IMPORTANT POINT
Interest income earned from grants made by the Government for specific construction purposes is treated as income from other sources and is not inextricably connected with the construction activities or business activities of the assessee.

JUDGMENT :

K. Vinod Chandran, J.

The writ petition is filed against an assessment order passed under Section 143(3) of the Income Tax Act (hereinafter referred to I.T. Act) dated 26.03.2021. The statutory remedy by way of an appeal was not availed of. The question raised is also one which can be considered in appeal; as to whether the income earned on the deposits made by the assessee, is liable to be computed in the total income of the assessee; when the interest earned is from the funds received as grants from the Government, for construction of buildings of the Police Department. It is also contended that Annexure-3 government circular has stipulated that the grants for the successive years would be reduced to the extent of the interest earned from the un-utilized funds of the earlier years kept in fixed deposits. Hence, though, earned as interest from the fixed deposits from the banks, it cannot be assessed as income from other sources under Section 56 of the I.T. Act, is the question raised. We have to notice that there would be gross delay from the date on which the order is passed; which would also be a hurdle insofar as availing the alternate remedy of an appeal.

2. We are not convinced that the matter falls under any of the specific grounds found in State of H.P. & Ors. v. Gujarat Ambuja Cement Limited & Anr.; (2005) 6 SCC 499. There is no jurisdictional error, violation of principles of natural justice or abuse of process of Court averred or argued by the petitioner in the above writ petition. We are proceeding to adjudicate the issue since the matter is pending from 2022 and there is no purpose served in relegating the petitioner to the Appellate remedy.

3. Though, there are contentions raised of the assessment order having not been served on the assessee, it is to be noticed that the department asserts otherwise of the order having been uploaded in the website.

4. Learned counsel for the petitioner relied on the decisions of the Hon’ble Supreme Court in Commissioner of Income Tax, Bihar -II, Patna v. Bokaro Steel Ltd, Bokaro, reported in (1999) 1 SCC 645 followed by the Delhi High Court in NTPC Sail Power Company Private Limited v. Commissioner of Income Tax reported in 2012 SCC Online Del 3717 decided on 17.10.2010. The department, on the other hand, points out that the assessee, is engaged in the construction of buildings for the Police Department. The decisions cited are not applicable since they were with respect to borrowed funds, as distinguished from the grants received from the Government. The decisions clearly were on the interest on borrowed funds, parked in fixed deposits for short terms, while the expansion of the business or construction activities for the purpose of business are going on. It was only in that circumstance the interest earned on short term deposits were allowed set-off as against the interest paid on such borrowed funds.

5. As far as the facts are concerned, the assessee receives grants from the State Government for the purpose of construction of buildings, which were deposited in banks. In the subject assessment year being 2018–19, the assessee earned a total interest of Rs.12,63,82,110/-. The assessee returned only an interest income of Rs.10,01,81,879/- after deducting an amount of Rs.2,68,00,231/-. The assessee claimed TDS for the total amounts received as interest. The Assessing Officer added on the differential amount of interest coming to Rs.2,68,00,231/- as the income of the assessee, against which the present writ petition is filed.

6. In Bokaro Steel Ltd., (supra) the issue as to whether the interest earned from borrowed funds kept in fixed deposits could be termed as income from other sources or viewed as capital receipts was not raised at all. A mere reference was made to the issue to find it covered by the Tuticorin Alkali Chemicals and Fertilizers Ltd., v. CIT (1997) 6 SCC 117. The Hon’ble Supreme Court in Tuticorin (supra) held that interest earned at the pre-business stage by i