TaxTMI 
TaxTMI 
2018 (11) TMI 1643
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....ment of business. The commercial production began from 1stAugust 2012. The AO further noted that the assessee had earned Rs. 3,20,36,214/- as an interest income prior to the setup of business. Rejecting the assessee's submission that the interest income earned from short term deposits in bank are capital in nature, the AO has assessed the interest income under the head "income from other source". In doing so, the AO has placed reliance on the decision of Hon'ble Supreme Court in the case of Tuticorin Aikali Chemicals & Fertilizers Ltd. vs CIT reported in [1997] 227 ITR 172 SC. Aggrieved, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the appeal. 3. Aggrieved against that order, the assessee filed this appeal with the following grounds of appeal: "1. The order of the Commissioner of Income Tax (Appeals) ['CIT (A)'] is contrary to law, facts and circumstances of the case. 2. Interest Income taxed under the head Income from Other Sources 2.1 The learned CIT(A) erred in confirming the order of the Assessing Officer (AO) in treating the interest receipts of Rs. 3,20,36,214 earned prior to setup of business as income taxable under ....
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.... Panipat Power Consortium Ltd (supra), the assessee was forced to park the funds in the short term deposit clue to the 'legal entanglement'. Hence it is to be noted that the distinction from Tuticorin chemicals (supra) has been made by the Hon'ble Delhi High Court on the basis facts. 7. In appellant's company's case, there were no such impediments or legal entanglements that forced it to park the funds in short term deposits. The appellant company had untrammelled freedom to utilize the funds the way it wanted. The fact that it chose to park its surplus funds during the commencement period in short term deposits to earn interest income was a voluntary decision, and not a forced one. Hence, in my considered view, the ratio of Hon'ble Apex Curt in the case of Alkali Chemicals & Fertilizers Ltd (supra) is squarely applicable on the appellant's case. In this case, the Hon'ble Apex Court has held that interest earned by the assessee prior to commencement of business in short term deposits with banks out of term loan secured from financial institutions is income chargeable under the head "income from other sources' and would not go to reduce, the interest payable by the assessee....
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....ed capital. It is true that the company will have to pay interest on the money borrowed by it. But that cannot be a ground for exemption of interest earned by the company by utilizing the borrowed funds as its income. It was rightly pointed out in the case of KedarNarain Singh v. CIT [1938] 6 ITR 157 (All) that "anything which can properly be described as income is taxable under the Act unless expressly exempted". The interest earned by the assessee is clearly its income and unless it can be shown that any provision like section 10 has exempted it from tax, it will be taxable." On question of adjustment of interest payable the Hon'ble Supreme Court held as under: "The question of adjustment of interest payable by the company against the interest earned by it will depend upon the provisions of the Act. The expenditure would have been deductible as incurred for the purpose of business if the assessee's business had commenced. But that is not the case here. The assessee may be entitled to capitalise the interest payable by it. But what the assessee cannot claim is adjustment of this expenditure against interest assessable under section 56. Section 57 of the Act sets ....
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....ng expenditure prior to set up: 1. Deposit & Amortization expenses Rs. 13,40,133 2. Other expenses Rs. 2,42.33,701 These expenses are relating to the setting up of business and manufacturing operation of the appellant in the pre commencement phase Hence, these expenses are clearly not deductible from the interest income chargeable under the head 'other sources'. Therefore, the addition made by the AG st3nds confirmed, and the grounds of appeal fail." 6. Thus, after examining the facts, the Ld. CIT(A) applying the Apex Court decision in Tuticorin Chemicals (supra), has held , inter alia, that the assessee had untrammelled freedom to utilize the funds the way it wanted. The fact that it chose to park its surplus funds during the commencement period in short term deposits to earn interest income was a voluntary decision, and not a forced one. 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....