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Issues Involved:
1. Exemption under Section 10(20A) of the Income-tax Act, 1961. 2. Commencement of business and related expenditures. 3. Treatment of interest income and interest payable. Issue-wise Detailed Analysis: 1. Exemption under Section 10(20A) of the Income-tax Act, 1961: The primary issue was whether the assessee-corporation was entitled to the benefit of exemption of income under Section 10(20A) of the Income-tax Act, 1961. The assessee argued that it was established by the Punjab Government with the main objective of developing an industrial township at Goindwal and thus should be exempt under Section 10(20A). This section exempts any income of an authority constituted in India by or under any law enacted for the purpose of dealing with housing accommodation or for planning, development, or improvement of cities, towns, and villages. However, the Tribunal found that the assessee-corporation was incorporated as a company under the Companies Act, 1956, and not under any special enactment. The Tribunal emphasized that the exemption under Section 10(20A) applies to authorities constituted by or under a special law specifically for housing accommodation or town planning. Since the assessee was not constituted under such a law but under the Companies Act, it did not qualify for the exemption. The Tribunal also noted that the primary object of the assessee-corporation was to develop an industrial area, with town planning being an incidental or ancillary object. Therefore, the assessee did not meet the criteria for exemption under Section 10(20A). 2. Commencement of Business and Related Expenditures: The second issue involved the question of whether the assessee had commenced its business and whether the expenditures claimed were in the nature of business expenditure. The assessee claimed expenditures of Rs. 20,86,552 for the assessment year 1983-84 and Rs. 24,73,965 for the assessment year 1984-85. The revenue authorities had disallowed these expenditures, arguing that they related to the pre-operative stage and should be capitalized since the business had not yet commenced. The Tribunal, however, found that the assessee had received possession of land from the Punjab Government, which was its stock-in-trade, and had already started development work and allotment of plots. The Tribunal noted that the assessee had received significant amounts as allotment money and development costs, indicating that business activities had commenced. The Tribunal also referenced the decision in CIT v. Saurashtra Cement & Chemical Industries Ltd., which held that business commences when the first activity in the continuous course of activities is started. Therefore, the Tribunal concluded that the assessee had commenced its business and the expenditures were indeed business expenditures. 3. Treatment of Interest Income and Interest Payable: The third issue was about the treatment of interest income and interest payable. The revenue authorities had treated the interest earned from banks as income from other sources and not as business income. The Tribunal, however, found that the assessee had already commenced its business and the interest income should be treated as business income. The Tribunal also noted that in the previous assessment year (1982-83), the CIT(A) had allowed the adjustment of interest income against interest payable, and this decision was upheld by the Tribunal. The Tribunal held that the interest payable to the Punjab Government was a valid business expenditure and should be allowed as a deduction. The Tribunal emphasized that even if the interest had not been actually paid, a provision for interest on an accrual basis was legitimate. Therefore, the Tribunal concluded that the interest income should be adjusted against the interest payable, treating both as business income and expenditure. Conclusion: The appeal was partly allowed. The Tribunal rejected the claim for exemption under Section 10(20A) but accepted the commencement of business and allowed the related expenditures as business expenditures. The Tribunal also allowed the adjustment of interest income against interest payable, treating both as business income and expenditure.
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