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2016 (3) TMI 924

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..... and new source of income de horse the business undertaking and therefore, the previous year in respect of interest income starts on the date of purchase of FD. In our considered opinion, on the date of purchase of FD, no new source of income has come into existence because in our considered opinion, the source of income is business undertaking and therefore, the requirement of starting of previous year in the facts of the present case is setting up of business which has not happened till 31/03/2011 in the present case and therefore, any income from this source cannot be brought to tax before the setting up of business is completed resulting into start of the previous year. in the facts of the present case, the previous year has not yet started in respect of the business undertaking of the assessee for generation of power and since the assessee is not having any other source of income de horse this business undertaking which was not set up, interest income earned by the assessee till 31/03/2011 cannot be brought to tax till the assessment year 2011-12 because the business was not set up and therefore, previous year has not commenced. We, therefore, delete the addition made by th .....

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..... Allahabad High Court rendered in the case of CIT vs. Indo Gulf Fertilizer and Chemicals Corporation Ltd. as reported in [2006] 280 ITR 621 (All). He also submitted that CIT(A) has also referred to three judgments of Hon'ble Apex Court rendered in the case of Tuticorin Alkli Chemicals and Fertilizers Ltd. vs. CIT as reported in [1997] 227 ITR 172 (SC), CIT vs. Coromandal Cements Ltd. as reported in [1998] 234 ITR 412 (SC) and CIT vs. Autokast Ltd. as reported in [2001] 248 ITR 410. He submitted that in all these judgments, the issue involved was as to whether the interest income is taxable as income from other sources or is to be adjusted against cost of project but this aspect was not at all under consideration in these judgments as to whether the business was set up or not and previous year as commenced or not. Thereafter, he submitted that as per the proviso to section 3 of I.T. Act, 1961, in the case of a business or profession newly set up, or a source of income newly coming in existence in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or as the case may be, the date on which the source of .....

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..... dgment also. 5. Learned D. R. of the Revenue submitted that the issue in the present case is covered against the assessee by the judgment of Hon'ble Jurisdictional High Court in the case of CIT vs. Indo Gulf Fertiliser and Chemicals Corporation Ltd. as reported in [2006] 280 ITR 621 (All). 6. We have considered the rival submissions. First of all, we examine the applicability of the judgment of Hon'ble Allahabad High Court rendered in the case of CIT vs. Indo Gulf Fertiliser and Chemicals Corporation Ltd. (supra). In this case, the company was incorporated in the year 1983 with the main object of setting up a fertilizer plant and manufacturing of fertilizer. During the relevant year, the factory was not constructed and no manufacturing activity had been undertaken. The assessee company received certain loans from financial institutions and due to certain unexpected delay, the amount of loan received remained lying with the bank and the company managed to get some interest from the bank. The Assessing Officer taxed the interest received as income from other sources. When the matter reached to the Tribunal, it was held by the Tribunal in that case that such receipt of i .....

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..... in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person : Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section(1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. 6.1.1 As per the provisions of section 4 of The Income Tax Act reproduced above, Income Tax is chargeable in respect of income of the Previous Year of every person. As per the provisions of section 3 of The Income Tax Act reproduced above, Previous Year in the case of a business newly set up or a source of income newly coming into existence starts from the date of setting up of the business or as the case may be from the date when source of income is newly coming into existence. 6.2 Now the question is as to whether the starting date of the previous year has to be ascertained with respect to .....

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..... ear and if it cannot be so set off in full or in part then such loss which could not be so set off can be carried forward as per law. 6.3 Our above view finds support from the judgment of Hon ble Bombay High Court rendered in the case of Western India Vegetable Products Ltd. vs. CIT, 26 ITR 151. The relevant Para of this Judgment is Para 8 as reproduced below:- Now, turning to our statute, the deductions claimed are under Section 10(2) and they are in relation to a business and in order that those deductions can be allowed, the business must be carried on by the assessee. In this case it is not disputed that the business was carried on in the relevant previous year which is the financial year 1946-47, but the important question that has got to be considered is from which date are the expenses of this business to be considered permissible deductions and for that purpose the section that we have got to look to is Section 2(11) and that section defines the previous year and for the purpose of a business the previous year begins from the date of the setting up of the business. Therefore it is only after the business is set up that the previous year of that business commence .....

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..... ew of the Commissioners, that he business of the company had commenced on the 6th of October, 1913. Now, this is indeed a very strong case on facts in support of the Commissioner, because the view taken by Mr. Justice Rowlatt is that everything that had been done by the company before the installation of the plant and machinery was completed was preparatory to the commencement of the business and it was only when the company actually started receiving raw materials for the purpose of manufacture into finished products, the plant and machinery being ready, that it could be said that the assessee company had commenced business, and this is what the learned Judge says at page 97: Referring to their minutes having looked round, and having got their machinery and plant, and having also employed their foremen, and having got their works erected and generally got everything ready, then they began to take the raw materials and to turn out their products. 6.3.1 From the above Para of this judgment, it comes out that as per this judgment of Hon ble Bombay High Court, section 2 (11) of 1922 Act defines the term Previous year and this section is Para Materia with the definition of .....

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..... on ble Gujarat High Court also, if the expense is incurred in a previous year means after the setting up of business, the assessee can claim it as a deduction. We draw inference from this judgment also that on the same logic, any income after the date of setting up of business is taxable and not before that. 7. Now we examine the facts of the present case and find out whether the business was set up in the present case or not. This is not a case of the revenue that any business was already set up prior to 01.04.2009 i.e. the start of the previous year relevant to Assessment Year 2010 11 or that any source of income was in existence till that point of time. The audited accounts of the assessee company for the year ending on 31/03/2010 relevant to assessment year 2010-11 is available on pages 12- 30 of the paper book. As per the profit loss account, there is no income and there is no expenditure except writing off of preliminary expenses. In the balance sheet, the source of funds are share capital of ₹ 243.19 Crores and secured loans of ₹ 600 Crores total ₹ 843.19 Crores. The application of funds is in fixed assets to the extent of ₹ 46.53Crores compris .....

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..... respect of business undertaking of generation of power was not started till that date. 7.1 Now we deal with the second aspect of the matter because we find that as per the definition of previous year in section 3 of the I.T. Act as reproduced above, there is a previous year from the date on which source of income newly comes into existence. In the present case, it can be an argument that since the assessee has made FD with bank on which the assessee earned interest income, this new source of income has come to existence and therefore, previous year has started with regard to that source of income. In our considered opinion, Source of income and head of income are two different things and these should not be mixed up. In a given case, there may be one source of income giving rise to incomes taxable partly under one head and partly under a different head and in another case, there may be more than one source of income but all giving rise to income which are taxable under one head only. Source of income in the present case is the industrial undertaking for generation of power being set up by the assessee and all the funds, which are available with the assessee at its disposal are .....

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..... ous year in the facts of the present case will start on setting up of the business and thereafter, if the assessee is having any interest income then the same will be taxable under the head income from other sources and after the commencement of the business, the income from operation will be taxable under the head income from business but it cannot be said that interest income is a separate and new source of income de horse the business undertaking and therefore, the previous year in respect of interest income starts on the date of purchase of FD. In our considered opinion, on the date of purchase of FD, no new source of income has come into existence because in our considered opinion, the source of income is business undertaking and therefore, the requirement of starting of previous year in the facts of the present case is setting up of business which has not happened till 31/03/2011 in the present case and therefore, any income from this source cannot be brought to tax before the setting up of business is completed resulting into start of the previous year. 8. As per above discussion, we have seen that in the facts of the present case, the previous year has not yet started in .....

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