TMI Blog2012 (7) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... r at least the basis for its determination, and which would be valid for all the years under reference. Also, it is well settled that the tribunal is fully competent to determine the actual issue arising for determination in appeal, as also allow to relief on a ground different from that being urged before it. It is well-settled that it is the correct legal position that is relevant, and not the view that the parties may take of their rights in the matter. Claim of expenditure to be set off against interest income - held that:- we are unable to see as to how the said admitted business expenditure is now being claimed as laid out wholly and exclusively for earning bank interest, so as to be deductible u/s 57(iii), qua which there is no finding by the first appellate authority in any the years, and which claim, where admitted by him, would have required a remission to the A.O., i.e., after satisfying himself that a prima facie case is made out. - Decided against the assessee. Direct or indirect cost - Architect's fee - income from sale of forms and trees can not be treated as independent of the project, and even if no costs are attributable thereto (which is impractical), or su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d deposits with bank during the relevant year at Rs. 109.89 lakhs, besides miscellaneous income (from the sale of tender forms and sale of trees) in the sum of Rs. 4.07 lakhs. Further, it has returned the same as business income, claiming deduction for a total of Rs. 68.71 lakhs on account of business expenditure, offering the balance to tax. The Assessing Officer (AO) was of the view that the interest income as well as the miscellaneous income was liable to be assessed as income from other sources, which would only entitle deduction in respect of expenses allowable u/s. 57 in view of the decision by the apex court in the case of Vijaya Laxmi Sugar Mills Ltd. v. CIT [1991] 191 ITR 641/59 Taxman 22 and Tuticorin Alkali Chemicals Fertilisers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502. The assessee's claim for allowance of the depreciation was also negated at nil on the basis that no business activity had been undertaken during the year. Accordingly, he brought the entire income of Rs. 113.46 lakhs to tax as income from other sources. In appeal, the ld. CIT(A) found that it was an admitted position that no business activity had been carried out during the relevant previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prem Conductors (P.) Ltd. ( supra ). The leasehold land was only the assessee's stock-in-trade, which was being developed for converting the same into plots for allotment in the rubber industrial park. Reliance for the purpose was placed by him on the decision in the case of Raja J. Rameswar Rao v. CIT [1961] 42 ITR 179 (SC), relied upon by the assessee's counsel before him, and wherein it has been held that when a person acquires land with a view of selling it later after developing it, he was carrying on an activity resulting in profit, and such business activity could only be described as business venture. Further, in his view, the expenditure amounting to Rs. 59,32,893/-, being claimed as business expenditure, could not be allowed set off against interest and other income assessable under Chapter IV-F. This is as the profits and gains of business or profession (or for that matter even under the head 'income from other sources') would stand to be computed in accordance with either cash or mercantile system of accounting regularly employed by the appellant in view of s. 145(1) of the Act. In the instant case, the assessee was recognizing income from the said activity on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim for expenditure in view of the provisions of s. 56 and 57 of the Act., placing reliance also on the decision in the case of Saraf Textile Industries v. CIT [1996] 217 ITR 507/85 Taxman 146 (Raj.). The assessee impugns the same on the basis that the entire expenditure would merit being set off; its business having commenced in terms of the decision in the case of Saurashtra Cement Chemical Industries Ltd. ( supra ), as against restricting the allowance of expenditure at the rate of 18% of the gross income. The assessee also challenges the impugned orders on the ground of re-opening as being bad in law, as there was full and complete disclosure of all material facts per the returns of income, and the assessments had attained finality in view of the non-issue of the notice u/s. 143(2) of the Act. 4. We have heard the parties and perused the material on record, as well as the case law cited. 4.1 It could be necessary, for the purpose of adjudicating the present set of appeals, to formulate and relate the question/s that arise/s for consideration, and then proceed to answer the same. The primary facts are, by and large, undisputed. The first question, therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r profession" and, secondly, set off of business loss in view of the non absorption of the impugned expenditure under that head of income, against positive income under the head "Income from other sources" u/s 71 of the Act. No such application, as is apparent, has been preferred by the assessee, as in that event it would be incumbent on the A.O. to pass an order within one month thereof, as further directed by the hon'ble court. The reason for the same is that the hon'ble court was, though incorrectly, given to understand by and on the assessee's behalf that the only reason for the non allowance of the said expenditure by the Revenue is in view of the entire income, i.e. the bank interest netted by the impugned expenditure, being returned by the assessee as business income, so that in view of a technical omission in non returning the claim of business expenditure under the appropriate head of income should not impede the assessee's cause. 4.3 Turning to the question set out earlier, the first thing that would require being addressed for the purpose is as to what constitutes the assessee's business. The main object clauses of its Memorandum of Association (MOA), which though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries. The terms and conditions of the joint venture agreement dated 26-12-1997, as well as the directions by the GoK in relation to the lease of land, were to apply to the said lease, as well as to the sub-leases to be effected by the assessee-company. The assessee, vide agreement dated 31-05-1999, appointed C.P. Kukreja, New Delhi as Architects for the project, the scope of whose activities included design of the project and supervising its construction, including all architectural and engineering services, besides advisory function on technical and non technical matters, including award of contracts for various individual works and cost control. M/s M.K. Abraham Co, Perumbavoor were appointed as contractors vide agreement dated 12-11-1999. The entire work for a 110/11 KV sub-station and ancillary works was awarded to BSES Ltd. vide agreement dated 20-12-2000. Similarly, for water supply, contract was finalized with Hindustan Steel Works Constructions Ltd, Kolkatta on 23-02-2001. Another 47.88 acres of land was acquired on lease during, as stated, the financial year 2000-01. Vide their report dated 21-12-2002, the Board of Directors (BoD for short) reported that the developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turing organization, and it can be said that it (unit) has been set up. The decision clarifies the matter beyond any doubt. Though rendered in the context of establishment of a unit, the difference is inconsequential in view of its rationale as well as its ratio. Firstly, what the hon'ble court explains is the meaning of the two expressions, which, thus, are equally valid when considered in relation to anything other than an industrial unit (factory), which was under reference in that case. Secondly, "business", with which we are concerned in the instant case, is only for the reason that it consists a source of income, as indeed an industrial unit is. Rather, as would be observed, the hon'ble court signifies the "setting up" or "establishment" - again noting the equivalence of these two terms - as a state where it could function as a 'business'. That is, the reliance by the Revenue on the said case is both contextually and conceptually valid. 