TaxTMI 
TaxTMI 
2002 (11) TMI 778
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....enditure incurred by the appellant. iii.The authorities below erred in not computing the receipts under the head 'income from business or profession'. iv.The authorities below ought to have allowed the expenditure in the form of payment of interest to banks and on debenture and other expenditure such as guarantee commission etc., in computing the income of the appellant. v.The appellant denies the liabilities for interest under section 234B. Further prays that the interest should be levied only on returned income. 3.1 The facts of the case are as follows : The appellant was incorporated as Public Ltd. Company on 15-3-1994 as per the Certificate of Incorporation issued by the Registrar of Companies, Karnataka. The main objects of the Company is to set up iron and steel making facilities and continuous casting and hot and cold rolling mill plants for producing of all kinds of metals both ferrous and non-ferrous including steel, etc. The objects incidental or ancillary covers a wide spectrum like import/export of all kinds of merchandise and services, acting as consulting engineers, property development, lending and advancing monies, buying and selling of shares and sec....
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....; (1)Fixed Assets (a)Gross Block D 721.78 (b)Less - depreciation 19.42 (c)Net Block 702.36 (d)Capital Work-in-progress and Pre-operative expenditure during construction period pending allocation E 30,553.72 31,256.08 (2)Investments F 21,796.08 (3)Current Assets, Loans and Advances: (a)Cash and Bank Balances G 1,43,843.66 (b)Other Current Assets 982.04 (c)Loans and Advances H 14,740.62 1,59,566.32 Less: Current Liabilities and Provisions: (a)Liabilities I 1,39,432.15 (b)Provisions J 0.15 1,39,432.30 Net Current Assets: 20,134.02 (4)Miscellaneous Expenditure (to the extent not written off or adjusted) K 2,040.97 Total 75,227.15 Some of the important schedules to balance sheet are as under: SCHEDULE 'C' - UNSECURED LOANS (Rs. in Lakhs) Short Term Loans from Banks: ....
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....up, but no funds were made available to the company until the year end. The Balance Sheet also indicates that the actual borrowing made by the company were all short term in nature and were utilised generally for the purposes of lending and deposit etc., and current assets. The prospectus in paper book at page 51 mentions the sources and uses of funds. The sources include various types of borrowing and utilisation of profits generated from other business by the company towards investing in long term projects. The total borrowing envisaged for these activities were in the order of Rs. 2,125 crores and consequently the authorisation by the shareholders in favour of the Board of directors mentioned supra for Rs. 3,300 crores shows that the company was entitled to borrow in excess of the required funds for the long term projects. 3.4 The company to carry on the activity of advances, bill discounting, deposits etc., had time and again borrowed funds on short term basis from Hongkong Shanghai Banking Corporation vide its sanctioned letter dated 20-10-1994 for Rs. 44.50 crores, from American Express Bank for Rs. 75 crores, from Society General, France in excess of Rs. 100 crores, and f....
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....l production in its steel plant. 3.6 Before the authorities below, the appellant had claimed the entire receipts of Rs. 11.07 crores as not taxable relying on the decision of Orissa High Court in case of CIT v. Electrochem Orissa Ltd. [1995] 123 CTR (Ori.) 162 and the decision of Bombay High Court in CIT v. Maharashtra Electrosmelt Ltd. [1995] 214 ITR 489 1. As an alternative submission the appellant had claimed that the company has carried on the business during the year and the entire income after setting off expenditure should be computed under the head business. This plea of the appellant was not accepted by the Assessing Officer (AO) who held that the appellant having not commenced its production in the steel plant, the income earned could not be treated as business income and accordingly, treated the entire receipts under the head 'income from other sources'. The Assessing Officer further refused to allow the expenditure by holding that the expenses had no nexus with the earning of income and such expenditure could not be allowed even under the head 'other sources' and the claim being considered under the head 'business' would not arise as according to him the appellant ha....
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....were still at nascent stage and had not commenced operations and consequently did not yield any income, however, the financing activities outlined above was itself carried on in a systematic manner inasmuch as corporate treasury division were established consisting of board of directors, financing executives and other staff to carry on the business. Further the company had borrowed funds from banks, private placement of debentures, intercorporate borrowing, etc. which in turn was lent to earn the income. 4.2 The activity involved lending and borrowing of more than Rs. 1438 crores which could not be regarded as other sources or incidental activity by any stretch of imagination. The borrowings toward long term projects though tied up were not available for utilisation during the year. Further short-term borrowings were utilised for earning of income. The central treasury located at Mumbai was a common treasury where in the funds received from various sources was pooled and intermixed and were utilised for business purposes. It was submitted that similar activity was continued to be carried on by the company even in the subsequent years. In view of this, it was submitted that the e....
