULD NOT HAVE ANY BEARING ON THE CHARACTER OF THE RECEIPT OR THE NATURE OF THE COST I.E. DIRECT OR INDIRECT. ALL THAT IT WOULD IMPLY IS THAT THE FINANCING PATTERN BEING UNIFORM THE TENDER BID BY THE DIFFERENT CONTRACTORS WOULD ELIMINATE CONSIDERATIONS OF FINANCIAL COST OR LARG ELY SO DEPENDING UPON THE ADEQUACY OF THE QUANTUM OF FINANCE EXTENDED IN RELATION TO T HE REQUIREMENT WHICH BECOMES A CONSTANT FACTOR FOR THEM AT 14% P.A. HOW WOULD IT MATTER ONE MAY ASK AND ONLY TO ILLUSTRATE THE POINT IN ISSUE IF THE ASSESSEE WERE TO EXTEND LOAN TO AN INTERMEDIARY WHICH WOULD IN TURN FINANCE THE CONTRACTORS ? THE ASSESSEE INSTEAD OF RECEIVING INTEREST FROM THE CONTRACTORS WOULD DO SO FROM ANOT HER AND THE CONTRACTORS WOULD BEAR THE SAME NOT BY WAY OF DEDUCTION OF THEIR REC EIPT FROM THE ASSESSEE BUT BY PAYING THE SAME DIRECTLY TO THE FINANCIER; THE RECE IPT FROM THE ASSESSEE STANDING TO INCREASE TO THE SAME EXTENT. THAT IS BOTH THE ASSE SSEE AND THE CONTRACTORS WOULD STAND TO GAIN OR LOOSE IN LIEU OF THE TIME VALUE OF THE CAPITAL EXTENDED IN THE LIKE MANNER BUT IT COULD NO LONGER BE CONTENDED THAT THE INTERE ST RECEIPT IS A CAPITAL RECEIPT WHICH WOULD GO TO REDUCE THE COST OF THE PROJECT. THIS WO ULD BE SO EVEN IF IT IS DONE UNDER A TRIPARTITE ARRANGEMENT WITH THE ASSESSEE EARMARKIN G FUNDS TO THAT EXTENT AGAINST ITS ONGOING PROJECTS. COULD A SIMPLE CHANGE IN THE FORMAT OF A RECEIPT LE AD TO A CHANGE IN THE CHARACTER OF THE RECEIPT ? IS THE QUESTION THAT REQUIRES TO BE ANSWERED. THE ANSWER WOULD ONLY BE AN EMPHATIC NO. IN FACT IN AC TUAL PRACTICE OR AS ANOTHER VARIANT TO THE MODEL IT IS NOT EVEN NECESSARY THAT THERE I S AN INTERMEDIARY AND THE PERSON PAYING INTEREST TO THE ASSESSEE AND LENDING MONIES TO THE CONTRACTORS MAY WELL BE DIFFERENT. THE IDEA OR THE PURPOSE OF THE EXAMPLE W AS JUST TO HIGHLIGHT THE ISSUE KEEPING THE FORMAT SIMPLE. AGAIN THAT IN ACTUAL PR ACTICE THERE WOULD BE SOME AGENCY COST ASSOCIATED WITH THE INTERMEDIARY IS AGAIN NOT RELEVANT AND BESIDES THE POINT AND WHICH WOULD ONLY IMPACT THE QUANTUM OF THE RECEIPT AND NOT ITS CHARACTER. THE SOURCE ITA NOS. 1013 1014/COCH./2008 6 OF INTEREST INCOME FOR THE ASSESSEE IT IS TO BE AP PRECIATED IS THE FUNDS AND NOT THE MANNER OF THEIR UTILIZATION BY THE CONTRACTORS WHI CH ALONE WOULD QUALIFY THE GAIN ARISING TO THE ASSESSEE AS INTRINSIC TO THE EXECUTI ON OF THE PROJECT . THE DECISION IN THE CASE OF PANDIAN CHEMICALS LTD . (SUPRA) WHERE THE INTEREST INCOME WAS FROM THE DEPOSIT WITH THE ELECTRICITY DEPARTMENT GIVEN TO T HEM UNDER THE TERMS OF THE POWER SUPPLY ARRANGEMENT FOR THE ASSESSEES INDUSTRIAL UN DERTAKING WAS HELD AS NOT AN INCOME `DERIVED THERE-FROM BUT ONLY FROM A SECONDARY SOURCE- FUNDS INTER ALIA AGAIN ILLUSTRATES THE ISSUE AS WELL AS THE APPLIC ATION OF THE LAW IN ITS RESPECT. (ALSO REFER PARA 4.4). 