TMI Blog2015 (5) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... which is otherwise allowable while computing the income under the head “profit and gains of the business or profession”. Since the expenditure has not been claimed by the assessee while computing the income under the head “income from business”, therefore, no disallowance under section 40A(2)(a) can be made. The provisions of sect ion 40A(2)(a) are applicable only if the assessee has claimed deduction of the expenditure while computing the income under the head “income from business”. We noted that no such expenditure has been claimed, therefore, the disallowance under section 40A(2)(a) cannot be made - Decided against revenue. Disallowance of the interest expenses on account of term loan - CIT(A)deleted the addition - Held that:- In this case the assessee has incurred interest amounting to ₹ 86,90,220/- on the term loan from Central Bank of India. The said interest has not been claimed by the assessee as deduction while computing the income under the head “income from business”. The said interest, in fact, has been capitalized by the assessee under the head “work-in-progress”, i.e. the expenditure has been capitalized by the assessee. It is not a case where the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ground No. 1 relates to the deletion of the addition of ₹ 62,57,436/- added by the Assessing Officer as interest received from Bank deposits to the extent of ₹ 62,57,436/-. 3. Brief facts relating to this ground are that the assessee-company filed its return on 18.03.2008 declaring total income of Rs. NIL. The assessee-Company was incorporated on 25.01.2006 and the nature of business of the Company is developing and promoting of land and property. The Company has produced Balance-sheet and state of affairs of the Company as on 31.03.2007 which was duly audited and has also debited a sum of ₹ 1,27,231/- under the head deferred revenue expenditure , which includes a sum of ₹ 2,044/- from the earlier year. Similarly the Company has incurred expenses during the impugned assessment year under the head capital work-in-progress , which includes the interest paid on Bank loan amounting to ₹ 88,99,809/- out of which the assessee has deducted the interest received amounting to ₹ 71,47,436/-. The copy of the audited balance-sheet is appearing at pages 27 to 40 of the paper book. The Assessing Officer issued a notice under section 143(2) as well as 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Shri Amar Nath Shroff and Shri Navin Kumar Bhartia have also given their personal guarantee to the bank with respect to this term loan. Till Balance sheet date, the company has taken disbursement of ₹ 35 crore from such Tem Loan A/c. 6. This note, in our opinion, simply states the fact and proves that the assessee-company has invested in land and building and has also taken the loan from the Banker. This note does not talk whether the assessee has set up its business and land and building has been purchased for the purpose of carrying out developing and promoting the land and property. Even in the audited balance-sheet, we noted that the land purchased by the assessee has not been shown as stock-in-trade. This land and building would have been purchased by the assessee for the purpose of sale during the course of carrying out its business. The land and building would have not been shown at fixed asset s but would have been shown as stock-in trade. Since the essential activity of the business is not started, there is a distinction between the setting up of business and commencement of the business where the business consists of continuing course of activities for comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x under section 4. The total income has to be computed in accordance with the provisions of the Act. Section 14 lays down that for the purpose of computation, income of an assessee has to be classified under six heads. 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 of profession is only one of the heads under which a 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. The company may keep the surplus funds in short-term deposits in order to earn interest. Such interests will be chargeable under section 56. In other words, if the capital of a company is fruitfully utilized, instead of being kept idle, the income thus generated will be of a revenue nature and not an accretion to capital. Whether the company raised the capital by issue of shares or debentures or by borrowing, will not make any difference to this principle. If borrowed ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance charges along with other pre-production expenses had to be capitalised, and that, therefore, the interest income of ₹ 2,92,440/- should go to reduce the pre production expenses (including interest and finance charges), which would ultimately be capitalised. During the previous year relevant to the assessment year 1983-84, the assessee had received interest income of ₹ 1,08,336/-. The assessee filed its return in which it claimed that the interest income of ₹ 1,08,336/- should go to reduce the pre-production expenses including the interest and financial charges which would ultimately be capitalised. The Income Tax Officer rejected the assessee s claim that the interest income was not exigible to tax. The view of the Income Tax Officer was upheld by the Commissioner of Income Tax (Appals). The company s further appeal to the Income Tax Appellate Tribunal was dismissed. In view of the conflict of decisions between the Madras and Andhra Pradesh High Courts, the Tribunal referred the question regarding taxability of income, directly to the Supreme Court : Held, that the company had surplus funds in its hands. In order to earn income out of the surplus funds, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This decision also, in our opinion, will not assist the assessee as in the case of the assessee, the assessee has not done any act to generate that the assessee has set up its business for developing and promoting the land and building. The assessee no doubt bought the land and building but that has been bought by the assessee as fixed asset not for the purpose of purchase and sale. We have also gone through the decision of the Hon ble Delhi Bench of this Tribunal dated 08.09.2014 in the case of Jcdecaux Advertising India Pvt. Ltd. vs.- DCIT in ITA No. 964/Del./2011. This decision also, in our opinion, does not apply in the case of the assessee because in that case also, the assessee has already set up the business by entering into an agreement with New Delhi Municipal Corporation (NDMC) for providing space for advertisement. The income from interest by the assessee since is assessable separately under the head income from other sources , therefore, this income cannot be set off against the expenditure incurred by the assessee prior to set up. We accordingly set aside the order of the ld. CIT(Appeals) and allow the Ground No. 1 taken by the Revenue. 8. Ground No. 2 relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer was of the view that the interest has not been incurred for the purpose of business therefore he disallowed the claim of capitalization of the interest incurred on term loan. When the matter went in appeal before the ld. CIT(Appeal s), the ld. CIT(Appeals) deleted the disallowance. 13. We have heard the rival submissions and carefully considered the same along with the order of the tax authorities below. We noted that in this case the assessee has incurred interest amounting to ₹ 86,90,220/- on the term loan from Central Bank of India. The said interest has not been claimed by the assessee as deduction while computing the income under the head income from business . The said interest, in fact, has been capitalized by the assessee under the head work-in-progress , i.e. the expenditure has been capitalized by the assessee. It is not a case where the assessee has claimed deduction under section 36(1)(iii) of the Income Tax Act while computing the income from business. Once the assessee itself has not claimed as revenue expenditure, therefore, in our opinion, no disallowance should have been made. We, therefore, do not find any illegality or infirmity in the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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