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....: "The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide: it may take in not only the day to day running of a business but also the rationalisation of its administration and modernisation of its machinery, it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title, it may also comprehend payment of statutory dues and takes imposed as a precondition to commence or for carrying on of a business: it may comprehend many other acts incidental to the carrying of a business...." Reliance has also placed in case of Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207 (SC) the relevant portion relied on is extracted hereunder: "Under section 10(2)(xv) of the Indian IT Act, as amended by Act 7 of 1939, expenditure even though not directly related to the earning of income may still be admissible as a deduction.....Expenditure incurred not with a view to the direct and immediate benefit for purposes of commercial expediency and in order indirectly to facilitate the carrying on....
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....allowed even if the debenture were issued for the purposes of incurring capital expenditure. It was contended that the assessee had a common management, common funds, interlacing and interdependent of different activities. Consequently all activities constituted one single business and hence the entire expenditure mentioned supra should be allowed. The Learned AR further contended that the expenditure was not debited to profit and loss account or the fact no profit and loss account was prepared should not be held against the appellant in considering the claim for expenditure as the allowability or otherwise of the expenditure should be decided having regard to the provisions of the Income-tax Act and not on the basis of entry passed in books of account. In support he relied on the decisions of Supreme Court, the relevant portion relied on is extracted hereunder : Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) "Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence of entries in his books of account be dec....
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....if the expenditure is incurred prior to commencement of business also should be allowed as held by Karnataka High Court in Gopal Films v. ITO [1983] 139 ITR 566 the relevant portion relied on is extracted hereunder: "....Expenditure incurred prior to the commencement of the business, which is clearly attributable to the business, is allowable as business expenditure....." and the decision in CIT v. Saurashtra Cement & Chemical Industries Ltd. [1973] 91 ITR 170 (Guj.) the relevant portion relied on is extracted hereunder : "....'Business' connotes a continuous course of activities. All the activities which go to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precede all other activities is started...." The Learned AR submitted that the business of the appellant involved continuous course of several activities and even if any one of the activity has been undertaken that would be sufficient to claim the expenditure as allowable in computing the income from business. 6.1 We have carefully considered the relevant facts,....
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.... any adventure or concern in the nature of trade, commerce or manufacture. These words are of wide import, the underlying idea being of continuous exercise of an activity. The definition however is not exhaustive. Hon'ble Supreme Court in the case of Mazagaon Dock Ltd. v. CIT [1958] 34 ITR 368 on page 376 explained "business" as a word of "wide import and in fiscal statutes it must be construed in a broad rather than restricted sense." The definition being inclusive and not exhaustive is indicative of extension and expansion and not restriction. The word "business" is one of large and indefinite import and connotes something which occupies time, attention and labour of a person normally with the object of making profit. The word means almost anything which is an occupation or duty requiring attention as distinguished from sport or pleasure and is used in the sense of an occupation continuously carried on for the purpose of profit. Thus the word "business" is a wider term than and not synonymous with trade and means practically anything which is an occupation as distinguished from pleasure. It denotes continuous and systematic exercise of an occupation or profession with the object ....
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....gress but excluding interest on debentures) of Rs. 31,041 lakhs. The secured/unsecured loans of Rs. 34,127 lakhs is utilised for making certain investments and giving loans/advances of Rs. 36,536 lakhs. Thus there is direct nexus between amount borrowed and investment/lending on which interest is earned. The investment/lending activity has been carried on in a systematic approach. The assessee has earned Rs. 328 lakhs by way of interest and profit on lending/investment other than Rs. 779.31 lakhs on public issue application money. Assessee has also paid Rs. 64,693 lakhs as interest charges and Rs. 49,170 lakhs as finance charges for raising various loans. Further maintaining a corporate treasury division, repeated borrowing of funds from various sources and lending of the same would all amounts to carrying of systematic activity as envisaged under section 28 of the Income-tax Act. Hence, we hold that the company has carried on the business during the year and the income therefrom should be computed under the head business. There are number of decisions where it is held that even a single transaction could be construed as adventure in the nature of trade and when a systematic and se....
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....ideration." In above case the facts indicate that apart from erection of plant and machinery nothing else had taken place hence the court came to the conclusion that the business had not commenced. This case law is not applicable on facts of the case before us as the appellant has carried on large number of transactions all of which would be categorized as carrying on of business. Consequently the income has to be computed under the head "business". Collis Line (P.) Ltd.'s case (supra) : "...Where money was invested in a bank by the assessee, a shipping company, because the money was lying idle and it was safer and wiser to put it in a bank, the interest earned on the deposit would be incidental to the main purpose of the deposit, which was safe keeping and not earning of profits. Therefore, the interest earned cannot be said to be received in the course of business so as to make it part of the profits and gains of the assessee's business...." Even this case relied on by the department will be of no assistance as admittedly the shipping company had deposited the money with the bank for only safe keeping whereas in the case before us the appellant had carried on systemat....