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TMI Blog2016 (5) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, income it specifically falls under the specific heads of income as provided under section 14 of the Income-tax Act it cannot be taxed under the residuary head of income Chargeability of interest on fixed deposit receipt as income from other sources - view of the assessee that it should be abated against capital work-in-progress - Held 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 ratio of decision of the honourable Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997 (7) TMI 4 - SUPREME Court ]. Therefore, the same is required to be abated against the cost of work-in-progress of the hotel of the assessee. Therefore, we hold that the Assessing Officer and the Commissioner of Income- tax (Appeals) both yield in this case in taxing the interest income of fixed deposit receipt as income from other sources. Disallowance of claim of depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 facts of the case. 2. The learned Commissioner of Income-tax (Appeals) is erred under the law while holding that the Assessing Officer has a valid jurisdiction under section 153A of the Act. 3. 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. 4. That the learned Commissioner of Income-tax (Appeals) is erred under law while disallowing claim of depreciation of ₹ 1,88,288 on tools/machinery those has been used for the business of the appellant. 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 interest on fixed deposit recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, income it specifically falls under the specific heads of income as provided under section 14 of the Income-tax Act it cannot be taxed under the residuary head of income. Therefore we are not in agreement with the views of the Assessing Officer and the Commissioner of Income-tax (Appeals) therefore ground No. 3 of the appeal is allowed. 6. The fourth ground of appeal is against the chargeability of interest on fixed deposit receipt as income from other sources as per the Assessing Officer and the Commissioner of Income-tax (Appeals) against the view of the assessee that it should be abated against capital work-in-progress. The facts of the cases that the appellant-company was under an obligation as per clause 3.14 of terms and conditions of allotment letter of DDA for purchase of hotel plot to furnish performance guarantee in the form of bank guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked 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 which are garnered are inextricably connected to the setting up of the plant. The clue is perhaps available in section 3 of the Act which states that for newly set up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, as per the provision of section 4 of the Act which is the charging section income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under section 14 in Chapter IV of the Act. For an income to be classified as income under the head 'Profits and gains of business or profess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 off against pre-operative expenses. 14. There is another perspective from which the present issue can be examined. Under section 208 of the Companies Act, 1956, a company can pay interest on share capital which is issued for a specific purpose to defray expenses for construction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in sub-sections (2) to (7) of section 208. This section was specifically noted by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC). The Supreme Court went on to observe at page 175 as follows : 'We have already referred to section 208 of the Companies Act which makes provision for payment of interest on share capital in certain contingencies. Clause (b) of sub-section (1) of that section provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst 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 ratio of decision of the honourable Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC). Therefore, the same is required to be abated against the cost of work-in-progress of the hotel of the assessee. Therefore, we hold that the Assessing Officer and the Commissioner of Income- tax (Appeals) both yield in this case in taxing the interest income of fixed deposit receipt of ₹ 4,22,474 as income from other sources. In view of this the addition made by the Assessing Officer is deleted. Ground No. 4 of the appeal is allowed. I. T. A. No. 4419/Del/2013 for the assessment year 2009-10 8. Ground Nos. 1 and 2 of the appeal are not pressed and therefore the same are dismissed. 9. Ground No. 3 of the appeal is regarding taxability of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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