9911796707
TMI Blog2016 (5) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant is not its business income as per object clause of the memorandum and articles of association of the company. 4. That the learned Commissioner of Income-tax (Appeals) is erred under the law while holding that the interest on fixed deposit receipt as income from other source instead of abating it out of capital work- in-progress as claimed by the appellant. 5. That any other grounds of appeal may be added/deleted or amended at the time of hearing. Therefore, it is prayed as under : a) The entire assessment proceedings may please be declared as null and void in view of the provisions contained under section 153A of the Act. Or alternatively, b) The commission income of the appellant may please be treated as business income. c) The interest on fixed deposit receipt may please be abated against the capital work-in-progress instead of treating it as income from other source. d) Any other suitable order as your honour may deem fit may please be passed. Grounds for the assessment year 2009-10 "1. That the order passed by the learned Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) is not only bad in law but also against the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company wherein object No. 1 is stated to be that of to manage, administrate, operate, maintain into carrying on the business of hotels and related properties and further to act and work as consultant commission agent for all over in India and abroad. We are of the view that commission income of Rs. 43,700 which has been generated from real estate business is widely covered under the object clause of the memorandum of association of the company. Further, the earning of commission income is itself a separate business of the company as it is an activity of arranging and helping in negotiation of real estate. It is an organised effort of the assessee-company to generate the revenue. According to section 2(13) of the Income-tax Act business has been defined as "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". 5. We are unable to comprehend that commission income earned by the assessee-company is not chargeable to tax under the head business income. According to us, commission income earned by the assessee is chargeable to tax under the head of "Profits and gains of the business" only. As business, incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of interest income would have been under the head of income from other sources as per the decision of the hon'ble Supreme Court in case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC). However, in the case of the assessee, it was not a surplus money but it was use of the money for the purpose of the business, which has resulted into interest income. Before us, the learned authorised representative has submitted decisions of various authorities including decision of the hon'ble Supreme Court in the case of CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC). The hon'ble Delhi High Court in case of Indian Oil Panipat Power Consortium Ltd. v. ITO [2009] 315 ITR 255 (Delhi) has considered the issue of taxability of interest income arising on activity, which is inextricably linked with the business of the assessee. The honourable Delhi High Court in Indian Oil Panipat Power Consortium Ltd. v. ITO in Appeal Nos. 1156 and 1157 of 2007 dated February 26, 2009 [2009] 315 ITR 255 (Delhi) held as under (page 259) : "12. The test, therefore, to our mind is whether the activity which is taken up for setting up of the business and the funds whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. In the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) it was found by the authorities that the funds available with the assessee in that case were 'surplus' and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as 'income from other sources'. On the other hand in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC) where the assessee had earned interest on advance paid to contractors during pre-commencement period was found to be 'inextricably linked' to the setting up of the plant of the assessee and hence was held to be a capital receipt which was permitted to be set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest to the respective shareholders. If not, then in our view the only conclusion possible is that interest earned in the present circumstances ought to be capitalized. 16. In view of the discussion above, in our opinion the Tribunal misdirected itself in applying the decision of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) in the facts of the present case. In our opinion on account of the finding of fact returned by the Commissioner of Income-tax (Appeals) that the funds infused in the assessee by the joint venture partner were inextricably linked with the setting up of the plant, the interest earned by the assessee could not be treated as income from other sources. In the result we answer the question as framed in favour of the assessee and against the Revenue. These appeals are allowed and the impugned judgment is set aside." 7. Therefore respectfully following the decision of the honourable High Court we hold that interest income earned by the assessee is also inextricably linked with the business of the company and therefore the Assessing Officer and the Commissioner of Income-tax (Appeals) both erred in applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Rs. 1,88,288 is disallowed. Before the Commissioner of Income-tax (Appeals) the assessee contended that the assets are owned by the assessee and are utilised for the purpose of the business of the assessee and alternative plea was also taken before that the amount of depreciation should be allowed to be accumulated towards the cost of construction of the hotel. The Commissioner of Income-tax (Appeals) rejected the claim of the assessee that construction of the hotel is not the business of the assessee and therefore depreciation is not allowable and alternate submission of the assessee was also rejected because if the depreciation is allowed to be accumulated in the cost of construction, same would be eligible for depreciation when the hotel is complete. The Commissioner of Income-tax (Appeals) therefore confirm the order of the Assessing Officer therefore the assessee is in appeal before us. 11. We have heard the rival contentions. 12. According to us, the tools and machineries, which are purchased by the assessee, are not eligible for depreciation but they themselves are cost of construction of the hotel building. Therefore, we find no infirmity in the order of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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