9911796707
TMI Blog2019 (7) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... se. We reject the contention of assessee that the language employed in section 10(20A) of the Act is wider and it is not necessary that the assessee be creature of Central or State Act, as provided in section 10(23BB) and section 10(23BBA) of the Act. The assessee failed to satisfy the condition of authority constituted by under any Central, State of Provincial Act . In view of the failure to satisfy this condition, the assessee cannot be granted benefit of exemption under section 10(20A). - ground No. 1 raised in all the respective appeals is dismissed. Commencement of business - no set up of business - adjustment of interest income earned on fixed deposit against the cost of the project, allowance of expenses claimed in profit and loss account including consultancy and professional expenses, claim of deduction u/s 35D - HELD THAT:- We hold that business of the assessee was set up only in the period immediately before the date when the assessee carried on commercial run of the Metro rail. AO has reported this date of running the Metro train as 25/12/2002 on page 8 of the assessment order for assessment year 2002-03. This factual information has not been disputed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/10th of preliminary expenses u/s 35D - HELD THAT:- The issue of deduction u/s 35D is also connected with the setting up of the business, because previous year in case of newly setup business starts from the setting up of the business and business income under the head profit in gains of the business is computed thereon as per the provisions of section 28 to 44 . As we have already held that business of the assessee was not set up during the period assessment years 1996-97 to 2002-03 and thus the assessee was not entitled to claim the deduction u/s 35D in the these relevant assessment years, however the assessee is eligible to claim such deduction u/s 35D after setting up of the business. CIT(A) in assessment year 1998-99 has confirmed the disallowance on similar grounds. Disallowing deduction in respect of expenses claimed in the profit and loss account including professional and consultancy charges incurred by the assessee - HELD THAT:- CIT(A) in relevant years has held that company was in the process of setting up the business and therefore the Assessing Officer were justified in holding that professional or consultancy charges paid were preoperative expenses eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, one can infer that all those expenses are not related to earning of the interest income on fixed deposits made with banks. In such circumstances, it cannot be said that the commissioner has substituted his opinion in place of that of the AO but the commissioner has found that those expenses cannot be allowed without an enquiry. The assessee has challenged the estimating of quantum of expenses allowable deduction by the Ld. CIT. But we find that, the CIT asked specifically to the assessee for submitting the expenses related to the interest income, however no such details were furnished by the assessee before the CIT. Even such detail has not been furnished before us also. In such circumstances, we are of the opinion that the Ld. CIT is justified in estimating the expenditure relatable to the interest income, which could be allowed u/s 57. The Hon ble Supreme Court in the case of Maharaja BP Singh Deo [ 1969 (12) TMI 2 - SUPREME COURT] held that assessment must be based on some relevant material and it is not a power that can be exercised under the sweet will and pleasure of the concerned authorities. We find that in the instant case before us the CIT has identified the adver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. Commissioner of Income-tax (Appeals) for assessment years from 1996-97 to assessment year 2002-03. The grounds raised in these appeals are reproduced as under: A. Grounds of appeal for assessment year 1996-97 1. That the learned Commissioner of Income Tax (Appeals) has erred both on facts in law in upholding the findings of learned AO, who had held that, the assessee is not an 'authority' within the meaning of section 10(20A) of the Act and thus was not eligible to the claim of exemption u/s 10(20A) of the I.T. Act. 2. That the learned Commissioner of Income Tax (Appeals) has further erred in failing to appreciate that ₹ 2,39,452/- was not an income earned from other sources and was not assessable to tax and had to be set off from work in progress. 3. That the learned Commissioner of Income Tax (Appeals) has further erred in failing to appreciate that the income computed at ₹ 2,39,452/- has incorrectly been computed as against the returned loss of ₹ 5,67,775/-. 4. That the appellant craves leave, to add, to amend, modify, rescind, Supplement, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -D of the Income-tax Act. This deduction being admissible deserves to be fully allowed. 4. In the facts and in the circumstances of the case, the Commissioner of Income-tax(Appea1) has erred in not allowing deduction of ₹ 1,75,49,218/- on account of the claim for depreciation. The claim for depreciation being admissible deserves to be fully allowed. 5. The appellant craves leave to add, amend, modify or alter any of the grounds of appeal stated above either before or at the time of hearing of this appeal. D. Grounds of appeal for assessment year 1999-2000 1. On the facts and circumstances of the case the learned Commissioner of Income tax (Appeals) has erred in law in holding that the provisions of section 10C20A) are not applicable in the case of the appe11ant. Exempt ion under section 10(20A) being available to the appellant under the law the same deserves to be allowed. 2. In the facts and circumstances of the case the learned Commissioner of Income-tax (Appeals) has erred in not allowing deduction of ₹ 1,01,96,865/- on account of professional and consultancy charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant and the same is liable to be fully allowed at ₹ 14,67,87,754. 5(a) Without prejudice to the above the Ld. CIT (Appeals) has erred in reducing the claim of deduction of expenses for earning of interest income from ₹ 56,21,803/- to ₹ 37,94,354.00. The claim for deduction of expenses at ₹ 56,21,803/- for earning of interest income being based on the formula evolved by the CIT, Delhi IV, New Delhi during the proceedings U/s 263 of the I.T. Act for Assessment Years 1998-99 and 1999-2000 deserves to be fully allowed. This claim for deduction of expenses for earning of interest income being in accordance with the provisions of law contained in Section 57 of the I.T. Act deserves to be fully allowed. 5(b) Deduction of expenses of ₹ 56,21,803/- claimed by the appellant as deduction for earning of interest income deserves to be fully allowed to the appellant. 6. The appellant craves leave to add alter or modify any ground of appeal either before or at the time of hearing of appeal. F. Grounds of appeal for assessment year 2001-02 1. On the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the grounds of the appeal stated above either before or at the time of the hearing of this appeal. G. Grounds of appeal for assessment year 2002-03 1. On the facts and in the circumstances of the case, the Ld. CIT (Appeals) has erred in law in holding that the provisions of Section 10(20A) are not applicable in the case of the appellant. Exemption U/s 10(20A) being available to the appellant under the law the same deserves to be allowed. 2. On the facts and in the circumstances of the case, the Ld. CIT (Appeals) has erred in law in holding that the business of the appellant did not commence during the period under assessment. The business of the appellant company as per its Memorandum Articles of Association having commenced during the period under assessment, the finding of the Ld. CIT (Appeals) on this point deserves to be cancelled. 3. On the facts and in the circumstances of the case, the Ld. CIT(Appeals) has erred in not allowing deduction of ₹ 31,84,59,233/- as deduction of business expenses. The business of the appellant company having been commenced, the claim for deduction of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions. a) That in the alternative and without prejudice the interest earned on the fact and circumstances of the case and offered as business income in any case ought to have been reduced from the cost of project and thus was required to be reduced from the computation of total income. b) That the expenditure claimed and disallowed in the alternative and without prejudice ought to have been capitalized and added to the cost of project. . 4. It was contended on behalf of the assessee that above additional grounds arises from the order of the assessment and goes to the very root of the matter. It was further submitted that all the facts relating to determination of the above grounds are on record and no fresh evidence are required for determination of the aforesaid legal grounds. The assessee in its application for admission of the additional ground relied on the decision of the Hon ble Supreme Court in the case of NTPC Vs. CIT reported in 229 ITR 383. 5. The Learned DR, on the other hand, opposed admission of the additional ground. