Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 17.07.2023 passed by the Income Tax Appellate Tribunal, Delhi Bench, allowing the appeal of the assessee, Brahma Center Development Pvt. Ltd. The assessee is engaged in the business of promotion, construction and development of real estate projects on land allotted by Haryana State Industrial and Infrastructure Development Limited (HSIIDC).

For acquisition of land, the assessee was required to make payments in instalments. To meet these obligations, funds were raised from non-resident shareholders through Compulsory Convertible Debentures (CCDs) bearing interest at 12% per annum, which was capitalised to the cost of the project. Pending utilisation for instalment payments to HSIIDC, surplus funds were temporarily parked in Fixed Deposit Receipts (FDRs), generating interest income. The assessee treated such interest as capital receipt linked to the project and adjusted it against project cost.

Issues Involved

Whether interest earned on FDRs out of funds raised for a real estate project constitutes income from other sources or a capital receipt, whether the nexus between the borrowed funds and the project was established, and whether any substantial question of law arose when identical issues had already been decided in the assessee’s own case.

Petitioner’s Arguments

The Revenue contended that the Tribunal erred in relying upon earlier decisions rendered in the context of proceedings under Section 263 of the Act. It was argued that those decisions could not govern the present case arising from regular assessment under Section 143(3). The Revenue submitted that interest earned on FDRs should be taxed as income from other sources in light of the Supreme Court decision in Tuticorin Alkali Chemicals & Fertilizers Ltd.

Respondent’s Arguments

The assessee submitted that the issue stood conclusively covered in its favour by earlier orders of the ITAT for Assessment Years 2012-13 and 2013-14, which had been upheld by the Delhi High Court in ITA 116/2021 and ITA 118/2021. It was argued that even though those proceedings arose under Section 263, the High Court had specifically held that the view adopted by the Assessing Officer treating interest on FDRs as capital receipt was a plausible view based on clear nexus with the real estate project. Reliance was placed on Bokaro Steel Ltd., Indian Oil Panipat Power Consortium Ltd., NTPC SAIL Power Co. Pvt. Ltd., and Jaypee DSC Ventures Ltd.

Court Order / Findings

The Delhi High Court examined the impugned order of the Tribunal and noted that the issue of taxability of interest on FDRs stood fully covered by the Court’s earlier judgment dated 05.07.2021 in the assessee’s own case. The Court held that the earlier judgment, though arising from Section 263 proceedings, squarely addressed the core issue of whether the Assessing Officer’s treatment of interest income as capital receipt was legally sustainable.

The Court reiterated that where funds are raised specifically for a project and are temporarily parked in FDRs pending deployment, the interest earned is inextricably linked to the project and assumes the character of a capital receipt. The Court distinguished Tuticorin Alkali Chemicals & Fertilizers Ltd. on facts and followed the ratio of Bokaro Steel Ltd. and Indian Oil Panipat Power Consortium Ltd. The Court held that no change in facts or law was shown by the Revenue to warrant a different view.

Important Clarification

The Court clarified that where an issue has been conclusively decided in the assessee’s own case by a coordinate bench of the High Court, the Revenue cannot re-agitate the same issue in subsequent years in the absence of any material change in facts or legal position. The nature of proceedings under Section 263 does not dilute the binding effect of findings on substantive tax issues.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court held that no substantial question of law arose for consideration. The order of the Income Tax Appellate Tribunal allowing the assessee’s claim and treating interest on FDRs as capital receipt was upheld. The decision was rendered in favour of the assessee and against the Revenue.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769681652_PR.COMMISSIONEROFINCOMETAX1DELHIVsBRAHMACENTERDEVELOPMENTPVT.LTD..pdf

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