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2015 (12) TMI 1868 - AT - Income TaxCorrect head of income - treating the interest income as income from other sources and not business income - crux of arguments advanced by the Ld. Counsel for the assessee is that there was no deployment of surplus income and it was not an independent transaction de hors by business rather JV partner had kept it in the account - HELD THAT - We note that Hon ble Jurisdictional High Court in CIT Vs. Lok Holdings 2008 (1) TMI 365 - BOMBAY HIGH COURT while coming to a particular decision distinguished the decision from Hon ble Apex Court pronounced in CIT Vs. Bokaro Steel Ltd. 1998 (12) TMI 4 - SUPREME COURT and TUTICORIN ALKALI CHEMICALS FERTILIZERS LTD 1997 (7) TMI 4 - SUPREME COURT then held that accrued interest arises out of business activity is assessable as business income and not income from other sources. Identically Hon ble Jurisdictional High Court in the case of CIT vs. Indo Swiss Jewels Ltd and Another 2005 (9) TMI 47 - BOMBAY HIGH COURT wherein amount was set apart for import of machinery was invested in short term intercorporate deposits. Such interest income was held to be assessable as business income. There are various decisions in an identical situation but the fact of each case has to be kept in juxtaposition before taking any decision. Interest of income on the funds placed with banks - As assessee had neither started commercial production nor even trial production during the year under consideration and the funds were kept in banks from which interest was earned. In such a situation it can be said that interest income was earned prior to starting of business therefore it cannot be said to be business income of the assessee and has to be assessed as income from other sources. Funds were available with the assessee before the same are invested in actual business activity therefore it can be concluded that such interest income is not incidental to the business activity of the assessee. There is further finding in the impugned order that in the present case the source of funds on which the interest was earned were not the business funds. It is not the case that business funds were kept in bank for a short duration before starting the business. The expression derived from is narrower in scope than the expression attributable to as was held in CIT Vs. Sterling Foods Ltd. 1999 (4) TMI 1 - SUPREME COURT Pandyan Chemicals Ltd. 2003 (4) TMI 3 - SUPREME COURT and Ashoka Leyland Ltd. 1996 (12) TMI 4 - SUPREME COURT . So far as the expression derived from is concerned it must be understood as profit directly arising from business of the assessee and not incidental to it. The ratio laid down by Hon ble Apex Court in the aforementioned cases if applied by keeping them in juxtaposition with the facts of the present appeal it can be said that the interest received from FDRs can be treated as income from other sources only. If such interest is derived from actual conduct of the business or such interest is oozing out from the direct source and having proximate commercial connection between the interest earned and business of the assessee then it can be said to be derived from the business of the assessee therefore it was rightly held to be income from other sources because no direct nexus has been established by the assessee between the interest so received and business of the assessee therefore the interest earned on account of FDRs kept with the banks is income from other sources as it has no direct nexus with the business activity of the assessee. Payment of foreign exchange gain - We note that the expenditure has not been claimed as deduction during the year by the assessee. We find that in the aforementioned case of Enron Oil Gas India Ltd 2008 (9) TMI 3 - SUPREME COURT it was held that the loss arising on account of foreign exchange transaction would be allowed as business loss and the gain has to be treated as business receipt. Section 42 of the Act for claiming deduction is a special provision itself. The section becomes operative when it is read with production sharing contract therefore the provisions of production sharing contract will prevail as the PSC is an independent accounting regime and a complete code by itself u/s 42(1)(c) for the purposes of computing profit gains of any business consisting of extraction or production of mineral Oil etc. and allowance as specified in the agreement - And such allowances shall be computed and made in the manner specified in the agreement the other provision of the said being deemed for this purposes to have been modified to the extent necessary to give effect to the terms of the agreement. If the provision of the Act is analysed that it can be concluded that the production sharing contract is an independent accounting regime which includes tax treatment of cost expenses income profit etc. it prescribes separate rule of accounting as it is a complete code by itself. Reference may be made to Joshi Technologies International Inc. Vs. Union of India 2013 (7) TMI 809 - DELHI HIGH COURT - The additional benefits apart from the normal allowance admissible under other provisions of the Act is to be allowed as a deduction in computing the business profit of the assessee provided such allowances are specified in the agreement of the assessee entered into with the Central Government etc. and then the allowance shall be computed in the manner specified in the agreement. In the present appeal neither such agreement was discussed before us nor there is a finding in the impugned finding therefore we set aside this issue to the file of the Ld. DRP to examine the facts and then decide the issue in accordance with law therefore this ground is allowed for statistical purposes. The assessee be given opportunity of being heard. Claim of depreciation with respect to assets such as office equipment fixture and furniture etc used at the project office of the assessee - There is a finding in this impugned order that drilling activities has been started thus the claim of depreciation is a statutory allowance it has to be allowed more specifically when the assessee is the owner of the asset which was used for business purposes. Since the asset was put to use and owned by the assessee the depreciation has to be allowed.
Issues Involved:
1. Classification of interest income as "income from other sources" vs. "business income". 2. Classification of foreign exchange gains as "business income" vs. "income from other sources". 3. Claim of depreciation on assets used at the project office. 4. Withdrawal of an appeal by the assessee. Detailed Analysis: 1. Classification of Interest Income: The primary issue was whether the interest income of Rs. 5,45,702/- should be classified as "income from other sources" or "business income". The assessee argued that the interest was not an independent transaction but was related to the business, citing various case laws. However, the Assessing Officer and the Ld. DRP treated the interest income as "income from other sources" since the business had not commenced during the year and the funds were merely kept in banks. The Tribunal upheld this view, referencing the Supreme Court decisions in CIT Vs. Sterling Foods Ltd., Pandyan Chemicals Ltd. Vs. CIT, and Ashoka Leyland Ltd., which clarified that income must directly arise from business activities to be classified as "business income". 2. Classification of Foreign Exchange Gains: The foreign exchange gain of Rs. 28,33,263/- was another point of contention. The assessee claimed this should be treated as business income, citing expenditure connected with exploration and development activities. The Tribunal noted that the assessee had not claimed this expenditure as a deduction during the year and referenced the Enron Oil & Gas India Ltd. and Woodward Governor India Pvt. Ltd. cases, which supported treating such gains as business receipts. However, the Tribunal found that the specific production sharing contract (PSC) was not discussed, and therefore, remanded the issue back to the Ld. DRP for further examination in accordance with the law. 3. Claim of Depreciation: The claim of depreciation on assets such as office equipment and furniture used at the project office was allowed. The Tribunal noted that since the drilling activities had started and the assets were used for business purposes, the depreciation, being a statutory allowance, must be permitted. 4. Withdrawal of an Appeal: One of the appeals (ITA No. 5972/Mum/2013) was withdrawn by the assessee with no objection from the Ld. DR, and thus, the appeal was dismissed as withdrawn. Conclusion: The Tribunal's judgment resulted in a mixed outcome. Interest income was classified as "income from other sources", the issue of foreign exchange gains was remanded for further examination, and the claim of depreciation was allowed. The withdrawal of one appeal was acknowledged and dismissed. The appeals were disposed of in accordance with the detailed analysis provided.
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