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance of deduction claimed u/s 35 D of the Act 8,07,227/- (3) 8,07,227/- (3) 8,07,227/- (3) 8,07,227/- (3) 8,07,227/- Disallowance of claim of depreciation 1,75.49,218/- (4) 2,13,84,915/- (4) 3,20,72,656/- 1,53,66,018/- (4) Disallowance of Consultancy Expenses 65,40,000 (2) 3,44,23,404/- (2) 1,01,96,865/- (2) 53,62,872/- 52,81,704/- (3) Disallowance of other expenses ---- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the MRTS project was stated to be providing for nonpolluting, efficient and affordable rail-based Mass Rapid Transit System for the National Capital Territory of Delhi, duly integrated with other modes of transport. The assessee company claimed that it was constituted for the purpose of planning, designing, development, construction, maintenance, operation and financing of Mass Rapid Transit System and other transport etc. Assessment year 1996-97 ( ii) During the financial year 1995-96 corresponding to assessment year 1996-97, the assessee shown receipts of ₹ 2,80,52,272/- and expenditure of ₹ 80,52,272/- . The un-used funds remained with the assessee company were deposited in various banks. The receipts of the company came in the form of equity contribution released by the Government of NCT of Delhi and Government of India. The expenditure reported during the period consists mainly of statutory fees paid for registration of the company with the registrar of companies. In the Balance sheet as on 31/03/1996, the 16,104 equity shares amounting to ₹ 1,61,04,000/- have been shown as allotted to the Government of India and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under consideration. The Ld. CIT(A), thus upheld the action of the Assessing Officer of assessing the amount of ₹ 2,39,452/- under the head Income from other sources rejecting the claim of set off of preliminary expenses of ₹ 8,07,227/- under section 35D of the Act ( vi) Against the order passed by the ld. CIT(A) dated 12.10.1999, the assessee preferred appeal before the Income-tax Appellate Tribunal ( ITAT) . The ITAT in an order dated 18.7.2006 passed in ITA No. 1481/Del/2000 restored the appeal of the assessee to the learned CIT(A), with the direction to record his findings on the issue whether the assessee is entitled to claim exemption u/s 10(20A) of the Act for the year under consideration. The relevant findings are as under: 5. After going through the order of ld. CIT(A) both the parties agreed that ld. CIT(A) has not given any finding on the issue of applicability of the provisions of section 10(20A) of the Income Tax Act, 1961 to the assessee although this ground was taken as ground no. 3 in the appeal filed before him. It was also agreed that decision of CIT(A) on the issue of applicability of the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed return of income on 28.11.1997 declaring loss of ₹ 36,02,450/-. In the return of income, the assessee claimed exemption u/s 10(20A) of the Act and mentioned that business of the assessee commenced in terms of the main object as specified in Memorandum and Articles of Associations for which it has been set up. The Assessing Officer in order passed u/s 143(3) of the Act on 08.11.1999 rejected the claim of exemption of income u/s 10(20A) of the Act. The Assessing Officer also held that the business of the assessee was not commenced and disallowed the claim of preliminary expenses written off of ₹ 8,07,227/- u/s 35D of the Act and consultancy expenses of ₹ 65,40,000/-. The Assessing Officer assessed the total income at ₹ 37,44,777/-. ( iii) On further appeal by the assessee, the Ld. CIT(A) upheld the rejection of exemption u/s 10(20A) of the Act ,disallowance of preliminary expenses written off of ₹ 8,07,227/- u/s 35D of the Act and consultancy expenses of ₹ 65.40 lakhs. For assessment year 1998-99 ( i) In the concerned year, the issued and subscribed share capital stands at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration submission of the assessee, he, in order dated 18/03/2003 u/s 263 of the Act, held the order of the Assessing Officer as erroneous and prejudicial to the interest of Revenue and computed the expenses , to be allowed against interest income under section 57 of the Act. In compliance, the Assessing Officer passed consequential order. For assessment year 1999-2000 ( i) As per the balance-sheet as on 31.03.199, the subscribed share capital of ₹ 40,46,10,400/- and share application money of ₹ 40,00,00,000/- is appearing in balance sheet. During the year, the assessee purchased fixed assets items like computer, air conditioning, electrical equipments, furniture fixture etc. and claimed depreciation on the same. During the year capital workin- progress was valued at ₹ 57,59,14,052/- and advance for capital expenditure was shown at ₹ 23,89,19,303/-. In profit and loss account, interest income of ₹ 36,58,38,183/- and misc. income of ₹ 26,15,340/- has been shown. On expense side, expenditure of ₹ 825,48,214/- was debited which included employees remuneration and benefit of ₹ 2,06,21,133/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92,518/- which comprised of employees remuneration and benefits (₹ 4,71,67,078/-), Administrative other expenses (₹ 7,15,89,352/-); depreciation (₹ 1,49,06,402/-) etc. The assessee added provision written back of ₹ 44,403/- and expenditure not related to construction of ₹ 94,07,630/- to the gross receipt ₹ 62,03,42,171/-. The assessee adjusted entire income against the expenditure and balance profit of ₹ 49,47,01,686/- was transferred towards capital work-in-progress. In Schedule 12 of the Annual Report, the assessee has reported that expenses during the year are booked to incidental expenditure during construction and transferred to capital work-in-progress and incidental expenditure not related to construction have been transferred to deferred revenue expenditure. The assessee further noted that deferred revenue expenditure would be proportionally charged off over a period of five years stating from the year in which the assets are first put to use. ( ii) The assessee filed return of income on 31.01.2000 declaring total income of ₹ 59,57,94,426/- under business head. The assessee later on revised the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on FDR of ₹ 88,11,43,805/- and against which claimed expenditure of ₹ 21,53,28,615/-. After making small adjustments to income of ₹ 66,11,719/- for revenue expenditure, the balance profit of ₹ 71,09,78,474/- was adjusted against the capital work-in-progress. ( ii) The assessee filed return of income on 30.10.2001 declaring business income of ₹ 8,80,367,205/- after claiming expenses of ₹ 776,600/- against interest receipts of ₹ 8,81,713,805/-. This income was claimed as exempt u/s 10(20A) and thus filed NIL income for the purpose of Income-tax. ( iii) The Assessing Officer in assessment order dated 21.03.2003 rejected the claim of exemption of income u/s 10(20A) of the Act. The AO held that business of the assessee was not commenced and thus he disallowed the claimed of set off of preliminary expenses written off u/s 35D of the Act, and deduction of expenses against the interest on fixed deposits. He also disallowed the claim of expenses of ₹ 7,76,000/- against income from other sources for earning the interest income. ( iv) On further appeal, the learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less: Tax Deducted at sources ₹ 14,97,05,171 Less: Advance Tax Paid on 15.06.2001 ₹ 1,36,00,000 Less: Advance Tax Paid on 15.09.2001 ₹ 1,78,00,000 Less: Advance Tax Paid on 15.12.2001 ₹ 5,04,00,000 Less: Advance Tax Paid on 15.03.2002 ₹ 2,37,00,000 Refund Due ₹ 11,22,94,929 ( ii) The Assessing Officer in assessment order dated 30.01.2004 disallowed the claim of exemption of income u/s 10(20A) of the Act. The Assessing Officer further held that business of the assessee was not commenced hence, he disallowed the claim of expenses of ₹ 31,84,59,233/- against the interest income. Against the claim of the assessee for allowing expenses of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that assessee is a joint venture company formed by two governments, i.e. Government of India and Government of Delhi, who themselves are authorities. It was submitted that authority has not been defined under the Act. It was submitted that as per Black s Law Dictionary, an authority is a body having jurisdiction in certain matters of a public nature . It was submitted that statutory corporations, who are the voice and hands of Central Government, are authorities under Article 12 of the Constitution and will be considered as a State . It was submitted that a public authority is a body, which has public or statutory duties to perform and which performs these duties and carries out its transactions for the benefit of the public and not for the private profit. It was submitted that State is an abstract entity and it can only act through the instrumentality or agency of natural or juridical persons. It was submitted that merely because it is a company incorporated under the Companies Act, 1956, it does not cease to be an authority. Reliance was placed on the judgment of Ajay Hasia v. Khalid Mujib AIR 1981 SC 487 wherein it has been held that a society registered under the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii. To take up environment assessment study; iv. To approve financing pattern; v. For railway land; vi. Allowing participation of private sector; vii. Posing the project for assitance to international aid agencies; viii. Constitution of GOM; ix. Constitution of Empowered Committee; x. Setting up of DMRC Ltd.; xi. Constitution of a Cell in Ministry; 19.7.1994 The meeting of Cabinet took place. The Cabinet approved the proposal of MOUD with the stipulation that the total cost of Phase-I of the Project as well as the sources of financing indicated in the note of MOUD will be considered as indicative. 3 .5.1995 Company was incorporated 17.10.1995 The first meeting of Empowered Committee took place wherein a presenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y note from MOUD incorporating therein the suggestions from Empowered Committee was circulated to the Cabinet members. Final approval was sought from Cabinet. 