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TMI Blog2023 (4) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Assessing Officer further held that the Income from House Property cannot be equated to business income. We, however, are of the considered opinion that in commencement of business the assessee purchased the property and the rent is a by-product. We, therefore, accept the contention of the assessee that they have commenced their business. Processing fee and interest addition - We held that the assessee commenced its business - in order to claim any deduction towards interest or the processing fee in the nature of interest, the assessee must have acquired a business asset. No dispute that there is neither work in progress nor any stock in trade shown by the assessee in their books. Only some advance was given for acquiring the property in Hyderabad. Giving advance for acquiring a property cannot be equated to the acquisition of the property. Acquisition of property for business purpose means such property must be available to the assessee to be dealt for its business purposes, namely, to carry on the business of real estate s dealers, estate owners etc. Unless and until the assessee purchased the property in Hyderabad, it cannot be said that they are in a possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company in consideration gross sum or rent or partly in one way and partly in the other way or for any other consideration and to carry on the business of real estate s dealers, estate owners, undertaken construction activities and development of housing plots, suits and projects, design, build, operate, own and manage software technology parks, malls, entertainment parks, theme parks, integrated townships including construction of apartments, houses, housing colonies and commercial complexes and industrial estates, export processing zones, special economic Jones and the business zones. 3. According to the assessee, in pursuance of the above objects, it raised funds of Rs. 34.21 crores by availing loan of Rs. 26.72 crores from NSL Estates Pvt. Ltd., and by way of rental security deposit and a sum of Rs. 7.49 crores. It purchased a commercial property by name Embassy Building admeasuring 97,232 square feet in Bangalore for a consideration of Rs. 34.21 crores. Subsequently, by availing a loan to the tune of Rs. 30 crores from India Bulls Financial Services Ltd., the assessee repaid the existing loan of SBI and SBM. A balance of Rs. 8.4 crores was utilised for acquiring anot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed. 7. Hence the assessee is in appeal before us. Learned AR argued that the ground relating to the disallowance of carry forward of losses, proportionate process fee and interest are dependent upon the basic questions as to whether the assessee commenced its business or not, and whether the income of the assessee from lease rentals is taxable under the head PGBP or IFHP. He submitted that though the assessee initially offered the rental income to tax under the head IFHP, subsequently realising the mistake and pursuant to the decision of the Hon ble Apex Court in the case of Chennai Properties and Investments Ltd vs. CIT 373 ITR 673 (SC), he desires to offer the same under PGBP which is legal and proper. According to him, the activity of purchase of property whether for investment or for sale or working in same includes the activity of leasing out to derive income and, therefore, the decision of the Hon ble Apex Court in the case of Chennai Properties and Investments Ltd., (supra) is applicable to the facts of the case. 8. He further submitted that under section 149 of the Companies Act, commencement of business will be applicable to public limited company which go for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the case because the Memorandum of Association of the assessee does not spell out the activity of leasing and earning rental income as one of the objects of the assessee. 11. We have gone through the record in the light of the submissions made on either side. Though we have detailed the objects of the business of the assessee as per the Memorandum of Association, we deem it necessary, for the sake of completeness, to extract the same hereunder. 1. To carry on the business of Real Estate builders, developers, Prompters, Architects, Supervisors, Contractors/Consultants, dealers, and Agents for Real estate including development of townships and sale of plots. 2. To purchase, sell, develop, take in exchange, or on lease, hire or otherwise acquire, whether for investment for sale, or working in same, any real or personal estate including lands, buildings, houses, easement or interest in or with respect to any property or whatsoever for the purpose of the company in consideration gross sum or rent or partly in one way and partly in the other way or for any other consideration and to carry on the business of real estate s dealers, estate owners, undertaken construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business immediately after incorporation. Immediately after incorporation, the assessee had carried out several operations like raising loans and acquiring business assets and in that process the asset at Bangalore was acquired and an advance amount for acquiring the asset at Hyderabad was made. According to us, these transactions are part of the business of the assessee and there is no requirement of obtaining any commencement certificate in this case. Apart from this, the assessee incurred expenditure relating to printing and stationery, audit fee, filing fee, miscellaneous expenses etc., which according to the learned Assessing Officer are not specifically related to the business. Learned Assessing Officer further held that the Income from House Property cannot be equated to business income. We, however, are of the considered opinion that in commencement of business the assessee purchased the property and the rent is a by-product. We, therefore, accept the contention of the assessee that they have commenced their business. 15. In respect of the processing fee, the assessee incurred an expenditure to the tune of Rs. 1.08 crores towards processing fee for obtaining the fres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners etc. Unless and until the assessee purchased the property in Hyderabad, it cannot be said that they are in a possession to use such property for the purposes of carrying out their business. 18. We, therefore, are of the opinion that mere giving advance towards the property in Hyderabad will not entitle the assessee to deal with such property for the purposes of their business and, therefore, it cannot be said that the assessee acquired such property. Till the property is acquired by the assessee and ready for use for carrying out the business purposes, the interest or the processing fee in the nature of interest has to be capitalised and it cannot be claimed as deduction as revenue expenditure . We, therefore, do not find anything illegality or irregularity in the findings of the learned CIT(A) and restricting the processing fee and the interest to the extent the borrowed amount was used for repayment of the debt is incurred to acquire the Bangalore property and to disallow the rest of it, holding that at best it can be capitalised. 19. In the result, all these appeals are accordingly allowed in part. Order pronounced in the open court on this the 29th day of March, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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