TaxTMI 
TaxTMI 
2019 (4) TMI 1284
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....e ratio of the Apex Court in the case of Turticorin Akali Chemicals & Fertilizers Ltd. (227 ITR 172) is not applicable to the case of the appellant since the appellant is not at liberty to use the interest as it like and it has to be used only for the purpose of the integrated vaccination project, following the general guidelines of Government of India. 3. Without prejudice to the above grounds, the CIT(A) erred in confirming the action of the Assessing Officer in not setting off the business loss of Rs. 7,88,636/- assessed in the original assessment order against the additions made by him. 3. The facts of the case are that the assessee company is a subsidiary of M/s. HLL Lifecare Limited. It was set up by the Government of India for thepurpose of developing Integrated Vaccine Complex. The assessee had not commenced commercial operations and the assessee was in receipt of interest income from deposits in Bank as well as from Holding Company amounting to Rs. 4,17,75,000/-. The assessee had claimed that the interest income was capital receipt to be set off against the expenditure incurred during this period. The Assessing Officer considered the issue of taxability of inte....
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....'s income. The matter in the present case would have been different, if such an overriding charge had existed either upon the property or upon its income, which is not the case. In our opinion, the case falls outside the rule in Bejoy Singh Dudhuria's case (supra) and rather falls within the rule stated by the Judicial Committee in P.C. Mullick's case (supra)." [Emphasis Supplied] 4.1 Thus, the CIT(A) observed that obligation to apply income in certain way would not amount to diversion by overriding title. Therefore, according to the CIT(A), in the case of the assessee, the letter of the Ministry is only obligation to apply interest income for the objectives of the assessee and the same cannot be treated as diversion by overriding title. Further, the CIT(A) relied on the decision of the ITAT, Delhi in the case of Mussoorie Dehradun Development Authority, 22 taxmann.com 93 wherein it was held that the memorandum issued by the State Government only regulates how the funds so collected are to be incurred for the fulfilment of its objects and which sector has to be given preference and thus, it only suggests application of income. In the light of the above decisions, the....
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....fecare Ltd. also paid interest on such funds received from Govt. of India, till it was transferred to the assessee. It was submitted that interest received from banks and HLL Lifecare Ltd. was Rs. 4,17,75,000/- for AY 2013-14, Rs. 14,88,64,388/- for AY 2014-15 and Rs. 11,62,02,364/- for AY 2015-16. The assessee had reduced the interest income so received from the construction expenditure, since these funds are inextricably linked to the funds received for setting up of the vaccine plant as per the order of the Govt. of India and as per general policy/guidelines for any funds provided by the Government of India, any income earned out of such funds provided for any specific purpose, it should be utilized only for the purpose for which such funds were given. 5.1 It was submitted that the accounts were also audited by C&AG and there were no adverse comments from them for the method of accounting followed by the assessee. 5.2 The Ld. AR submitted that in the order dated 23.03-2018 for the AY 2014- 15, the CIT (Appeals) upheld the action of the Assessing Officer on the following ground: "Taxability of interest income to my understanding depends upon whether the assessee wa....
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....inistry of Health & Family Welfare dated 14.06 2018 is very vital for deciding the disputed issue. Being so. we are inclined to admit the additional evidence. Accordingly, we remit the issue to the file of the CIT(A) to decide it afresh after considering the relevance of the letter supra. " As directed by the Tribunal, the case was heard again by CIT(Appeals) to decide the issue, after considering the additional evidence. However, it was submitted that the CIT(A) by relying on judgment of the Supreme Court in the case of Sitaldas Tirathdas (41 ITR 367 SC) dismissed the appeal again, on the ground that the guidelines issued by Govt. of India does not result in diversion of income by overriding title. According to the ld. AR, the issue in this case was maintenance payment to wife and children under consent decree and the Apex court held that since for paying such maintenance no charge on the property was created, this was not diversion at source but only application of income to discharge an obligation which decision is not applicable to the facts of the present case, since in the case of the assessee, there is specific direction from the Govt. of India to utilize the interest ear....