17.9.1996 Cabinet meeting took place. Cabinet considered the note dated 9-12.9.1996 and supplementary note dated 16.9.1996 and approved the following proposals: i. Alignment-Approval of 55.3 kms. long alignment; ii. Capital cost- 4860 Crores at April 96 prices; iii. Land; iv. Implementation of Project by GOI and GNCTD in equal proportion; v. Financing Plan; vi. Provision of planned funds towards equity capital, land acquisition cost, etc.; vii. Approval to Delhi Govt. to nominate equal number of Directors on the DMRC Board; viii. Chairman and MD to be appointed by GOI and GNCTD respectively; ix. Authorising the Empowered Committee to grant all necessary Govt. sanctions to avoid cost escalation due to delays ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lic carriage of passengers except with the previous sanction of the Central Government. The power u/s 18 of DMR Act for closing of metro railway and reopening of closed metro railway u/s 19 of DMR Act also vests with the Central Government. d) Section 86 of DMR Act provides that the metro railway administration shall, in the discharge of its duties and functions under this Act, be bound by such directions on questions of policy as the Central Government may give in writing to it from time to time. e) Section 88 provides protection of action taken in good faith by any metro railway administration official or against any other person, for anything is in good faith done or intended to be done in pursuance of this Act or any rules, regulations or orders made thereunder. f) Section 89 of DMR Act provides that no rolling stock, metro railway tracks, machinery, plant, tools, fittings, material or effects used or provided by a metro railway administration for the purposes of traffic on its railway, or its stations or workshops, or offices shall be liable to be taken in execution of any decree or order of any court or of any local author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in the case reported in 1981 AIR (SC) 487-503 Ramana Shetty Vs. International Airport Authority has held that power/authority to issue directions, disobedience of which would be punishable as a criminal offence, constitutes an authority . It was submitted that section 62(3) of Delhi Metro Railway (Operation and Maintenance) Act, 2002 contemplates that if a DMRC official directs any person to leave any compartment, carriage or premises and he refuses to go he shall be punishable with imprisonment for a term which may extent to six months or with a fine which may extend to one thousand rupees or with both. Similarly section 36 of Metro Railway (Construction of Works) Act, 1978 applicable to DMRC also envisages penalty for failure to comply with directions issued u/s 21 of Metro (Construction of Works) Act, 1978. It was also submitted that section 82 of Delhi Metro Railway (Operation and Maintenance) Act, 2002 empowers to punish a person who commits any offence mentioned in sections 59, 61, 65 to 79 of Delhi Metro Railway (Operation and Maintenance) Act, 2002 and to arrest without warrant or other written authority by any metro railway official or by a police offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). iii) 10(26BB) a corporation Established by the Central Government or any State Government. iv) 10(26BBB) a corporation Established by a Central, State or Provincial Act. 13.7 It was, therefore, submitted that, language employed in section 10(20A) of the Act is wider and, no where envisages that, authority must necessarily be creature of the Central on Statue Act. All what it provides that, it must be constituted in India by or under any law, which in the case of the appellant is duly satisfied. 13.8 The appellant also relied on notes on clauses of the Finance Bill to insertion of section 10(20A) of the Act which states as under: Sub-clause (a) seeks to insert a new clause (20A) in section 10 of the Income Tax Act retrospectively from the 1st April, 1962, i.e., the date of commencement of the Income tax Act. The effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w exemption available to the abovementioned bodies. The income of Housing Boards of the States and of Development Authorities would, therefore, also become taxable. 13.11 In light of the above, it was submitted that DMRC has been constituted under a legislative enactment i.e. Companies Act 1956 for the purpose of planning, designing, development, construction, maintenance, operation and financing of Mass Transit and other Urban Transport and People Mover systems of all types and description in the National Capital Territory of Delhi and other areas of the National Capital Region; and is eligible for exemption u/s 10(20A) of the Act. 14. On the contrary, the Ld. DR submitted that the assessee does not fulfill eligibility of claim of exemption under section 10(20A) of the act due to following reasons: ( i) For claiming the exemption the assessee must be an authority but the assessee is simply a joint-venture registered under section 617 of the Companies Act and it is not an authority. ( ii) For claiming the exemption, the authority must be constituted in India by or under any law bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Income Tax Officer Vs. Urban Improvement Trust [2018] 98 taxmann.com 237 (SC)/[2018] 259 Taxman 61 (SC)/[2018] 409 ITR 1 (SC) 5. Adityapur Industrial Area Development Authority Vs. Union of India [2006] 153 Taxman 107 (SC)/[2016] 283 ITR 97 (SC)/[2006] 202 CTR 464 (SC), 6. Sharda Sahayak Samadesh Kshettra Vikas Nigam Ltd. Vs. CIT [2000] 109 Taxman 24 (Allahabad)/[2000] 244 ITR 264 (Allahabad)/[2000] 162 CTR 220 (Allahabad) 7. Karnataka State Small Industries Development Corpn. Ltd. Vs. Asstt. Commissioner of Income Tax [2013] 40 taxmann.com 212 (Karnataka)/[2014] 220 Taxman 4 (Karnataka) (MAG.) 8. M.P. Audyogik Kendra Vikas Nigam (Indore )Ltd. Vs. Asstt. Commissioner of Income Tax [2018] 98 taxmann.com 191 (Madhya Pradesh)/[2018] 258 Taxman 273 (MP) 9. Sone Command Aread Development Agency Vs. Union of India [2011] 16 taxmann.com 179 (Patna)/[2011] 203 Taxman 96 (Patna) (MAG.)/[2011] 333 ITR 102 (Patna). 10. CIT Vs. State of Industries Promotion Corpn. Of Tamil Nadu Ltd. [2008] 167 Taxman 36 (Madras)/[2009] 311 ITR 197 (Madras)/[2007] 212 CTR 334 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, Detailed Project Reports, Techno-Economic investigations, site selection, supply of basic engineering and detailed designs and working drawings for construction of the system, equipment selection therein and manufacture of rolling stock and equipment, including their components, spares, assemblies and sub-assemblies of all kinds and disciplines, material handling, preparation of specification and tender documents, tender evaluation and purchase assistance of all materials and goods pertaining to such projects, expediting inspection and testing, construction supervision, project management, commissioning, operation and maintenance, training of personnel and any such other services. ( ii) Provision of Engineering, technical and management services including but not limited to engineering, commercial and operational management, market research and personnel management, organizational structure, improvement in the system of administration, traffic forecasts, transport planning, investment planning, modernization of existing systems and facilities, modernization of motive power and rolling stock, improvement in operational and maintenance practices towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal is reproduced as under: 5. We have considered the rival submissions and perused the material available on record. Section 10(26BBB) of the I.T. Act provides that the income which do not form part of total income - any income of a Corporation established by Central, State or Provincial Act for the welfare and economic upliftment of exservicemen being the citizen of India . The Explanation to this Section provides the definition of Ex-servicemen . According to the above provisions, when assessee seeks exemption of income under the above Section, the assessee shall have to prove that the Corporation have been established by Central, State or Provincial Act. In the present case, the assessee has been registered under the Companies Act only. No Corporation have been established by any such Act in the case of the assessee. It was incorporated as any other Company under the provisions of Companies Act and its name was later on changed to Uttarakhand Purv Sainik Kalyan Nigam Limited. However, by mere mention of Corporation in the name of the assessee would not serve any purpose unless the assessee is incorporated as a Corporation as is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not able to satisfy as to how the assessee satisfied the requirements of Section 10(26BBB) of the I.T. Act and how the Judgments, relied upon by him are applicable to the facts and circumstances of the case. The Ld. D.R. on the other hand has suggested that both the decisions relied upon by the Learned Counsel for the Assessee support the case of the Revenue. On this reason itself, the assessment order was correctly found to be erroneous in so far as it is prejudicial to the interests of the Revenue. On this reason itself, the appeal of assessee is liable to be dismissed. We may also note briefly that Learned CIT has noted that even the case of the assessee would not fit within the definition of the term Ex-servicemen appearing in Section 10(26BBB) of the I.T. Act, on which, no arguments have been made during the course of hearing of the appeal. Since the assessee failed to satisfy the conditions of Section 10(26BBB) of the I.T. Act and A.O. did not examine this issue at all, therefore, learned CIT, Delhi was justified in setting aside the assessment order and to enhance the income of assessee by holding that assessee is not entitled for exemption under the provisions of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State or Provincial act. In the said case, New Okhla Industrial Development Authority (NOIDA) which has been constituted by notification dated 17/04/1996 issued under section 3 of the Uttar Pradesh Industrial Area Development Act, 1976, was held to be a Corporation established by a State Act and, therefore, entitled to exemption from payment of tax at source under section 194A(1) of the Act. 15.9 The relevant part of the decision of the Hon ble Supreme Court in the case of CIT Vs Canara Bank (supra), is reproduced as under: 17. One more principle which was reiterated by this Court in above Constitution Bench judgment is that Corporations which are instrumentalities of the Government are subject to the limitation as contained in the Constitution. The Corporations which were under consideration in the above case, namely, Life Insurance Corporation of India, Oil and Natural Gas Commission, Industrial Finance Corporation were held to be constituted within the meaning of Article 12 of the Constitution. Two categories of Corporations have been