4.3 FURTHER ON WE FIND THE DECISION BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF COCHIN SHIPYARD LTD. (SUPRA) ANOTHER PUBLIC SECTOR UNDERTAKING OF THE STATE GOVERNMENT RENDERED FOLLOWING THE DECISION BY THE APEX COURT IN THE CASE OF TUTICORIN ALKIES AND CHEMICALS LTD. (SUPRA) AS SQUARELY ON THE POINT AS WOULD BE APPARENT FROM THE BARE NARRATION OF THE FACTS STATE D AT PARA 2 OF THE SAID JUDGMENT . THE MATTER IS ESSENTIALLY ONE OF LAW TO BE APPLIED IN THE FACTS OF THE CASE AND WHICH WE FIND AS ANSWERED COMPLETELY IN THE CASE OF COCHIN SHIPYARD LTD. (SUPRA) ON ALMOST THE SAME SET OF FACTS. THE DISTINGUISHMENT BY THE L D. CIT(A) OF THE CASE OF TUTICORIN ALKIES AND CHEMICALS LTD. (SUPRA) BY OBSERVING THAT THE EARNING IN THAT CASE WAS NOT CONNECTED WITH THE BUSINESS ACTIVITY SO THAT IT CO ULD BE USED IN ANY MANNER BY THE COMPANY IS IN OUR VIEW NOT ON THE POINT. THE QUE STION HERE IS NOT WHETHER THE INTEREST INCOME UNDER REFERENCE ARISES OUT OF BUSIN ESS ACTIVITY OR NOT BUT OF ITS BEING CAPITAL OR REVENUE IN NATURE. SECONDLY WE SEE NO B ASIS FOR HIS HOLDING THAT THE SAID INCOME COULD NOT BE USED BY THE ASSESSEE IN THE PR ESENT CASE IN ANY MANNER IT LIKED SO THAT THE SAME WOULD ITSELF POINT OUT TO THE APPL ICABILITY OF THE SAID DECISION AS WELL AS THE DISTINGUISHMENT FROM THE CASE OF BOKARO STEEL LTD. (SUPRA). 4.4 IN THE CASE OF BOKARO STEEL LTD. (SUPRA) IT WAS A CAPITAL PROJECT THAT WAS BEING SET UP AND SECONDLY THE RECEIPT(S) UNDER REFERENCE WAS INEXTRICABLY LINKED WITH ITS EXECUTION. IN THE PRESENT CASE ON THE OTHER HAND THE PROJECTS BEING EXECUTED WOULD ITA NOS. 1013 1014/COCH./2008 7 NOT RESULT IN CAPITAL ASSETS OF THE ASSESSEE-COMPAN Y; IT BEING AN AGENCY ENGAGED IN EXECUTING PROJECTS SO THAT THE SAME - AS FAR AS IT IS CONCERNED - ARE ONLY ITS STOCK-IN- TRADE. FURTHER THE INCOME CONSIDERED AS LEADING T O THE REDUCTION IN THE PROJECT COST AROSE FROM THE VERY ASSETS/EQUIPMENT DEPLOYED IN TH E EXECUTION OF THE PROJECT. AS SUCH APART FROM OUR FINDING OF THE ASSESSEES PROJ ECTS AS NOT REPRESENTING ITS CAPITAL ASSETS IMPLYING FORMING PART OF ITS CAPITAL STRUC TURE BUT AS A PART OF ITS TRADE OR BUSINESS THE SAID DECISION IS EVEN OTHERWISE I.E. ON THE BASIS OF THE PECULIAR FACTS OF THE SAID CASE WHEREIN THE PROCESSES GENERATING INC OME WERE FOUND TO BE INEXTRICABLY LINKED WITH THE SETTING UP OF THE ASSESSEES STEEL PLANT INAPPLICABLE. RELIANCE ON THE SAME IS THUS MISPLACED. 4.5 THE ASSESSEE HAS WE FIND SOUGHT TO EMPHASIZE TH E FACT THAT THE ADVANCES UNDER QUESTION WERE GIVEN BY WAY OF A NORMAL BUSINESS PRA CTICE TO CONTRACTORS AND BESIDES GOING TO MOBILISE MEN AND MATERIALS ALSO UTILIZED FOR PROCURING NECESSARY EQUIPMENT AT THE WORK SITE. FIRSTLY AS WOULD BE APPARENT FR OM A BARE READING OF THE FACTUAL SETTING IN THE CASE OF COCHIN SHIPYARD LTD . (SUPRA) THERE IS A COMPLETE PARITY OF FACTS WITH THE PRESENT CASE. SECONDLY IT IS IMMATERIAL QUA THE ISSUE AT LARGE WHETHER THE CONTRACTORS UTILIZE THE FUNDS ADVANCED TO MOBILISE MEN AND MATERIAL OR ALSO FOR THE NECESSARY EQUIPMENT; THE PURPOSE OF THE SAME IN EI THER CASE BEING ONLY TO ENABLE THEM TO EXECUTE THE PROJECT WITHOUT ANY FINANCIAL H ITCH AS OBSERVED BY THE HONBLE JURISDICTIONAL HIGH COURT. 