2016 (12) TMI 1188

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....2. Brief facts of the case are that the assessee company which is set up for manufacture of textile fabrics, filed its return of income for the A.Y 2010-11 on 5.10.2010 admitting 'Nil' income. The AO required the assessee to file various details. The assessee filed the details and on perusal of the same, the AO observed that the assessee company was incorporated as a Special Purpose Vehicle (SPV) to develop a world-class textile park wherein about 108 small and medium scale textile power-loom entrepreneurs have been envisaged to become subscribers. The whole scheme was designed under public-private-partnership with grants-in-aid from Govt. of India with a total capital outlay of Rs. 106.14 crores. Pursuant to their objective, the land was p....

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....year, the interest received on these FDs would reduce the pre-operative expenses. The assessee also placed reliance upon the following decisions: a) CIT vs. Karnataka Power Corporation (247 ITR 268) b) CIT vs. Bokaro Steel Ltd (236 ITR 315) c) CIT vs. Kamal Cooperative Sugar Mills Ltd, Bongaigaon Refinery & Petrochemicals Ltd v. CIT (251 ITR 329) 4. The AO was however, not convinced with the assessee's contentions. He held that unless there is an indivisible nexus with the nature of the business of the assessee, interest earned on FDs, before commencement of business, is to be treated as income from other sources. He observed that the assessee company, during the period of construction and establishment of its project, invest....

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....ome of the assessee but only goes to the increase the grantsin- aid and one of the conditions of grants-in-aid is that the unutilized amounts have to be returned to the Govt. along with the interest. Therefore, the interest income derived by the assessee is also the income of the Govt. and not of the assessee and hence it ought to have been allowed to be set off against the pre-operative expenses. We find that similar issue had arisen before the Hon'ble Delhi High Court in the following cases: (i) CIT vs. Sasan Power Ltd, reported in (2012) 18 Taxmann.com 182 (Delhi.) (ii) Indian Oil Panipat Power Consortium Ltd reported in (2009) 181 Taxmann.com 249 (Del.) The Hon'ble Delhi High Court in the case of Indian Oil Panipat Powe....

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....from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under Section 14 in Chapter IV of the Act. For an income to be classified as income under the head "profit and gains of business or profession" it would have to be an activity which is in some manner or form connected with business. The word "business" is of wide import which would also include all such activities which coalesce into setting up of the business. See Mazagaon Dock Ltd vs CIT & Excess Profits Tax; (1958) 34 ITR 368 (SC), and Narain ....