4.5 What, thus, the apex court holds as of relevance is the functional test. Similar view was taken up by the hon'ble Gujarat High Court in CIT v. Sarabhai Sons (P.) Ltd. [1973] 90 ITR 318. Relying on the afore-cited decisions, it held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng lime stone was within the object clauses of the company's MOA, it did not engage in that business, and quarried and extracted the lime stone only as a raw material for the manufacture of cement. It was in this context that the question of commencement of business arose, which was answered in the affirmative, confirming the allowance of the impugned expenditure by the Tribunal, which analysed the assessee's business as comprising there distinct stages, i.e. (1) extraction of lime stone by quarrying lease land; (2) to manufacture cement and; (3) sale of manufactured cement. The second and third categories had not commenced in the years under reference; the manufacture of cement starting only in October, 1960. Approving the decision by the tribunal, it was held that the company's business consists of the continuous process of three activities, so that it should be considered as commenced when the first activity was started with a view to embark upon the second and third activities. The decision in the case of Western India Vegetable Products Ltd. ( supra ) and Ramaraju Surgical Cotton Mills Ltd.'s ( supra ) were distinguished by the hon'ble court. The proposition laid down in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring company, though in a position to start commercial production, abstains from doing so in view of market volatility or for lack of orders for supply. The position would be akin to where the production is temporarily suspended due to an adverse situation, though that would not impact the allowability of the expenditure incurred. 4.7 The principal issue arising in these appeals can thus be said to be decided on the basis of functionality. This is the only and unmistakable view that emanates from the reading of the various decisions referred to and cited before us. We may, therefore, answer the question as to the business as posed earlier. The same, without doubt for the relevant years, is the setting up of an industrial park for sale/lease to entrepreneurs, in pursuance to Object III(A)(2) of its main objects. This would be analogous to the acquisition of land, building, plant and machinery and other necessary facilities for or in respect of a manufacturing business, even as clarified by the apex court in the case of Sarabhai Management Corpn. Ltd. (supra) . The same, thus, can be said to be commenced only when the company is in a position or ready to deliver possession of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... September, 1999, when the development work of land and construction of infrastructure facilities started, the said finding has become final. As such, the only dispute or the bone of contention between the parties is the treatment to be given to the impugned expenditure, which he holds as not allowable in view of the accounting method being followed. We are unable to agree. Firstly, the argument could be advanced only if the assessment for assessment year 2001-02 had also been similarly decided. For that year, the first appellate authority has clearly held that the various steps taken by the company, as detailed at paragraphs 2 3 of his order, were only preoperative in nature, and on the totality of the progress made, it cannot be said that the company had commenced business, which would only be when it is able to extend the benefits to its intended beneficiaries, customers, etc. It is in view of this finding, which no doubt the assessee agitates and the Revenue supports, that this issue is alive and contested between the parties. The same would necessarily require of us to issue a finding as to the date of the commencement of business in the present case, or at least the basis f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trees. Either way, therefore, the same cannot be assessed as income. Reference in this context be made to the decisions in the case of CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315/102 Taxman 94 (SC), applying the decision in Chellapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC). 4.11 The next clarification, in view of our holding the assessee company to have not commenced business up to 31-03-2002, is the irrelevance of the finding by the ld.CIT(A) with regard to the assessee following the project completion method. The land and other infrastructure facilities being acquired by the assessee are not meant for sale/disposal by the assessee, so that the same do not constitute its stock-in-trade. The same are to be retained, and yield the assessee a regular stream of income, which, though, may not be spread evenly over the years of the sub-lease, as where the assessee recoups the bulk of its cost upfront by way of lease premium. The decision in the case of Raja J. Rameswar Rao ( supra ) is thus not applicable in the facts of the case. Further, his findings in respect thereto, as also qua the commencement of business, stand vacated in view of our findings supra, even as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Textile Industries v. CIT [1996] 217 ITR 507/85 Taxman 146 (Raj). We find that the assessee's claim is not tenable at all. Firstly, as clarified in the foregoing part of this order, with reference to the decision by the hon'ble jurisdictional High Court in the assessee's own case (W.P. No.438 of 2005 dated 06-01-2005), the only issue is the non set off of business loss against positive income under Chapter IVF u/s 71(1) of the Act (refer paragraph 4.2). That being the case, we are unable to see as to how the said admitted business expenditure is now being claimed as laid out wholly and exclusively for earning bank interest, so as to be deductible u/s 57(iii), qua which there is no finding by the first appellate authority in any the years, and which claim, where admitted by him, would have required a remission to the A.O., i.e., after satisfying himself that a prima facie case is made out. We are aware that the assessee is a company, so that some expenditure on maintaining its status (as a corporate entity) would have to be necessarily incurred. No argument in this regard was raised, even as the same would also require a finding as regards the incurring of such expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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