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TMI Blog2017 (9) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 4 - SUPREME Court) and Commissioner of Income Tax Vs. Indo Gulf Fertilizer and Chemical Corporation Limited (2005 (8) TMI 45 - ALLAHABAD High Court ). Similarly, question no. 3 is also answered by holding that Tribunal was not justified in taking a view so as not to allow Section 56 to be attracted in the case in hand. - Income Tax Appeal No. 87, 88 of 2016 - - - Dated:- 31-8-2017 - Hon'ble Sudhir Agarwal And Hon'ble Ravindra Nath Mishra-II, JJ. For the Appellant : Manish Misra For the Respondent : Namit Sharma ORDER 1. Heard Sri Manish Misra, learned counsel for appellant and Sri Namit Sharma, learned counsel for respondent. 2. These appeals under Section 260(A) of Income Tax Act, 1961 (hereinafter referred to as Act 1961 ) have arisen from judgment and order dated 15.03.2016 passed by Income Tax Appellate Tribunal (hereinafter referred to as Tribunal ) in ITA Nos. 357/LKW/2015 and 358/LKW/2015, relating to Assessment Year (hereinafter referred to as A.Y ) 2011-12 and 2012-13. 3. Both these appeals were admitted on three substantial questions of law which are common and, therefore, same are being reproduced from ITA No. 88 of 2016:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of this Court's judgment in Commissioner of Income Tax Vs. Indo Gulf Fertilizers and Chemical Corporation Ltd (2006) 280 ITR 621 (ALL). 7. Assessee replied vide letter dated 21.01.2014 and objected to the said disallowance. Income Tax officer 6(1), Lucknow (hereinafter referred to as A.O ) rejected objection and treated the said income from other sources and completed assessment on a total income of ₹ 10,74,55,670/- vide assessment order dated 28.01.2014. 8. Similarly, for the A.Y 2012-13 also, interest income on Fixed Deposit Receipts was treated as income from other sources and assessment was completed on a total income of ₹ 1,22,04,940/- vide assessment order dated 19.02.2014. 9. Assessee preferred appeal before Commissioner of Income Tax (appeals)-II, Lucknow (hereinafter referred to as CIT (A)) and both the appeals were dismissed vide separate orders dated 31.03.2015. Thereafter assessee preferred appeals i.e ITA No. 357 and 358 /LKW/2015 before Tribunal. Both these appeals have been allowed and Tribunal has recorded a finding in favour of Assessee that interest income earned by Assessee when business is yet to be set up cannot be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss undertaking and, therefore, source of income is this project only. The source of income and head of income should not be mixed up because both are different. Any income arising out of a source of income can be taxable under different heads because if the business is set up and commenced then the income from operation is taxable under the head income from business and if after set up of the business, the assessee is left with 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 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 GD is not an independent source of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted to a continuing business and, therefore, Court held therein that interest income has to be assessed as a business receipt . Therefore, facts of Commissioner of Income Tax Vs. Govinda Choudhary (supra) and Commissioner of Income Tax Vs. B.N. Agarwala (supra) are not straight away applicable to the facts of the case in hand. 16. On the contrary, where a business is yet to commence, there is direct authority of Rajasthan High Court which has also taken similar view in earlier judgment in Murli Investment Company Vs. CIT (1987) 167 ITR 368 (Raj). In Collis Line Private Limited Vs. ITO (1982) 135 ITR 390 has taken a similar view where money by Assessee, a shipping company since it was lying idle and, therefore, to make wiser investment, it was kept in short term fixed deposit, Court held that interest earned on such Fixed deposit can not be said to be received in the course of business and, therefore, it has to be treated as income from other sources . Patna High Court in Bokaro Steel Limited Vs. CIT (1988) 170 ITR 545 (Pat) also stated that money not required for business and found surplus kept in short-term deposits in banks, It cannot be said to incidental to the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest earned by Assessee is clearly its income and unless it can be shown that any provision like Section 10 has exempted it from tax, it will be taxable. The fact that source of income was borrowed money does not detract anything from Revenue character of receipt. Further giving the reason as to why interest earned on deposit can be held taxable, in Tuticorin Alkali Chemical (supra) Court said :- The question of adjustment of interest payable by the Company against the interest earned by it will depend upon the provisions of the Act. The expenditure would have been deductible as incurred for the purpose of business if the Asseses business had commenced. But that is not the case here. The Assessee may be entitled to capitalise the interest payable by it. But what the Assessee cannot claim is adjustment of this expenditure against interest assessable under Section 56. Section 57 of the Act sets out in its Clauses (i) to (iii) the expenditures which are allowable as deduction from income assessable under Section 56. It is not the case of the Assessee that the interest payable by it on term loans are allowable as deduction under Section 57 of the Act (emphasis added) 18. Simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 412 (SC), CIT Vs. Bokaro Steel Ltd. And CIT V. Autokast Ltd. (2001) 248 ITR 110 (SC). Thus, the submission that the interest earned by the assessee is not taxable under the head Income from other sources is not correct (emphasis added) 20. Learned counsel for Assesses company could not trace any binding authority taking otherwise view in the matter so as to pursue as to take a different view in the matter. Therefore, we answer all the three questions in favour of Revenue and against Assessee. We answer question no.1, holding that Tribunal was not justified in holding that interest income earned on Fixed Deposit Receipt should be allowed to be reduced from the cost of project instead of tax as an income from other sources. We also answer question no. 2 against Assessee company and in favour of Revenue, holding that Tribunal was not justified by not following the law laid down in Tuticorin Alkali Chemical and Fertilizers Ltd. Vs. ITC (supra) and Commissioner of Income Tax Vs. Indo Gulf Fertilizer and Chemical Corporation Limited (supra). Similarly, question no. 3 is also answered by holding that Tribunal was not justified in taking a view so as not to allow Section 56 to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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