noticed i.e. statutory corporations and non-statutory corporations. Whereas, the statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utive Committee of a degree college is a statutory body. Contention before the Court was that the Executive Committee was the statutory body since it was affiliated to the Agra University which was established by the statute. The Executive Committee was further covered by the statute framed by the Agra University. In the above context, this Court held that there is a clear distinction between a body which is created by the Statute and a body which having been come into existence is governed in accordance with the provisions of the statute. In paragraph No. 10 following was held: 10 It is, therefore, clear that there is a well marked distinction between a body which is created by the statute and a body which after having come into existence is governed in accordance with the provisions of the statute. In other words the position seems to be that the institution concerned must owe its very existence to a statute which would be the fountainhead of its powers. The question in such cases to be asked is, if there is no statute would the institution have any legal existence. If the answer is in the negative, then undoubtedly it is a statutory body, but if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the phrase established by or under the Act is a standard term used in several enactments to denote a statutory corporation established or brought into existence by or under the statute. On Company it was held that the company is not established under the Companies Act and an incorporated company does not owe its existence to the Companies Act. In paragraph No. 20 following has been laid down: 20. A company is not established under the Companies Act. An incorporated company does not owe its existence to the Companies Act. An incorporated company is formed by the act of any seven or more persons (or two or more persons for a private company) associated for any lawful purpose subscribing their names to a memorandum of association and by complying with the requirements of the Companies Act in respect of registration. Therefore, a company is incorporated and registered under the Companies Act and not established under the Companies Act. Per contra, the Companies Act itself establishes the National Company Law Tribunal and the National Company Law Appellate Tribunal, and these two statutory authorities owe their existence to the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Establishment of State Financial Corporations.: (1) The State Government may, by notification in the Official Gazette, establish a Financial Corporation for the State under such name as may be specified in the notification. ( 2) The Financial Corporation shall be a body corporate by the name notified under sub-section (1), having perpetual succession and a common seal, with power, subject to the provisions of this Act, to [acquire, hold and dispose of] property and shall by the said name sue and be sued. 27. This Court clearly in above case, Dalco Engineering (supra) has held that such Financial Corporations are established by an Act or under an Act. In paragraph No. 23 of the judgment following has been held: 23. We may next refer to The State Financial Corporations Act, 1951 which provides for establishment of various financial corporations under that Act. Section 3 of that Act relates to establishment of State Financial Corporations and provides that the State Government may, by notification in the Official Gazette, establish a financial corporation for the State under such name as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Joint Secretary-ex official. (e) The Managing Director, U.P. State Industrial Development Corporation-ex official. Member (f) Five members to be nominated Member by the State Government by notification. (g) Chief Executive Officer. Member Secretary ( 4) The headquarters of the Authority shall be at such place as may be notified by the State Government. ( 5) The procedure for the conduct of the meetings for the Authority shall be such as may be prescribed. ( 6) No act or proceedings of the Authority shall be invalid by reason of the existence of any vacancy in or defect in the constitution of the Authority. 30. When we compare the provisions of Section 3 of 1976 Act with those of The State Financial Corporations Act, 1951, it is clear that the establishment of Corporation in both the enactments is by a notification by State Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (xi) Chief Executive Officer Member Secretary (Under Clause (g)) 31. This Court having already laid down in Dalco Engineering (supra) that establishment of various financial corporations under State Financial Corporation Act, 1951 is establishment of a Corporation by an Act or under an Act. We are of the view that the above ratio fully covers the present case and we have no doubt that the Authority have been established by the 1976 Act and it is clearly covered by the Notification dated 22.10.1970. It is further relevant to note that composition of the Authority is statutorily provided by Section 3 of 1976 Act itself, hence, there is no denying that Authority has been constituted by Act itself. 15.10 In the instant case before us the assessee has not produced before us any notification issued by or under any Central, State or Provincial Act for constitution of the assessee. In our considered view, the assessee-company has been merely registered or incorporated under the Companies Act, 1956 and not created as a consequence of the Companies Act,1956. 15.11 In the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Companies Act, 1956. Hence, the assessee cannot claim the benefit under s. 10(20A) of the IT Act, 1961, though it might come with the later part of the provisions of s. 10(20A) of the IT Act, 1961. 9. For arriving at the opinion, we can take the support of similar view taken by the Allahabad High Court in the case of Sharda Sahayak Samadesh Kshettra Vikas Nigam Ltd. vs. CIT (2000) 162 CTR (All) 220 : (2000) 244 ITR 364 (All), in which, while answering the question as to whether the Tribunal was justified in holding that the assessee company was not an authority as envisaged in s. 10(20A) of the IT Act, 1961 has held that the assessee company was not entitled to exemption under cl. (20A) of s. 10 of the IT Act, inasmuch as it was registered as a Government public company as defined in s. 617 of the Companies Act, 1956 and not an authority constituted by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages. 10. Mr. Ramachandran, learned senior counsel appearing for the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, however relegated the assessees before the authorities to seek the claim under s. 11 of the Act. The facts of the present case are not comparable to that of the decision of the Supreme Court so as to grant the relief by way of relegation to the authorities. In that case, the Supreme Court has also given a cautionary note that the High Court would not have entertained the writ petitions and granted the relief. Hence, we are not able to accept the contention and the contention is rejected. 12. The reliance made in Gujarat Industrial Development Corporation Ors. vs. CIT (1997) 142 CTR (SC) 181 : (1997) 227 ITR 414 (SC) by the assessee does not also advance the case of the assessee in view of the fact that the assessee in the cited case was an authority created under the provisions of Gujarat Industry Development Act, 1962 which satisfied the requirement of s. 10(20A) of the Act. But the assessee in this case was incorporated under the Companies Act. 13. In the light of the above discussions, the question of law Nos. 1 and 2 in Tax Case Nos. 112 to 114 of 2004 and question of law Nos. 1 to 4 in Tax Case No. 205 of 2004 are answered against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an authority constituted in India by or under Central, State or Provincial Act. 15.15 The reliance placed by the Ld. counsel on the CBDT circular (supra) is also of no assistance to the assessee as the said circular was in relation to income of the housing boards or other statutory authorities set up by the state government for the purpose of dealing with or satisfying the need for housing accommodation or for the purpose of planning development or improvement of the cities, towns and villages. 15.16 In view of the decisions discussed above and keeping in view the facts circumstances of the case, we reject the contention of the Ld. counsel of the assessee that the language employed in section 10(20A) of the Act is wider and it is not necessary that the assessee be creature of Central or State Act, as provided in section 10(23BB) and section 10(23BBA) of the Act. 15.17 Thus, the assessee failed to satisfy the condition of authority constituted by under any Central, State of Provincial Act . In view of the failure to satisfy this condition, the assessee cannot be granted benefit of exemption under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e setting up of the business; and there will be some time gap between the setting up and the commencement of business. Reliance was placed on the following judgments: a) Western India Vegetable Products v. CIT 26 ITR 151, 158-9 (Bom) b) Sarabhai Management Corp. Ltd. v. CIT 102 ITR 25 (Guj) affirmed by Apex Court in the case of CIT v. Sarabhai Management Corp. Ltd. 192 ITR 151 16.2 The assessee specifically relied on the judgment of Hon ble Delhi High Court in the case of CIT v. Jubilant Offshore Drilling (P) Ltd. ITA No. 694/2014 dated 24.11.2014 wherein the Hon ble Court has held as under: 8. Noticeably, the respondent assessee had themselves added back the Registrar of Companies' filing fee of ₹ 20,80,000/- and had applied/claimed the said expense under Section 35D of the Act. The depreciation of ₹ 26,65,819/- had also been added back by the respondent assessee. This factual position was ignored in the assessment order, without any explanation. Other expenditure was not directly relatable and having nexus with the oil exploration costs. This is not the finding of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Construction and Development of the Mass Rapid Transit System (MRTS) Project; Stage 3 Operation and maintenance of the Mass Rapid Transit System (MRTS) Project. 