1993 (2) TMI 79 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee had set up their business in the previous year relevant to the assessment year 1974-75.
2. Whether the interest income of Rs. 1,54,325 should be assessed as business income u/s 28 or under 'income from other sources'.

Summary:

Issue 1: Setting up of Business
The Tribunal initially held that the assessee had set up its business during the previous year because it had purchased raw materials and obtained orders for supplying machinery. However, the High Court disagreed, stating that setting up a business means establishing it to the point where it is ready to commence operations. The court referenced several precedents, including Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 and CWT v. Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478, to emphasize that a business is not considered set up until it is ready to discharge its intended functions. The court concluded that the assessee's business was not set up in the relevant previous year as the plant and machinery were installed only on June 10, 1974, and actual manufacturing commenced thereafter. Thus, the Tribunal's finding was overturned, and the first question was answered in the negative, in favor of the Revenue.

Issue 2: Classification of Interest Income
Given the conclusion on the first issue, the court addressed the classification of the interest income. The Tribunal had classified the interest income as business income u/s 28, but the High Court held that since the business was not set up in the relevant previous year, the interest income could not be assessed as business income. The court rejected the assessee's counsel's request to remand the matter to the Tribunal to reconsider whether the interest was income, noting that the interest was consistently treated as income throughout the proceedings. Consequently, the second question was also answered in the negative, in favor of the Revenue, affirming that the interest income was rightly assessed as income from other sources.

Conclusion:
Both questions were answered in the negative, favoring the Revenue. The court held that the assessee had not set up its business in the relevant previous year, and the interest income was correctly classified as income from other sources. No order as to costs was made.