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....like. Following these guidelines, assessee had utilized the interest received on funds exclusively provided for vaccine project, for implementing the project and this in a way had helped it to meet the cost overrun of about Rs. 116 crores. The Ld. AR relied on the letter dated 14/06/2018 issued by Ministry of Health & Family Welfare in support of the argument that there is diversion by overriding title which is reproduced as follows: F. No.A-45013/07/2018-HPE Government of India Ministry of Health & Family Welfare Nirman Bhawan, New Delhi Dated the 14th June, 2018 To, The Chief Executive Officer, M/s. HLL Biotech Limited, SR No: 192 & 195, Tirumani Village, Chengalpattu-603 001. Subject: Utilization of interest earned on equity funds of Rs. 274.88 crore-reg. Sir, The undersigned is directed to refer to your letter dated 22nd January, 2018. The GOI has infused Rs. 285 Crore towards equity funds through HLL Lifecare Limited for establishing Integrated Vaccine Complex at Chengalpattu out of which Rs. 274.88 Crores paid in cash and 100 acre of land in kind with a valuation of Rs. 10.12 Cr....
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....ake and on 26th Dec., 1984, it filed a revised return showing business loss of Rs. 3,21,802. It claimed that according to the accepted accounting practice, interest and finance charges along with other pre-production expenses will have to be capitalised, and that, therefore, the interest income of Rs. 2,92,440 should go to reduce the pre-production expenses (including interest and finance charges), which would ultimately be capitalised. In this connection, the company highlighted the fact that during the previous year relevant to the asst. yr. 1982-83, it had incurred a sum of Rs. 1,13,06,068 as and by way of interest and finance charges, which had to be capitalised along with other pre-production expenses. In other words, according to the assessee, the interest income of 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 ....
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....ns of business or profession is only one of the heads under which the company's income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. If the company, even before it commences business, invests the surplus fund in its hand for purchase of land or house property and later sells it at profit, the gain made by the company will be assessable under the head ' Capital gains'. Similarly, if a company purchases a rented house and gets rent, such rent will be assessable to tax under s. 22 as income from House property. Likewise, a company may have income from other sources. It may buy shares and get dividends. Such dividends will be taxable under s. 56 of the Act. The company may also, as in this case, keep the surplus fund in short-term deposits in order to earn interest. Such interests will be chargeable under s. 56 of the Act." Thus, it is clear from the above discussion that if whenever an assessee is in the process of setting up of the business, if an....
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.... following the decision of M/s Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. CIT (supra). Only those sums which were received from contractors, which we can say were inextricably connected with the construction activities, were held to be not taxable, rather than they were held to be reduced from the total capital expenditure. 7.4 In the case of CIT vs. Karnataka Power Corporation (243 ITR 268), the first question referred before the 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. 7.5 We further find that the Supreme Court had again followed the decision of M/s Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. CIT (supra) in the case of CIT vs.....
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.... Hon'ble Delhi Court at placitum as under: "4. It is important to note that the Tribunal without holding that the finding of fact of the Commissioner of Income-tax (Appeals), that the interest earned was 'inextricably linked' with the setting up of the power plant reversed the decision of the Commissioner of Income-tax (Appeals)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 [1997] 227 ITR 172 (SC)." From the above, it is clear that there was already a finding by the first appellate authority that interest earned was inextricably linked with the setting up of the power plant. Whereas in the case before us, there is no such finding and the funds which were required for the construction of the vaccine plant had been placed with Banks and the holding company as short term deposits. 7.7 From the above discussion, it is clear that the decision of the Delhi High Court in the case of Indian Oil Panipat Power Consortium Limited vs. ITO (supra) is ....
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....nion, because the shareholder of the company was in a position to pass resolution or issue any letter, it cannot change the character of the source of the income. As discussed earlier, the business was not set up during the relevant previous year and the interest earned from the Bank deposits is to be assessed as income from other sources and it cannot be set off against the capital expenditure. Since we have relied on the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. CIT (1997) 227 ITR 172, we are not going to consider the other judgments relied upon by the Ld. AR. Accordingly, this ground of appeal of the assessee is dismissed. 8. The next issue is with regard to set off of business loss against the addition made by the Assessing Officer. 8.1 The facts of the case are that the Assessing Officer held that the assessee could not claim any relief by way of setting off of business loss since the business had not started and there could not be any computation of business income or loss incurred by the assessee in the relevant accounting year 2012-13. In such a situation, the Assessing Officer held that the expenditure incurred by ....