16.5 It was submitted that the above broad stages of the project are inter related and one must necessarily precede the other. Stage 1 of the project being Planning, Designing and financing of the project needs to be completed before Stage 2 being construction and development of the project is taken up. Similarly Stage-3 being operation and maintenance of the project can commence only after Stage 2 of the project is completed. It was further submitted that during the previous year relevant for the assessment year 1997-98 first stage of the project comprising of planning, designing and financing activities of the project were initiated by the assessee, hence it could certainly be concluded that the business activity of the assessee had commenced in assessment year1997-98. Reference was made to the judgment of Hon ble Gujarat High Court in the case of CIT V. Saurashtra Cement and Chemical Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved as under: Business can be considered to have commenced only when actual planning and designing of Metro system starts, leading to construction activities. This would indicate completion of first stage of activity as per Memorandum of Association. 16.6 It was submitted that the learned DCIT has admitted that, business can be said to have commenced, when actual planning and, designing of Metro System starts, which leads to construction activities. It was submitted that in the instant case, thus, planning and, designing of MRTS in Financial Year 1996-97 itself led to commencement of business and, even if it is held the same was only leading to construction activities, the business can be said to have commenced, though the submission of assessee is that, assessee was independently engaged is business of actual planning and designing of Metro systems. It was submitted that, the moment, the assessee started incurring of expenses on planning and designing, which was F.Y. 1996-97 itself, business had commenced. The aforesaid conclusion further show that, the learned AO admits that, planning and, designing is the business of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the setting up of business or profession or the date on which the source of income newly coming into existence. 18.1 Further, as per the provisions of section 4 of the Act, which is charging section, Income-tax is charged in respect of the total income of the previous year of every person. Thus in other words we may say that income under the head Profit and Gains of the Business or Profession can arises to an assessee from the date of setting up the business, which is chargeable to tax depending on whether it is in nature of capital or revenue. The section 28 is the charging section for profit and gains of business and profession which prescribes that profit and gains of business and profession which was carried on by the assessee any time during the previous year, is chargeable to tax. For any income to be classified as income under the head profit and gains of the business of profession it must be an activity which is connected in some manner or form with the business of the assessee . The term business has been defined in section 2(13) as including any trade, commerce or manufacture or any adventure or concern in the nature of the trade, comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that all the expenses incurred after the business had been set up are allowable as business deduction under section 37 of the Act. There may be interval between the setting up of the business and the actual commencement of the business but all the expenses incurred during the interval of setting up of the business and the commencement of the business are also permissible for deduction as so held in the above referred decisions. 18.5 The Ld. CIT(A) in assessment year 1998-99 also referred to various decisions on the issue of setting up of the business. Those decisions have been followed by the Ld. CIT(A)s in other years before us. The relevant decisions are also reproduced as under: 6. In appeal it was submitted that the Assessing officer had erred in holding that the appellant had not commenced its business. I have considered the facts of the case including the objects of the company and the directors report extract of which has been reproduced above. On the facts and in the circumstances of the case, the conclusion is inescapable that till 31.3.1998 the business of the appellant had not been set up. In this connection, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service of the products, In case of trading concern, when an assessee is ready with his set up of shops etc and the moment he buys or purchases goods of stock-in-trade, he is ready to commence his business of trading and his business can be called as set up. In case of manufacturing, when an assessee set up his manufacturing apparatus like factory etc alongwith plant and machinery and all power or water connection required and thereafter moment he buys raw material for the manufacturing of products , he is ready to commence the business of manufacturing, though finished goods might be produced or sold after a interval of the period , and business of manufacturing would be called as set up. Wherever, the manufacturing involves multiple steps, where the finished goods of one step may be used as raw material for other step, in such cases, set up of first step of manufacturing will suffice to hold that the business of manufacturing is set up. In case of service industries, when the apparatus or instrument for providing service is ready, then business can be called as set up. In the case of Plem Hotel Private Limited (supra), the Hon ble Bombay High Court has held that by merely letting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f manufacturing of assessee was held to be setup. The limestone itself was a saleable commodity, though might not have been sold. But in the instant case the assessee is not engaged in manufacturing and it is engaged in providing services of rail transport and the said service cannot be provided until and unless the entire infrastructure for running Metro rail, is established. The claim of the assessee that it was also engaged in providing consultancy services during the period is not supported by the evidences. During the period involved in appeal before for us, the assessee has availed consultancy services in relation to establishment of Metro railway network and other related infrastructure. Thus, in our opinion, there was no separate business of providing consultancy by the assessee, at least in the period involved in appeals before us except small amount of consultancy income shown in AY 2002-03. The providing consultancy is not the main object of the assessee company and by earning small amount of consultancy, the business of assessee of providing metro rail transport facility cannot be called as set up. 18.9 In the instant case before us, during ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng appointment of the General Consultant, RITES have been providing interim consultancy to DMRC w.e.f. LI.97. The following major steps have been taken towards implementation of the project during the of the year: ( i) Signing of loan agreement by GOI with OECF (Japan) on 25th February, 1997; ( ii) Nation of preliminary work for appointment of General Consultant i.e. inviting expressions of interest from reputed general consultancy firms, preparation of bid documents, etc. ( iii) Purchase of office building at NBCC place on Bhishma Pitamaha Marg (Opp. Lodhi Road) at a cost of ₹ 16.73 crores from the the Ministry of Urban Affairs Employment,Government of India, New Delhi on 31st March, 1997 II. FINANCIAL RESULTS 1995-96 1996-97 (i) Sales (Income from Operations) Nil Nil (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dividend (Proposed) Nil Nil During the financial year, total receipts of the company, mainly from the contribution towards equity from Govt. of India and GNCTD were ₹ 56,75,20,000/-, the break-up of which is as under: GOI ₹ 52,00,00,000/- GNCTD ₹ 4,75,52,000/- The total expenditure during the year was ₹ 17,39,30,992/-, the break-up of which is as under: Revenue Expenditure ₹ 66,07,592/- Capital Expenditure ₹ 16,73,23,400/- The capital expenditure during the year was mainly due to the purchase of building and revenue expenditure was mainly due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.2 The submissions of the AR were sent to the AO vide report dated 04.12.2000, the AO has stated that this issue was examined in detail in AY 1998-99. In para 2.2 of her report the AO has stated : An analysis of the activities earned out during the year indicate that these activities were aimed towards operationalsing the organization and not towards commencement of business. These activities are obviously pre-operative before commencement of business . In this regard to the reliance placed by the appellant on the decision of Saurashtra Cement and Chemicals (supra) the AO has stated : But the facts of the case of the assessee company for this year are different. Details filed during the course of assessment proceedings and as discussed in para 2.2 above show that a few steps were taken during the year by the company to set in motion the process of commencement of business. A reliance on Gujarat High Court decision is not correct for in the said decision the High Court made a distinction between commencement of business and setting up of business. Setting up of business has been considered at the stage of commercial operation whereas commencement of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the aforementioned expenses were in the nature pre-operatives expenses. In arriving at this conclusion the Assessing Officer started in para 4,2 of the assessment order as under:- The directors report for the financial year ending 31.3.1998 while reviewing the status of the project status that during the year efforts were made to build up and strengthen the organization. Towards this end, key functionaries including Managing Director was appointed corporate office of the company became functional, general consultants were appointed who started mobilization and started review of technical parameters of the project. Action relating to acquisition of land and rehabilitation of project affected persons have been undertaken. Four tender packages for civil work were considered and contract for the first two packages were under finalization during the year. The report further states under the head conservation of energy that the company did not commence any-ground operation. An analysis of the activities carried out during the year indicate that these Activities were preponderantly aimed towards operationalising the organization and not towards commenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 71,471,264/-) etc. From the capital work-in-progress shown by the assessee, it is evident that construction work of Delhi MRTS was not completed during the year. This fact has been admitted by the Auditor in annexure to the Audit Report, which is part of the Annual Report. In view of the above observation, we are opinion that business of the assessee was not ready for commencement and thus, it was not set up during the assessment year 1999-2000. 