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2019 (4) TMI 1284 - AT - Income TaxTaxability of interest income earned prior to commencement of business - no commercial operations - assessee had claimed that the interest income was capital receipt to be set off against the expenditure incurred during this period - AO held that interest income is taxable under the head ‘income from other sources’ - set off expenditure also decline - HELD THAT:- Whenever an assessee is in the process of setting up of the business, if any, income arises under any of the heads except under the head profits and gains of business, then such income has to charged to tax under that particular head. As far as interest received from short term deposits which were not immediately required, were held to be taxable following the decision of M/s Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. CIT [1997 (7) TMI 4 - SUPREME COURT] . Only those sums which were received from contractors, which we can say were inextricably connected with the construction activities, were held to be not taxable, rather than they were held to be reduced from the total capital expenditure. The decision of the Delhi High Court in the case of Indian Oil Panipat Power Consortium Limited vs. ITO [2009 (2) TMI 32 - DELHI HIGH COURT] is not applicable to the facts of the assessee’s case before us. Thus, it is clear that in the case before us, assessee was still at the pre-commencement stage and during this phase, the assessee had raised equity funds which was invested in fixed deposits of the Banks as well as the holding company and the assessee had earned interest on the same. The same has to be taxed as ‘income from other sources’ in the light of the decision of the Hon'ble Supreme Court in the case of M/s Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. CIT (supra). Because the shareholder of the company was in a position to pass resolution or issue any letter, it cannot change the character of the source of the income.The business was not set up during the relevant previous year and the interest earned from the Bank deposits is to be assessed as income from other sources and it cannot be set off against the capital expenditure. Ground of appeal of the assessee is dismissed. Unless and until the machinery of the project is fully installed and the project becomes operational and the order is executed, it cannot be said that the business has been set up. Before us, the fact is that the assessee had not yet commenced construction of the vaccine project. Therefore, it is clear that business was not set up and there was no question of claiming any expenditure. Set off of business loss against the addition made by the Assessing Officer. - HELD THAT:- As discussed earlier, the business of the assessee was not set up and it had not commenced commercial operations. In such a situation, there is no business loss which is to be computed under the head income from business. As such, there is no question of set off of interest income against business loss. Accordingly, this ground of appeals of the assessee is also rejected.
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