TaxTMI 
TaxTMI 
2010 (6) TMI 598
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....gment of CIT v. Bokaro Steel Ltd. [1999] 151 CTR (SC) 276 : [1999] 236 ITR 315 (SC) which is more appropriate and also has not taken cognizance of judgment in case of Acuprint System Ltd. decided by Hon'ble Tribunal 'D' Bench, Mumbai and has thus passed an order which is devoid of just, equity and fair play. 3. The learned CIT(A) has erred in concluding that while treating the income Acuprint System Ltd. decided by Hon'ble Tribunal 'D' Bench, Mumbai "Income from other sources" expenses of revenue nature incurred by the appellant should only be allowed under section 57 of the IT Act, 1961 and not Acuprint System Ltd. decided by Hon'ble Tribunal 'D' Bench, Mumbai business expenditure for the reasons stated in the order, (sic)" 3. Grounds of appeal raised for the asst. yr. 2004-05 are as under : "1. The learned CIT(A) has erred in confirming the AO's findings that appellant has not commenced business and hence there cannot be any question of assessment of its profits and gains of business for the reasons stated in the order. 2. The learned CIT(A) has erred in following the judgment of Tuticorin Alkali Chemicals & Fertilisers Ltd. v. CIT [1997] 141 CTR (SC) 387 : [1997]....
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....,603. It was noticed that from this expenditure, a sum of Rs. 61,56,030 was reduced from the capital work-in-progress. The sum of Rs. 61,56,030 consisted of the following items : (i) Interest on fixed deposits 2,51,537 (ii) Interest on loans 59,04,493 61,56,030 After reduction of this expenditure, capital work-in-progress was shown at Rs. 1,05,63,573. Interest on loan was received on account of loans given by the assessee company to various other companies as well as short-term deposit with bank out of the proceeds of share capital. AO was of the view that since assessee was, admittedly in the process of setting up of training institute during the year and, therefore, interest earned by deploying surplus funds received from share capital subscription was income to be assessed under the head 'Income from other sources' and the same was required to be brought to tax. As per noting-sheet entry dt. 16th June, 2005 assessee was required to show cause as to why such interest income should not be brought to tax under the head "Income from other sources", in response to the same, assessee vide its letter dt. 17th Aug., 2005 submitted as under : "The company has adopted....
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....Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC) and held that interest earned by the assessee company was to be charged under the head 'Income from other sources'. He also discussed and then distinguished the decisions of Hon'ble Supreme Court in the cases of Bokaro Steel Ltd. (supra), Karnal Co-operative Sugar Mills Ltd. (supra) and Karnataka Power Corpn. (supra). In this background, the sum of Rs. 61,56,030 being interest earned from fixed deposits and interest on loans from other companies was subjected to tax under the head 'Income from other sources' in asst. yr. 2003-04. 7. Similarly, in asst. yr. 2004-05 income from other sources from the following items was also assessed to tax : 1. Interest earned on FDs. 1,23,411 2. Interest on loans 26,93,042 3. Income from units of mutual funds 48,23,594 76,40,047 8. Before the CIT(A) it was mainly submitted that assessee company was a joint venture between Mukta Arts Ltd. (a private company) and MSFDC Ltd. (a 100 per cent Maharashtra Government company). The company was consistently following the policy of capitalizing of the expenditure and income, if any, as cost of the project till the completion of the proj....
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.... the provisions of the Act. Sec. 14 lays down that for the purpose of computation, income of an assessee has to be classified under six heads : (A) Salaries (B) Interest on securities (C) Income from house property (D) Profits and gains of business or profession (E) Capital gains (F) Income from other sources By an amendment made in 1988 'interest on securities' has been made chargeable to tax as business income when such interest forms part of business profits and in all other cases under section 56(2)(id) as income from other sources. The amendment made in 1988 has no relevance for the purpose of this case. We shall take this Act as it stood at the material time in the asst. yr. 1983-84. The computation of income under each of the above six heads will have to be made independently and separately. There are specific rules of deduction and allowances under each head. No deduction or adjustment on account of any expenditure can be made except as provided by the Act. The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income-tax. Profits and gains....
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.... & Toubro Ltd. He submitted that in this case, the ratio laid down by Hon'ble Supreme Court in the cases of Bokaro Steel Ltd. (supra), Karnal Co-operative Sugar Mills Ltd. (supra) and Karnataka Power Corpn. (supra), should be applied. He further submitted that the decisions of Tuticorin Alkali Chemicals & Fertilisers Ltd. (supra) and Bokaro Steel Ltd. (supra) have been discussed by the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium v. ITO [2009] 315 ITR 255 (Delhi). In this case the Hon'ble High Court after referring to section 3 of the Act, which states that in newly set up business the previous year shall be period beginning with the date of setting up of the business and, therefore, setting up of business itself is a business activity and ultimately the interest earned was held to be taxable as income from business. He also relied on the decision of Mumbai Bench of the Tribunal in the case of Shapoorji Pallonji Power Co. Ltd. v. ITO [2009] 28 DTR (Mumbai)(Trib.) 12 (copy of the decision was filed). He also referred to the decision of the Hon'ble Delhi High Court in the case of CIT v. Aspentech India (P.) Ltd. (Delhi) (copy of the decision was filed).....