18.18 In assessment year 2000-01 also as evident from details of capital work-in-progress (Schedule -5 of Annual Report), the work of MRTS project which included Earth Work for Rail Corridor, Elevated portion of Rail Corridor, Yamuna Bridge Words, Station Building etc. continued during the year. Again in this year also the Auditor, in clause-3 of annexure to the Audit Report has reported that work of the project was not completed. In view of the construction work of the project not completed, the business of the assessee cannot be said as ready for commencement. 18.19 Facts circumstances in assessment year 2001-02 2002-03 are similar. The Auditor in annexure to the Audit Report fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines Ltd ITA No 639/2008 dated 17.09.2009; b) CIT vs. Petronet LNG Ltd ITA No. 290/2011 292/2011 dated 17.02.2011; c) CIT vs. Jaypee DSC Ventures Ltd. ITA 357/2010 dated 11.03.2011; d) Petronet LNG Ltd. v. CIT ITA No. 4191/D/2003 and 4371/D/2009 dated 17.2.2011 20.1 The assessee also placed reliance on the judgment of Supreme Court in the case of CIT v. Shree Rama Multi Tech Ltd. 165 DTR 137 to contend that interest income is not assessable to tax. 20.2 Similarly, interest was earned on fixed deposits with banks in assessment year 1997-98 to 2002-03. It was submitted that it is undisputed that interest has been earned on the fixed deposits from the amount contributed by the shareholders as is evident from the chart enclosed with submissions as was in the case of CIT vs. Petronet LNG Ltd (supra), wherein their lordships has held that if the interest is earned on the funds which are to be utilized for purchase of capital asset/ setting up of the business and that is inextricably linked with the setting up of the business, said interest will not be treated as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Receipts from Interest Earned Expenses 1997-98 38,16,684 38,02,921 74,19,134 1998-99 15,44,65,452 15,26,70,209 5,95,61,700 1999-2000 36,58,38,682 36,58,38,183 9,18,25,170 2000-2001 59,67,94,426 59,67,94,426 14,67,87,754 2001-02 88,11,43,805 88,11,43,805 21,47,87,281 21.1 The Ld. DR submitted that business of the assessee commenced on 24/12/2002 and prior to that it was in the process of setting up the Metro network in National Capital Region. The Ld. DR submitted that during those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81 taxmann.com 478 (Rajasthany) [2017] 248 Taxman 127 (Rajasthan)/[2017] 297 CTR 104 (Rajasthan) where Hon ble Rajasthan High Court held that Interest earned on FDR kept with bank as margin money for obtaining letter of credit to purchase machinery was taxable as income from other sources 6. Thermal Powertech Corporation India Ltd. Vs DCIT [2017] 81 taxmann.com 168 (Hyderabad - Trib.)/[2017] 164 ITD 449 (Hyderabad - Trib.) (Copy Enclosed) where Hon ble ITAT held that where assessee-company formed to build, own and operate a power plant, deposited unutilized borrowed funds in short term fixed deposits during construction of power plant, interest earned on those deposits was to be taxed as income from other sources 7. Shree Maheshwar Hydel Power Corporation Ltd. Vs CIT 120181 96 taxmann.com 167 (Bombay) (Copy Enclosed) where Hon ble Bombay High Court held that where assessee raised amounts from Debentures and deposited same with bank and, interest earned by assessee from said deppsits, was not inextricably linked with setting up of capital assets, said interest tficome could not be capitalized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or security for bank guarantee in order to avail of credit facility for its export business has to be treated as 'income from other sources' and not as 'business income', inasmuch as it does not have an immediate nexus with export business. Therefore, such interest income cannot be considered for computing deduction under section 80HHC. 13. CIT v. Mereena Creations [2010] [2010] 189 Taxman 71 (Delhi)/[2011] 330 ITR 199 (Delhi) . where Hon ble Delhi High Court held that the interest earned by an exporter on fixed deposits kept by it with bank as margin money or security for bank guarantee in order to avail of credit facility for its export business has to be treated as income from other sources. 14. CIT Vs Rassi Cement Ltd H9981 100 Taxman 568 (Andhra Pradesh)/f1998l 232 ITR 554 (Andhra Pradesh)/[1999] 153 CTR 140 (Andhra Pradesh) (copy enclosed) where Hon ble AP High Court held that interest earned by assessee on surplus funds deposited in banks during installation of assessee-company had to be taken as income from other sources and could not be treated as a part of capital structure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 80,72,272/- on behalf of the assessee, which consist of fee paid off ₹ 80,00,400/-; court fee of ₹ 1,872; preparation of memorandum of Association and article of Association ₹ 50,000/- and printing of Memorandum of Association and Article of Association ₹ 20,000/-. In the year AY 1996-97 , the assessee claimed 1/10th of the preliminary expenses of ₹ 80,00,272/- as deduction under section 35D of the Act 22.4 In forthcoming paras, we have already held that business of the assessee was commenced only on 25/12/2002 and thus prior to that business of the assessee was not set up. On the issue as how the interest income prior to commencement of the business has to be taxed, the Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd (supra) has held interest income earned on fixed deposits, before commencement of the business is taxable as income under the head income from other sources . In that case the assessee company during construction and establishment of its factory, before commencement of the manufacturing activities, invested funds borrowed for the purpose of setting up factories in shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. This income has been linked pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something, which is often loosely spoken of as 'capital'. 14. In other words, if the capital of a company is fruitfully utilized instead of keeping it idle, the income, thus, generated will be of the revenue nature and not accretion of capital. Whether the company raised the capital by issue of shares or debentures or by borrowing will not make any difference to this principle. If borrowed capital is used for the purpose of earning income that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilizing borrowed capital. 22.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital receipt and hence was required to be set off against preoperative expenses. In the case of Tuticorin Alkali Chemicals (supra) 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 Bokaro Steel Ltd (supra) 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. 22.8 In the above case we find that funds which were deposited in banks were infused by way of share capital for a specific purpose of acquiring land and the development of the infrastructure but due to litigation on the title of the properties, same were parked with the bank for ready access of the funds and therefore the Hon ble High Court held that the interest earned on such fund was capital receipt. Thus in the above case pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Committee had decided to place ₹ 60 crores with SBI and ₹ 30 crores with Oriental Bank of Commerce for a period of one year each seeing the substantial pre mature withdrawals from the LTDRs with SB! despite interest rate differential. At that point of time the approximate outgo of funds till 31.3.00 was estimated to be nearly ₹ 90 crores. In a subsequent decisions sum of ₹ 58 crores were placed with Oriental Bank of Commerce for a period of one year on 15.9.99 increasing the total exposure of DMRC on Oriental Bank of Commerce to ₹ 183 crores. Seeing that the trend of expenditure entails further drawing down of almost ₹ 75 crores till 31st March and all of it is likely to be met by withdrawals from LTDRs with SBI due to the benefit of waiver of penalty of 1% on premature withdrawals, the Committee recommends:- 1. To reinvest ₹ 22 crores maturing with Oriental Bank of Commerce on 13.10.99 at 11.1% p.a. 2. To invest ₹ 22 crores maturing with Canara Bank in LTDRs with SBI at 10% p.a. for a period of one year. The balance proceeds of about ₹ 22 lakhs from bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied over the facts of the instant case. In other cases relied upon by the Ld. Counsel of the assessee, the decision in the case of Indian oil Panipat Power Consortium Limited (supra), has been followed, which we have already distinguished. 