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TMI Blog2012 (8) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... s allowable under Section 30 to 37 of the Income Tax Act? 4. The facts necessary for adjudication of the appeal as narrated and mentioned therein are that the assessee filed its return on 18.9.2008 for the assessment year 2007-08 declaring nil income. The assessee closed its business w.e.f. 30.6.2002, however, the business was under liquidation and for the said purpose expenses on employees' remuneration, interest paid on bank loans, administration, selling and distribution expenses were being incurred. The assessee claimed a sum of Rs. 1,52,17,861/- inclusive of Rs. 86,682/- on account of depreciation as business expenditure under Sections 30 to 37 of the Act. The amount of Rs. 5,20,878/- earned by the assessee on account of interest from bank was treated by the Assessing Officer as income from other sources. The prior period expenses amounting to Rs. 15,13,649/- were also disallowed. The Assessing Officer vide order dated 11.12.2009 (Annexure A-1) disallowed the said business expenditure holding that the assessee was not carrying on any business activity. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; shall be computed after making the following deductions, namely:- (i) and (ii).............. (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income: Provided ............. Explanation: ............ 10. In Vijaya Laxmi Sugar Mills Ltd. v. Commissioner of Income Tax (1991) 191 ITR 641 (SC) where the company was ordered to be wound up by the High Court, certain income had accrued by way of interest income from monies invested in fixed deposits with certain banks. A claim was made for deduction of expenses incurred towards salaries, legal fees, liquidation expenses, TA and DA, postage and stationery in computing its income. The Hon'ble Supreme Court held that it could not be said that any business was being carried on by the company and, therefore, interest income would not fall within the meaning of Section 28 of the Act but was liable to be computed only under the head 'Income from other sources'. The expenses claimed by the assessee therein were held to be inadmissible under Section 57(iii) of the Act as it was not established that expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt that the expenditure incurred by the Liquidator in this case can by no stretch be said to have been incurred with the object or for the purpose of earning the interest income. The Tribunal was, therefore, right in holding that the expenses claimed are not related to the interest income and was not a deductible expenditure under section 57. 11. Further, this Court in Consumer Electronics (Punjab) Ltd. Vs. ACIT, Circle-III, Chandigarh, ITA No. 198 of 2003 decided on 29.9.2010 relying upon the judgment of Hon'ble Apex Court in M/s Tuticorin Alkali Chemicals and Fertilizers Ltd. v. Commissioner of Income Tax, Madras (1997) 227 ITR 172 under similar circumstances held that the assessee was not entitled to deduction under Section 57 (iii) of the Act. It was observed as under:- 7. For deciding the said questions, it is necessary to refer to statutory scheme under the Act. Section 17 classifies heads of income into five heads and computation of income under different heads has to be as per the statutory scheme. Deduction from business income are governed by the provisions of Chapter IV-D i.e. Sections 28 to 44 whereas income from other sources is dealt with under Chapter IV- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y cannot claim any relief under any of these two Sections, since its business had not started and there could not be any computation of business income or loss incurred by the assessee in the relevant accounting year. In such a situation the expenditure incurred by the assessee for the purpose of setting up its business cannot be allowed as deduction, nor can it be adjusted against any other income under any other head. Similarly any income from a nonbusiness source cannot be set off against the liability to pay interest on funds borrowed for the purpose of purchase of plants and machineries even before commencement the business of the assessee. XX XX XX XX XX XX XX XX It is true that the Company will have to pay interest on the money borrowed by it. But that cannot be a ground for exemption of interest earned by the Company by utilizing the borrowed funds as its income. It was rightly pointed out in the case of Kedar Narain Singh v. Commissioner of Income Tax, (6 I.T.R. 157) that anything which can properly be described as income is taxable under the Act unless expressly exempted . The interest earned by the assessee is clearly its income and unless it can be shown that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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