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TMI Blog2016 (3) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... urplus funds which may be invested with the intention of creating any independent source of income by way of interest. 3) The appellant has temporarily placed in fixed deposits a part of the capital meant for implementation of the power project. 4) The interest earned by the appellant is inextricably linked with the implementation of the said power project and is a capital receipt which only offsets or reduces the cost of the project. 5) The appellant's case is governed by the rule in Bokaro Steel Ltd [1999] 236 ITR 315 (SC) and followed in Indian Oil Panipat Power Consortium Ltd v. ITO 315 ITR 255 (Del) and not by the rule in Tuticorin Alkali Chemicals [1997] 227 ITR 172 (S.C.) followed in CIT v. Indo Gulf Fertiliser and Chemicals Corporation Ltd. [2006] 280 ITR 621 (All)." 3. The grounds raised by the assessee in I.T.A. No.626/Lkw/2013 for assessment year 2011-12 are identical with difference in amount only. In this year, the amount involved is Rs. 2,83,20,702/-. 4. It was submitted by Learned A. R. of the assessee that the decision of CIT(A) is by following a judgment of Hon'ble Allahabad High Court rendered in the case of CIT vs. Indo Gulf Fertilizer and Chemic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his judgment of Hon'ble Delhi High Court, it cannot be said that the assessee's business was set up and therefore, the previous year of the assessee has not started and therefore, charging section i.e. section 4 is not attracted. He also placed reliance on another judgment of Hon'ble Delhi High Court rendered in the case of Omniglobe Information Tech India P. Ltd. vs. CIT [2014] 369 ITR 001, copy available on pages 122-128 of the paper book. He pointed out that in this case, a judgment of Hon'ble Madras High Court rendered in the case of Ramaraju Surgical Cotton Mills Ltd. vs. Commissioner of Wealth-tax [1962] 46 ITR 820 (Mad) was referred to and the relevant portion of that judgment was reproduced as per which it was observed on page No. 824 of 46 ITR that unless a factory is erected and the plant & machinery installed therein, it cannot be said to have been set up. He submitted that as per this judgment also, it cannot be said that in the present case, the unit of the assessee was set up. He submitted that therefore, charging section is not attracted in the present case as per this judgment also. 5. Learned D. R. of the Revenue submitted that the issue in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the business of the present assessee was set up or not resulting into start of previous year and if we find that the business was set up and the previous year started then we will examine the second aspect as to whether receipt of the assessee is revenue or capital receipt. 6.1 First of all we reproduce the relevant sections of I.T. Act i.e. section 3 & 4, which are as under: "Section 3: For the purposes of this Act, "previous year" means the financial year immediately preceding the assessment year: Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year." Section-4 (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial year then qua such new business or new source of income, the previous year will start from the date of setting up of the new business or from the date when new source of income has come into existence. In our considered opinion, even for an assessee, who is already having a previous year in relation to an existing business or existing source of income, the date of starting of previous year in relation to new business or new source of income is very important because income in respect of such new business or new source of income can be brought to tax only after the start of the previous year in that respect and similarly, expense in respect of that business or that source of income can be allowed as a deduction from the date of the start of the previous year in relation to that business or source of income. If the previous year in relation to new business or new source of income has started, and expenses are incurred and there is no generation of income, loss to the extent of expenses will be allowable which can be set off against any other income of that year and if it cannot be so set off in full or in part then such loss which could not be so set off can be carried forwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strict Cattle By-products Co. Ltd. v. Commissioners of Inland revenue(1). In that case the assessee company was incorporated on the 20th of June, 1913, and between that date and the 6th of October, 1913, the directors arranged for the erection of works and the purchase of plant and machinery, and entered into agreements relating to the purchase of products to be used in the business and to the sale of finished products. On the 6th of October, 1913, the installation of plant and machinery being completed, the company commenced to receive raw materials for the purpose of manufacture into finished products. For the purpose of excess profits tax a question arose as to the computation of average amount of capital employed by the company during the accounting period and the company contended that it commenced business on the date of its incorporation, viz., on the 20th of June, 1913, and that the pre-war standard should be based on the profits shown by revised accounts for the period 20th June, 1913, to 30th June, 1914, and Mr. Justice Rowlatt held, upholding the view of the Commissioners, that he business of the company had commenced on the 6th of October, 1913. Now, this is indeed a ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was incurred during the previous year and the new business of the assessee could have the previous year for the assessment year 1966-67 only if it was set up prior to 31st March, 1966. It was for this reason that the question arose before the Tribunal as to when the new business of the assessee was set up ; was it set up prior to 31st March, 1966, or was it set up subsequent to that date ? If it was set up prior to 31st March, 1966, the previous year of the new business for the assessment year 1966-67 would be the period from the date of the setting up of the business and ending on 31st March, 1966, and the revenue expenditure incurred during this period would be a permissible deduction, provided the other conditions of section 37 were satisfied. But if it was set up subsequent to 31st March, 1966, the revenue expenditure incurred prior to that date would not be a permissible deduction in the assessment of the assessee for the assessment year 1966-67." 6.4.1 From the above Para of this judgment, it comes out that as per this judgment of Hon'ble Gujarat High Court also, if the expense is incurred in a previous year means after the setting up of business, the assessee can claim it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up but before it is ready to commence business, it is not set up. In the present case, the business of the assessee is generation of power and therefore, the business in the present case is not set up at least up to 31/03/2011 because it is not the case of the Revenue that by this date, the assessee company was ready to commence business. Hence, as per the facts of the present case and as per the judgment of Hon'ble Bombay High Court cited above, it is clear that in the present case, the business was not set up at least up to 31/03/2011 and therefore, the previous year in respect of business undertaking of generation of power was not started till that date and this is not the case of the Revenue that by this date, the assessee company was ready to commence business. Hence, as per the facts of the present case and as per the judgment of Hon'ble Bombay High Court cited above, it is clear that in the present case, the business was not set up at least up to 31/03/2011 and therefore, the previous year in respect of business undertaking of generation of power was not started till that date. 7.1 Now we deal with the second aspect of the matter because we find that as per the def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith surplus funds and such surplus fund is used in earning interest income, then such interest income shall be taxable under the head income from other sources and if surplus fund is used for making investment then any income on sale of such investment will be taxable under the head income from capital gain but source of income for all these income taxable under these three different heads is same i.e. business undertaking. Hence, in the facts of the present case, where the entire funds available with the assessee company is in respect of the business undertaking being set up by the assessee company, previous year will start only after the setting up of the business undertaking and not before that and the interest income from the FD is not an independent source of income de horse the business undertaking because the earning of interest income is not the object of the assessee company and the funds were not arranged by the assessee company for earning interest income and therefore, the previous year in the facts of the present case will start on setting up of the business and thereafter, if the assessee is having any interest income then the same will be taxable under the head incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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