22.11 In view of the above discussion, respectfully following the ratio in the case of Tuticorin Alkali Chemical and Fertilizers Ltd(supra), we reject the contentions made while arguing the grounds as well as additional grounds related to the issue in dispute claiming the interest income as part of business income and also that adjustment of interest on fixed deposits against the capital work in progress and uphold the finding of the Ld. CIT(A) on the issue in dispute for assessing the interest income from funds invested in bank deposits during the assessment years from AY 1996-97 to 2002-03 as income taxable under the head Income from other sources . The ground No. 2 of ITA No. 1346/del/2018 for assessment year 1996-97 and additional ground (a), raised in all the respective appeals are dismissed. 23. In assessment years 2000-2001; 2001-02 and 2002-03, the assessee has also raised the issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses allow3d in order u/s 263 by CIT, Delhi IV, New Delhi 1998-99 ₹ 15,44,65,452/- ₹ 31,35,830/- 1999-2000 ₹ 36,58,38,183/- ₹ 34,49,413/- The submissions of the appellant company filed on were forwarded to the Assessing Officer for her comments. The reply of the Assessing Officer was received vide letter dated 10.2.2004 wherein it is specifically mentioned that since the assessee has not furnished any details of expenses the claim of the assessee remained unverifiable whether the expenses were incurred wholly and exclusively for earning the interest income. Therefore, no expenses were allowed in this year. It is further stated that the only FDR made in the bank for the surplus funds lying in the bank, there would actually be no expenses that assessee would need to incur for earning this income. The authorized representative of the appellant company has filed rejoinder on 20.4.2004 where it is state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew the reasons given under order u/s 263 of even date for asstt. year 1998-99 an expenditure of ₹ 34,49,413/- is held as Incurred wholly and exclusively for earning Interest Income and the balance amount of ₹ 5,20,70,154/-( ₹ 5,55,19k,567/- - ₹ 34,49,413/-) is not relatable to interest Income and is, therefore, being disallowed. I have gone through the findings of the Assessing Officer and the submissions made by the appellant company. I he argument taken by the appellant company has substantial force because the Hon'ble Commissioner of Income-tax. Delhi-IV, New Delhi has allowed the expenses relatable to interest in the assessment years 1998-99 and 1999-2000 in the order passed under section 203 of the Income-tax Act, 1961. The relevant para is reproduced as under:- that a fraction of those expenses incurred was relatable to earning interest income. In order under section 263 of the Income tax Act. 1961 for the assessment year 98-99 it has been held that expenses of ₹ 31,35,830/- were relatable to interest income. It is observed that the interest income has increased from ₹ 15,44,65,452 in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961 for the assessment year 1999-00. The interest income was earned at ₹ 15.47 crores in the asstt. year 98- 99 and ₹ 36.58 crores in the asstt. year 99-00. Against these interest income the relatable expenses were allowed at ₹ 31,35,830/- and ₹ 34,49,413/- respectively. It means that the relatable expenses allowed in the asstt. year 99-00 comes ₹ 34,49,413/-i.e. 10% more than the expenses claimed in the asstt. year 98-99 of ₹ 31,35,830/- In spite of this fact that interest income had been increased from ₹ 15.44 to 36.59 crores in (- .comparison to asstt. year 98-99. The Hon'ble CIT, Delhi-IV, New Delhi has categorically given the finding that since no much extra expenses were required to earn additional interest income for asstt. year 99-00, it will be fair that if we increase the relatable expenses held to be inclined to earn interest income for the asstt. year 98-99 by 10% only. I do not intend to the differ with the findings of the CIT, Delhi-IV, New Delhi and accordingly I hereby direct the Assessing Officer to allow the relatable expenses amounting to ₹ 37,94,354 (₹ 34,49,413/- + 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1998-99. The Ld. CIT(A) has further progressively increased the expenses which could be allowable, by 10% for the year 2000-01, 2001-02 and 2002-03. In the assessment year 2001-02 , the claim of the assessee was only of ₹ 7,76,600/- and therefore he restricted the claim of expenses to that extent. In absence of a specific demonstration by the assessee that particular expenses relates to the interest income and in absence of any documentary evidence in support of such a claim, we may not like to disturb the expenses already allowed by the Ld. CIT(A), in view of the fact that there is no appeal of the Revenue before us in which the quantum of expenses allowed under the head Income from other sources has been contested by the Revenue. In view of the above discussion, the relevant ground number 5(a) and 5(b) of ITA No. 1874/del/2004 for assessment year 2000-01, ground No. 5 and 6 of ITA No. 4553/del/2003 for assessment year 2001-02 and grounds No. 5 and 6 of ITA No. 5095/del/2004 for assessment year 2002-03 are accordingly dismissed. 25.2 The next issue raised in the grounds for AY 1996-97 to 1999-2000 is regarding not allowing claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 for AY 1999-2000 raised on this issue are accordingly dismissed. 28. The next issue raised various appeals before us is related to not allowing deduction in respect of expenses claimed in the profit and loss account including professional and consultancy charges incurred by the assessee. The Ld. CIT(A) in relevant years has held that company was in the process of setting up the business and therefore the Assessing Officer were justified in holding that professional or consultancy charges paid were preoperative expenses eligible for amortisation under section 35D(2)(a) of the Act. It is now well settled law that, once business is set up , then only expenditure is allowable as business expenditure, as has also been held the judgment of Jurisdictional High Court in the case of CIT vs. Dhoomketu Builders Development Pvt. Ltd. 216 Taxmann 76 . As we have already held that business of the assessee was not set up during the period from assessment year 1996-97 to assessment year 2002-03, the assessee is not eligible for claiming any business expenditure as previous year has not began. In the additional ground (b), the assessee has requested that in case the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profits and gains of business or profession is that the business is carried on. When an assessee does not carry on business at all these computation provisions have no application and the income that he receives cannot bear the character of profits of business. New Savan Sugar Gur Refining Co. Ltd. Vs. CIT (1969) 74 ITR 7(SC). Senairam Doongarmall Vs. CIT (1961) 42 ITR 392 (SC). 30. The Ld. Sr. Counsel of the assessee relied on the decision of Hon ble Delhi high Court in the case of CIT Vs Oswal Agro Mill Ltd. reported in 341 ITR 467 (Delhi) and decision in the case of National Thermal Power Corporation Vs. CIT, reported in 357 ITR 253. The Ld. DR, on the other hand, relied on the finding of the lower authorities. 31. We have heard both the parties on the issue on dispute. In the case of Oswal Agro Mills Ltd (supra), issue in dispute was in respect of depreciation on passive use of the assets. The Assessing Officer denied depreciation in respect of the Bhopal unit of assessee on assets forming part of a block of assets on the ground that the unit was closed throughout the years. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning of interest income. The exercise of jurisdiction u/s 263 being not in accordance with the provisions of law, the order dated 18.3.2003 u/s 263 passed by the CIT, Delhi-IV deserves to be cancelled. 2. The Assessing Officer having come to the conclusion that expenses of ₹ 67,75,851 were allowable as deduction under section 57 of the Income-tax Act for earning of interest income, in the facts and circumstances of the case the CIT, Delhi-IV has erred in law and on facts in holding that expenses of Fes. 20,90,552 out of expenses of ₹ 67,75,851 allowed as deduction by the Assessing Officer were disallowable being not relatable to interest income. Such change of opinion being not permissible under the provisions of section 263 of the Income-tax Act, 1961, the order of the C.I.T., Delhi-IV being illegal deserves to be cancelled. 3. On the facts and in the circumstances of the case the Commissioner of Income-tax, Delhi-IV has erred in law in exercising jurisdiction under section 263 of the Income-tax Act,1996 and holding that out of expenses of ₹ 67,75,851 allowed by the Assessing Officer expenses of ₹ 20,90,552 were di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be cancelled. 7. On the facts and in the circumstances of the case the CIT, Delhi-IV has erred in law and on facts in holding that expenses amounting to ₹ 20,90,552 did not relate to earning of interest income. The figure of expenses of ₹ 20,90,552 being based on estimate and not on any material on record, the order of the CIT, Delhi-IV is bade in law. Such estimation being not permissible under the proceedings under section 263, the order of the CIT, Delhi-IV is bad in law and therefore the same deserves to be cancelled. 8. On the facts and in the circumstances of the case the CIT, Delhi-IV erred in calling upon the appellant for production of books and other records to come to a conclusion that out of expenses of ₹ 67,75,851 already allowed by the Assessing Officer for earning of interest income, some expenses were disallowable. The CIT being required to have such details ready before him before issue of notice under section 263, the order passed is bad in law and, therefore, the same deserves to be cancelled. 9. On the facts and in the circumstances of the case the CIT, Delhi-IV has erred in law in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eserves to be cancelled. 3. On the facts and in the circumstances of the case the Commissioner of Income-tax, Delhi-IV has erred in law in exercising jurisdiction under section 263 of the Income-tax Act,1961 and holding that out of expenses of ₹ 5,55,19,567/- allowed by expenses of by the DOT,Circle-10(1),New Delhi expenses of ₹ 5,20,70,154/- were disallowable being not relatable to interest income. The assessment order dated 26.2,2002 of the DOT, Circle 10(1), New Delhi being not erroneous in so far as it was not prejudicial to the interest of revenue, the order u/s 263 dated 18.3.2003 passed by the CIT, Delhi-IV being illegal deserves to be cancelled. 