TMI Blog2013 (11) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO for taxing the interest income under the head "income from other sources" – Held that:- The interest receipts are earning after set up of the business of assessee - Therefore, this issue requires fresh adjudication considering our finding on the main issue discussed and adjudicated above i.e. whether the business of assessee is set up in the year under consideration or not – Following Commissioner of Income-Tax Versus Bokaro Steel Limited [1998 (12) TMI 4 - SUPREME Court] - the business is set up in the year under consideration and the expenses as an allowable expenditure in the year under consideration. As such, the orders of the Revenue do not contain requisite details on the source of the funds kept with the banks which yielded interest income and the details related to the source of these funds kept with the Banks i.e interest bearing funds/non-interest bearing funds/excess funds or otherwise own funds of the assessee etc. In the set aside proceedings, AO is directed to examine these issues afresh and adjudicate the same. - IT APPEAL NO. 7656 (M) OF 2010 - - - Dated:- 31-1-2013 - D.MANMOHAN AND D. KARUNAKARA RAO, JJ. For the Appellant Vijay Mehta. For the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posits from the banks as 'income from other sources', AO relied on the jurisdictional High Court judgment in the case of CIT v. Ravi Ratna Export (P.) Ltd. for the proposition that the interest income has to taxed under the head 'income from other sources'. With regard to the relatable expenditure for earning of the interest income, AO applied the ratio of 10% of such income as allowable expenditure u/s 57(iii) of the Act. Aggrieved with above decisions of AO i.e. business is not set up in this year, denial of deduction of expenditure, taxing of interest income under the head income from other sources etc, the assessee filed appeal before the CIT(A). 4. During the proceedings before him, assessee made various submissions and relied on various decisions. The submissions as summarized by the CIT (A) in para 6 of the impugned order are as under: "6. The submission of the appellant are as under: a. That the exploration expenses incurred were capitalized as preoperative expenses. b. Expenses which are connected with the administrative and business of the company were claimed as business expenditure together with the depreciation on the fixed assets. c. That the licenses t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakad District of the Attapadi valley in Kerala and many other exploration activities discussed in para 7 of the impugned order. On the issue of treating of interest income under the head income from other sources, the CIT (A) confirmed the AO's decision relying on the Hon'ble Supreme Court judgment in the case of CIT v. Bokaro Steels Ltd. Aggrieved with the above decision of the CIT (A), assessee filed the present appeal before us. The issues raised in the grounds include (i) whether the business is set up or not; (ii) whether the administrative and other expenses amounting to Rs. 67,57,190/- constitutes preoperative expenditure or not and finally (iii) if the interest income is taxation u/s 56 of the Act or not with or without set off against the interest expenditure. 6. During the proceedings before us, Shri Vijay Mehta, Ld Counsel for the assessee mentioned that the core issue to be decided by the Tribunal relates to if the business of the assessee is actually set up during the year or not. When the business of the assessee is held set up and commenced during the year, the expenditure of Rs. 67,57,190/- is no longer constitutes 'pre-operative' expenditure which is capital in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted Deccan its first RP for gold exploration over an area of 834 sq km in Attappadi Valley. Other, Deccan applications for RPs in Kerala are pending. By agreement with two private AIR group companies, Geomysore Services (India) Private Limited (GMSI) and Indophil Resources Exploration Services (India) Private Limited, Deccan (assessee) has secured an additional 2,021 sq km of RP land prospective for gold in Karnataka. Deccan has applied for Prospecting Licenses over an area of 85 sq km in Karnataka and Kerala. These are first in time application and are under active consideration for grant by the respective State Governments. By agreement with the two private AIR group companies mentioned above, another 267 sq km for exploration under PLs will be made available to Deccan when the licenses are granted to the other companies. Deccan is also in the process of obtaining a Mining Lease (ML) over an area of 2 sq km in Rajasthan, targeting silver. By agreement with GMSI, Deccan has two other ML application pending over areas of 6 sq km and 0.24 sq km respectively in Andhra Pradesh and Karnataka." 8. Giving the details of investment in the activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and commercial exploitation is last stage of the business and the exploration stage set up by the assessee should constitute commencement of the business of the assessee. Ld Counsel also referred to the Special Bench decision in the case of Sardar Sarovar Narmada Nigam Ltd. v. Asstt. CIT for the proposition that the business of the assessee should be considered to be set up from the date when water was supplied through main canals during current year and all revenue expenditure after that date had to be allowed as deduction. 10. Per contra, Ld DR not only relied on the orders of the AO/CIT (A) but also relied on the Hon'ble jurisdictional High Court judgment in the case of Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 (Bom) and brought our attention to the contents of para 9 for the proposition that distinction between the set up and commence is that when the business is established and is ready to commence business, then it can be said that business is set up but before it is only ready to commence business does not set up. 11. We have heard both the parties, perused the orders of the Revenue and the paper book filed before us. The case of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommencement' qua the business of exploration in the instant case. In our opinion, the Gujarath High Court has laid a good foundation to understand the concepts of 'set up and commencement' of business while dealing with the case of Saurashtra Cement Chemical Industries Ltd. (supra). The held portion of the said judgment is relevant and therefore, the same is reproduced as under: "Held, that the activities which constituted the business of the assessee were divisible into three categories, the first category consisted of the activity of extraction of limestone by quarrying the leased area of land. This activity was necessary for the purpose of acquiring the raw material to be utilized in the manufacture of cement. The second activity comprised the activity of manufacture of cement by use of the plant and machinery set up for that purpose; and the third category consisted of selling manufactured cement. These three activities combined together constituted the business of the assessee. The activity of quarrying the leased area of land and extracting limestone from it was as much an activity in the course of carrying on the business as the other two activities of manufacture o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, Government of Kerala has already granted the assessee its first RP for gold exploration over an area of 834 sq km in Attappadi Valley. In our opinion, such stages must constitute foundation for the subsequent business activities for the assessee, who is engaged in the field of 'exploration' of minerals. It is not required that the assessee must raise purchase order for constituting 'set up or commencement' of business as held by the Tribunal (Delhi Bench) in the case of Hughes Escorts Communications Ltd. (supra) which is subsequently upheld by the Hon'ble High Court of Delhi reported in and its conclusion reads that "assessee's business of satellite communication system could be said to be set up at the point of time when purchase order was placed for acquiring very small aperture terminal (VSAT) as the use of this equipment was necessary for such business and not when the first purchase order was placed by the assessee". Therefore, the activity of commercial production is not needed to describe the business is set up when he is in the business of exploration. In this line of business of exploration, the business commences with 'exploring' for minerals/gold/silver in the crests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not linked to the process of set up of the business. Aggrieved with the above decision of the CIT (A), assessee raised this ground no.2 before us. 17. During the proceedings before us, Ld Counsel mentioned that the interest earned by the assessee from the banks in relation to the deposits kept with the banks which are primarily brought for infusion in the business. Such income cannot be qualified as income from other sources and relied on the Hon'ble Delhi High Court judgment in the case of Indian Oil Panipat Power Consortium Ltd. v. ITO. There is reference in the ground that the assessee relied in the judgment in the case of Bokaro Steel Ltd. (supra). 18. On the other hand, Ld DR relied on the Hon'ble Supreme Court judgment in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT. 19. We have heard both the parties, perused the orders of the Revenue as well as the judgments cited before us. It is noticed that all these judgments are pronounced taking into account the receipt of interest during the period prior to commencement/set up of the business. The discussion given in the orders of the AO as well as CIT (A) also reflects the manner of treatment towards the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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