TMI Blog2018 (11) TMI 1643X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) the expenditures which are allowable as deduction from income assessable under section 56. Thus, the assessee cannot claim adjustment of the impugned expenditures against interest assessable under section 56. There are specific provisions in the Income-tax Act for setting off loss from one source against income from another source under the same head of income (section 70), as well as setting off loss from one head against income from another (section 71). In the facts of this case, the company cannot claim any relief under either 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 etc. The assessee could not challenge any of these findings and the corresponding application of law. Apex court very clearly confirmed that the interest earned by an assessee on the investment of share capital in call deposits before the commencement of its produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 The learned CIT(A) ought to have appreciated that the interest earned out of short term deployment of equity funds infused for the purpose of setting up of business is a capital receipt, not subject to tax. 2.3 Without prejudice to the above, the CIT(A) ought to have set-off the expenditure of ₹ 2,55,75,842 debited in the profit loss account against the aforesaid interest income. 3. The Appellant craves leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 4. The Ld. AR presented the case on the lines of grounds of appeal and relied on the Jurisdictional High Court decision in the case of CIT vs VGR Foundations 298 ITR 132. Per contra, the Ld. DR supported elaborately the order of the Ld. CIT(A). 5. We heard the rival submissions and gone through the relevant material. The assessee s financials disclose that out of share capital of ₹ 1,227,000,000/- as on 31.03.2012, the assessee kept ₹ 230,500,000/- in deposit accounts. On which, it earned interest income on fixed deposits w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest payable by the assessee which would be capitalized after the commencement of commercial production. The relevant excerpt from the decision of Hon ble Supreme Court in Tuticorin Chemicals (supra) is reproduced as under: The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income-tax. Profits and gains of business or profession is only one of the heads under which the company s income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. If the company, even before it commences business, invests the surplus funds in its hands for purchase of land or house property and later sells it at profit, the gain made by the company will be assessable under the head Capital gains . Similarly, if a company purchases a rented house and gets rent, such rent will be assessable to tax under section 22 as income from house ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le under section 56. Section 57 of the Act sets out in its clauses (i) to (iii) the expenditures which are allowable as deduction from income assessable under section 56. It is not the case of the assessee that the interest payable by it on term loans is allowable as deduction under section 57 of the Act. If that be so, under which other provision of law can the assessee claim deduction or set-off of his income from other sources against interest payable on the borrowed funds ? There are specific provisions in the Income-tax Act for setting off loss from one source against income from another source under the same head of income (section 70), as well as setting off loss from one head against income from another (section 71). In the facts of this case the company cannot claim any relief under either 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness, its income from any other source will not be taxed. If the company, even before it commences business, keeps the surplus funds in shortterm deposits in order to earn interest, as in this case, such interest will be chargeable under section 56 of the Act. Section 57 of the Act sets out in its clauses (i) to (iii) the expenditures which are allowable as deduction from income assessable under section 56. Thus, the assessee cannot claim adjustment of the impugned expenditures against interest assessable under section 56. There are specific provisions in the Income-tax Act for setting off loss from one source against income from another source under the same head of income (section 70), as well as setting off loss from one head against income from another (section 71). In the facts of this case, the company cannot claim any relief under either 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 adjuste ..... X X X X Extracts X X X X X X X X Extracts X X X X
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