4. The Assessing Officer having held that interest income of the appellant was to be taxed under the head Income from other sources and that expenses of ₹ 5,55,19,567/- were allowable as deduction against inte/est income of ₹ 36,58,38,183/- under section 57 of the Income-tax Act,1961,the CIT, Delhi-IV in the facts and circumstances of the case has erred in law in invoking the provisions of section 263 to hold that expenses of ₹ 5,20,70,154,/- were disallowable b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of ₹ 5,55,567,/- already allowed by the Assessing Officer for earning of interest income, some expenses were disallowable. The CIT being required to have such details ready before him before issue of notice under section 263, the order passed is bad in law and, therefore, the same deserves to be cancelled. 9. On the facts and in the circumstances of the case the CIT, Delhi- IV has erred in law in not justifying the disallowance of expenses on facts. The total expenses having been incurred for the purpose of business are liable to be fully allowed. 10. In the facts and circumstances of the case the CIT, Delhi-IV has erred in law in invoking the provisions of section 263 of the Income-tax Act,1961.The assessment order dated 26.2.2002 passed by the Assessing Officer having been the subject matter of appeal before the CIT(Appea!s)-XIlI, New Delhi, the order passed by the CIT, Delhi-IV is without jurisdiction and, therefore, the same is liable to be cancelled. 11. The learned CIT, Delhi-IV has illegally invoked section 263 of the Income-tax Act,1961. As such, the proceedings u/s 263 of the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise of powers to act under section 263 of the Act existed. In order to assume jurisdiction under section 263, the pre-requisites are that the order passed by the Assessing Officer should be erroneous and it should be prejudicial to the interests of Revenue. The Commissioner has to satisfy the twin conditions, namely, (i) the order of the Assessing Officer sought to be revised should be erroneous (ii) it should be prejudicial to the interests of the revenue. Both the conditions must be satisfied. It was submitted that if either of the two conditions does not exist or are found not satisfied, the learned CIT cannot initiate proceedings to set aside otherwise an unfavourable order, as has been held by the Hon ble Madras High Court in the case of Venkat Krishna Rice Company v. CIT 163 ITR 129 and, noted by their Lordships of Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT 243 ITR 83. 36. It was submitted that, the learned CIT has erred in assuming jurisdiction by making an order by invoking the provision of section 263 of the income Tax Act as in doing so the learned CIT failed to appreciate that the orders of assessment for both assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) Abbas Wazir (P) Ltd v CIT 265 ITR 77 (All) 38 It was submitted that the learned CIT failed to appreciate the settled position of law that merely because the A.O adopted one view which was not in consonance with the commissioner s view, the order passed by the A.O can not be said to be erroneous. 39 It was submitted that the learned CIT also failed to appreciate the settled position of law that the Commissioner cannot substitute his opinion in place of that of A.O. particularly when views taken by the A.O is also one of the legally possible views. The scope of the powers vested u/s 263 of the Act is not so wide as to pass any order in the garb of revising an order of assessment but is circumscribed with certain limitations as has been held by the Hon ble Supreme Court in the case of Malabar Industrial Company Ltd. v CIT 243 ITR 83. Reliance was also placed on the judgment of the Gujarat High Court in the case of Arvind Jewellers reported in 259 ITR 502 and Nabha Investments Ltd. V UOI 246 ITR 41 (Del). It was also submitted that even otherwise, section 263 cannot be invoked in view of the judgement of the Apex Court in the case of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Hon ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. Income Tax Officer (Appeal No. 2396/2017) dated 29.11.2017. (copy enclosed). In this group of cases, Hon ble Supreme Court has dismissed SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry The relevant judgement of Hon ble Calcutta High Court in this case is also enclosed. 2. BSES Raidhani Power Ltd. Vs PCIT [2017] 88 taxmann.com 25 (Delhi)/[2017] 399 ITR 228 (Delhi) (copy enclosed) Hon ble Delhi High Court held that non-consideration of larger claim for ₹ 298.93 crores as depreciation and consideration of only a part of it being ₹ 6.45 crore by Assessing Officer, who did not go into issue with respect to whole amount, was an error, that could be corrected under section 263. Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 263, set aside assessment order on ground that it was clearly erroneous and also prejudicial to revenue inasmuch as claim of assessee was accepted without proper enquiries and directed ITO to make fresh assessment after making proper enquiries and recording a finding. Order upheld 6. CIT Vs Amitabh Bachhan (69 taxmann.com 170. 240 Taxman 221, 384 ITR 200, 286 CTR 113) (copy enclosed) Hon ble Supreme Court held that Section 263 does not require any specific show cause notice detailing specific grounds on which revision of assessment order is tentatively being proposed affecting initiation of exercise in absence thereof or to require commissioner to confine himself to terms of notice and foreclosing consideration of any other issue or question of fact; Commissioner is free to exercise his jurisdiction on consideration of all relevant facts, provided an opportunity of hearing is afforded to assessee to contest facts on basis of which he had exercised revisional jurisdiction 7. Shree Maniunathesware Packing Products Camphor Works Vs CIT [1998] 96 Taxman 1 (SO/[1998] 231 ITR 53 (SO/[1997] 143 CTR 406 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,000 Business Promotion A/c 171,3000 Car Maintenance 30,907 Conveyance Expenses 33,552 Electricity Expenses 61,816 Entertainment Expenses 7,754 Ground Rent 1,575,000 Honorarium 147,300 Insurance A/c 26,066 Membership A/c 14,673 Miscellaneous expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,851/- was not entirely related to earning of interest income and thus, cannot be allowed entirely against interest income. 38.3 The Ld. CIT, after considering the submission of the assessee held that the Assessing Officer did not apply mind to the nature and details of the other expenses claimed and allowed as deduction against the interest income. The Ld. CIT observed that all the expenses of ₹ 67,75,851, were clearly not relatable to the earning of the interest income as those expenses mainly include advertisement, business promotion, ground rent etc, vehicle and salary to technical staff etc. The Ld. CIT held that income from investment in short-term deposit with banks would be chargeable to tax under the head Income from other sources during the pre-commencement period of the business and against the said interest income expenses for earning of such interest income was only allowable. The Ld. CIT asked the assessee to segregate the expenses relatable to the interest income, however in view of the failure on the part of the assessee, the Ld. CIT estimated such expenditure for assessment year 1998-99 as under: ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latable to interest income, it is observed that the interest income has increased from ₹ 15,44,65,452 in assessment year 1998-99 to ₹ 36,58,38,183/- in assessment year 1999-2000 Since not much extra expenses were required to earn the additional interest income in asstt. year 99-2000, it will be fair, if we increase the expenses held to be incurred to earn Interest income In asst* year 1995-99 by 10%. This figures comes to ₹ 34,49,413/- (₹ 31,35,830 + ₹ 3,13,583). Against interest of ₹ 15.26 Crores for Asstt. Year 1998-99, the total deduction claimed for expenses was ₹ 67,75,852/- where as against interest income of ₹ 36.58 Crores for Asstt. year 1999-2000, deduction on account of expenses allowed is of ₹ 5,55,19,567/-. The details are enclosed as Annexure 'A'. As is clear from Annual Report for A.Y 1998-99 (Asst. Yr. 1993-2000), the company had incurred major expenses or appointment of consultants for Metro Rail Project, payment of consultancy fees and salary, inviting for tenders for civil works, acquiring the land and rehabilitation of about 500 jhuggi dwellers falling within the project alignment. Thus almost entire I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer. In the case of Rajmandir Estate (P) Ltd. (supra) also the Hon ble Calcutta High Court upheld the 263 proceedings for not carrying out enquiry by the AO into increase of share capital. The Hon ble Delhi High Court in the case of GeeVee Enterprises Vs. Add. CIT (1975) 99 ITR 375 has observed that the word erroneous in section 263 includes the failure to make any inquiry when the circumstances could make such an inquiry prudent. In view of the above, we are of the view that the Ld. CIT is justified in holding the order of the Assessing Officer as erroneous insofar as prejudicial to the interest of the revenue. 38.6 On behalf of the assessee it was submitted before us that the commissioner cannot substitute his opinion in place of the Assessing Officer particularly when view taken by the Assessing Officer is one of the legally possible views. But in the instant case, we find that the Assessing Officer has not examined whether the expenses incurred were in relation to earning of the interest income. At least from the record, it is apparent that the Assessing Officer has not carried out an enquiry on this issue. The expenses claimed include all sort ..... 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