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....ng a letter of credit for purchase of machinery and, therefore, the principle laid down in Bokaro Steel Ltd. (supra) was made applicable. 11. He further submitted that there is no question of loss of revenue expenditure because no such disallowance has been made by the AO. In any case, the decision of Hon'ble Delhi High Court in the case of Aspentech India (P.) Ltd. (supra) is distinguishable on facts because in that case the assessee company was trying to set up the software development project which cannot be equated with construction of a training institute. Further, the Hon'ble Delhi High Court has given three stages of project, i.e., procurement of raw material, establishment of plant and machinery, processing of such raw material in the plant set up for this purpose and ultimately marketing of such project. But in the case of training institution there are no such stages involved and the business of the assessee company would commence only when the institution is fully constructed and students are admitted for training. Thus, decision of the Hon'ble Delhi High Court is distinguishable. 12. We have considered the rival submissions carefully in the light of the material on re....
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....f Rs. 2,92,440 was not exigible to tax. The ITO rejected the assessee's claim that the interest income was not exigible to tax. The view of the ITO was upheld by the CIT(A). The company's further appeal to the Tribunal was dismissed. We are also concerned in this case with the asst. yr. 1983-84. During the previous year relevant to this assessment year, the assessee had received interest income of Rs. 1,08,336. The assessee filed its return in which it claimed that the interest income of Rs. 1,08,336 should go to reduce the pre-production expenses including the interest and finance charges which would ultimately be capitalised. The ITO rejected the assessee's claim that the interest income was not exigible to tax. The view of the ITO was upheld by the CIT(A). The company's further appeal to the Tribunal was dismissed. In view of the conflict of decisions between the Madras and Andhra Pradesh High Courts, the Tribunal referred the question regarding taxability of income, directly to the Supreme Court", On the above facts, it was held as under : "The company had surplus funds in its hands. In order to earn income out of the surplus funds, it invested the amount for the purpose of e....
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....s in this case, keep the surplus fund in short-term deposits in order to earn interest such interests will be chargeable under section 56 of the Act." Thus, it is clear from the above discussion that whenever an assessee is in the process of setting up of the business, if any, income arises under any of the heads except under the head profits and gains of business, then such income has to charged to tax under that particular head. 13. The learned counsel of the assessee had vehemently argued that this principle was diluted by Hon'ble Supreme Court while deciding the issue in the cases of Bokaro Steel Ltd. (supra), Karnal Co-operative Sugar Mills Ltd. (supra) and Karnataka Power Corporation (supra). But having read these judgments very carefully, we find that the learned Departmental Representative is right that these later three decisions were rendered because of distinguishable facts. In the case of Bokaro Steel Ltd. (supra), the issue was whether rent received from contractors against houses given for staff of contractors, machine hire charges received from machines given by the assessee company and interest received from contractors on advances made by the assessee company to ....
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....made applicable. In the case of Karnataka Power Corpn. (supra), the first question referred before the Hon'ble Court was as under : "(1) Whether, on the facts and in the. circumstances of the case, the Tribunal is right in law in upholding the order of the CIT(A) who deleted the addition of Rs. 1,30,44,518 being interest receipts and hire charges from contractors by holding that the same are in the nature of capital receipts which would go to reduce capital cost ?" From the question itself it is clear that in this case the issue was regarding interest receipts and hire charges from the contracts and that, is why the principle laid down in Bokaro Steel Ltd. (supra) was followed. 16. We further find that Hon'ble Supreme Court has again followed the decision of Tuticorin Alkali Chemicals & Fertilisers Ltd. (supra) in the case of CIT v. Coromandal Cements Ltd. [1998] 234 ITR 412 (SC). In this case the headnote reads as under : "Against the judgment of the Andhra Pradesh High Court refusing to call for a reference of the question whether the Tribunal was right in holding that interest earned on short-term bank deposits during the pre-production stage could not be treated as income f....
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....at contract could not be executed. Therefore, this decision is clearly distinguishable, particularly in the light of the principles laid down by the Hon'ble Supreme Court. 17. As far as the second limb of the argument is concerned, to which the learned counsel of the assessee has referred to the decision of the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra), it was observed by the Hon'ble Delhi High Court at placitum as under : "4. It is important to note that the Tribunal without holding that the finding of fact of the CIT(A), that the interest earned was inextricably linked with the setting up of the power plant reversed the decision of the CIT(A) by making a bald observation that the "deposit of share capital has no or very remote connection with setting up of plant and machinery". The Tribunal further observed that it was an independent income earned in a similar fashion as was the case in Tuticorin Alkali Chemicals & Fertilisers Ltd. v. CIT [1997] 141 CTR (SC) 387 : [1997] 227 ITR 1 72 (SC)." From the above, it is clear that there was already a finding by the first appellate authority that interest earned was inextricably linked wit....
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....n the facts and circumstances of the case." The facts before the Hon'ble High Court were as under : "The assessee company was incorporated on 10th March, 1973, with the main object of manufacturing, buying, selling and dealing in all kinds of vulcanisers, tyres and tube presses and to set up a heavy machine shop. For the asst. yr. 1974-75 relevant for the previous year 1st Oct., 1972, to 31st Dec., 1973, the assessee filed its return declaring a loss of Rs. 1,88,310. In its P&L a/c, the assessee credited interest of Rs. 1,54,325. The assessee claimed that the business had been set up during the previous year and, as such, it was entitled to deduction of expenditure debited to P&L a/c as revenue expenditure. The ITO did not accept the claim of the assessee on the ground that the assessee had not set up its business during the relevant previous year, because even though the company had procured orders for supplying machinery to outsiders, neither the plant nor machinery had been installed nor and manufacturing activity had commenced in the previous year. The ITC also taxed the interest income under section 56 of the IT Act, 1961, under the head "Income from other sources". The Trib....