4.6 FURTHER ON THE FACT THAT THE ADVANCES GIVEN TO THE CONTRACTORS AS WELL AS THE INTEREST RECEIVED THEREON ARE IN TERMS OF A CONTRA CT IS OF NO CONSEQUENCE AND THE LD. CIT(A) IN OUR VIEW HAS MISDIRECTED HIMSELF IN BEI NG MOVED BY THE SAME. INTEREST INCOME OR THE BUSINESS TRANSACTIONS IN GENERAL WO ULD NORMALLY ARISE ONLY OUT OF A CONTRACTUAL RELATIONSHIP I.E. IN CONTRADISTINCTIO N TO THAT BY STATUS. THE QUESTION HERE HOWEVER IS OF THE NATURE OF THE RECEIPT. THE ASSES SEES ARGUMENT BEFORE HIM THAT IT HAD ALSO INCURRED INTEREST EXPENDITURE ON FUNDS BOR ROWED FOR CONSTRUCTION SO THAT THE SAME WOULD GO TO INCREASE THE COST THEREOF AND LIK EWISE THE INTEREST RECEIVED WOULD ITA NOS. 1013 1014/COCH./2008 8 GO TO DECREASE ITS COST AND WHICH ALSO WEIGHED WIT H HIM IN HOLDING THE INTEREST INCOME AS PRINCIPALLY RELATED TO THE CONSTRUCTION IS MISCONCEIVED AND WITHOUT BASIS. FIRSTLY THERE IS NO FINDING BY HIM OF THE ASSESSEE INCREASING THE PROJECT COST WITH THE INTEREST ON BORROWINGS UTILIZED IN THE EXECUTION OF THE PROJECT. SECONDLY NEITHER AS PER THE NORMAL OR COMMERCIAL ACCOUNTING PRINCIPLES WHI CH ARE HONOURED BY THE LAW NOR AS PER THE INCOME-TAX LAW THE INTEREST ON BORROWED FUNDS WOULD GO TO INCREASE THE COST OF THE PROJECT WHATEVER BE ITS SIZE OR THE TI MEFRAME REQUIRED TO EXECUTE THE SAME WHERE THE PROJECT IS NOT A CAPITAL ASSET OF THE ENT ITY PAYING THE INTEREST AS IN THE INSTANT CASE. THE SAME WOULD ONLY FORM PART OF THE REGULAR BUSINESS EXPENDITURE DEDUCTIBLE U/S. 36(1)(III) ON THE FINDING OF UTILIZATION OF T HE RELEVANT BORROWING FOR THE PURPOSE OF THE ASSESSEES BUSINESS. 5.1 IN VIEW OF THE FOREGOING INCLUDING THE LA W IN THE MATTER AS LAID DOWN BY THE APEX COURT IN THE CASE OF TUTICORIN ALKIES AND CHEMICALS LTD. (SUPRA); PANDIAN CHEMICALS LTD . (SUPRA) TO NAME SOME WE CONSIDER THE INTEREST O N MOBILIZATION ADVANCES AS RIGHTLY ASSESSED AS A REVENUE RECEIPT I N THE PRESENT CASE AND ITS REVERSAL BY THE LD. CIT(A) HOLDING IT AS A CAPITAL RECEIPT MERITS BEING SET ASIDE AND IS ACCORDINGLY SO DIRECTED FOLLOWING FURTHER THE DE CISION IN THE CASE OF COCHIN SHIPYARD LTD . (SUPRA) WHICH IS SQUARELY APPLICABLE IN THE FACT S OF THE CASE. 5.2 THE LD. CIT (A) HAS NOT ADJUDICATED THE AS SESSEES SECOND ISSUE RAISED BEFORE HIM ( REFER PARA 2.2 OF THIS ORDER) IN VIEW OF HIS FINDING IN RELATION TO THE FIRST ISSUE IN APPEAL BEFORE US IN ASSESSEES FAVOUR. THOUGH NOT SPECIFICALLY URGED BEFORE US AT THE TIME OF HEARING WHICH WE CONSIDER AS NOT MATERIAL AND UNDER THE CIRCUMSTANCES ONLY DEEM IT FIT TO DIRECT THE LD. CIT(A) TO DO SO NOW I N ACCORDANCE WITH LAW AND AFTER HEARING BOTH THE SIDES; HIS FINDINGS AND CONCOMITA NTLY DECISION ON THE FIRST ISSUE AFORESAID HAVING BEEN REVERSED PER THIS ORDER SO T HAT THE SECOND ISSUE WOULD REQUIRE BEING ANSWERED BY HIM. ITA NOS. 1013 1014/COCH./2008 9 6. IN THE RESULT THE APPEALS BY THE REVENUE ARE AL LOWED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 31ST MAY 2010 GJ COPY TO: 1. M/S. ROADS & BRIDGES DEVELOPMENT CORPORATION OF KERALA LTD. 2 ND FLOOR PREETHY BLDG. M.V. ROAD PALARIVATTOM COCHIN-682 025. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE -1(3) ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II KOC HI. 4. THE COMMISSIONER OF INCOME-TAX KOCHI. 5. D.R./I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR)