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2016 (5) TMI 66 - ITAT DELHI

2016 (5) TMI 66 - ITAT DELHI - [2016] 45 ITR (Trib) 347 - Treatment to commission income - Profits and gains of the business or income from other sources - Held that:- We have perused the memorandum and articles of the company wherein object No. 1 is stated to be that of to manage, administrate, operate, maintain into carrying on the business of hotels and related properties and further to act and work as consultant commission agent for all over in India and abroad. We are of the view that commi .....

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includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". According to us, commission income earned by the assessee is chargeable to tax under the head of "Profits and gains of the business" only. As business, income it specifically falls under the specific heads of income as provided under section 14 of the Income-tax Act it cannot be taxed under the residuary head of income

Chargeability of interest on fixed deposit re .....

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re, the same is required to be abated against the cost of work-in-progress of the hotel of the assessee. Therefore, we hold that the Assessing Officer and the Commissioner of Income- tax (Appeals) both yield in this case in taxing the interest income of fixed deposit receipt as income from other sources.

Disallowance of claim of depreciation on earned tools used for the business - Held that:- According to us, the tools and machineries, which are purchased by the assessee, are not elig .....

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ccountant Member) 1. These are the two appeals preferred by the assessee against the order of the Commissioner of Income-tax (Appeals)-IV, New Delhi dated June 13, 2013 raising for two years grounds for both years, i.e., grounds for the assessment year 2008-09 : "1. That the order passed by the learned Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) is not only bad in law but also against the facts of the case. 2. The learned Commissioner of Income-tax (A .....

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nterest on fixed deposit receipt as income from other source instead of abating it out of capital work- in-progress as claimed by the appellant. 5. That any other grounds of appeal may be added/deleted or amended at the time of hearing. Therefore, it is prayed as under : a) The entire assessment proceedings may please be declared as null and void in view of the provisions contained under section 153A of the Act. Or alternatively, b) The commission income of the appellant may please be treated as .....

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ssioner of Income-tax (Appeals) is erred under the law while holding that the Assessing Officer has a valid jurisdiction under section 153A of the Act. 3. That the learned Commissioner of Income-tax (Appeals) is erred under the law while holding that the interest on fixed deposit receipt as income from other source instead of abating it out of capital work- in-progress as claimed by the appellant. 4. That the learned Commissioner of Income-tax (Appeals) is erred under law while disallowing claim .....

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be allowed. d) Any other suitable order as your honour may deem fit may please be passed." I. T. A. No. 4418/Del/2013 2. Before us, the learned authorised representative of the assessee submitted that he does not want to press ground Nos. 1 and 2 of the appeal and therefore they are dismissed. 3. Ground No. 3 of the appeal is against the decision of the Assessing Officer and the Commissioner of Income-tax (Appeals) holding that commission income of ₹ 43,700 is not its business income .....

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same reason as per the assessment order. Therefore, the assessee is in appeal before us. 4. We have heard the rival contentions. The brief facts is that during the year the assessee has earned ₹ 43,700 as commission from real estate business and shown it in the profit and loss account of the assessee. We have perused the memorandum and articles of the company wherein object No. 1 is stated to be that of to manage, administrate, operate, maintain into carrying on the business of hotels and .....

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ort of the assessee-company to generate the revenue. According to section 2(13) of the Income-tax Act business has been defined as "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". 5. We are unable to comprehend that commission income earned by the assessee-company is not chargeable to tax under the head business income. According to us, commission income earned by the assessee is chargeable to tax .....

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d deposit receipt as income from other sources as per the Assessing Officer and the Commissioner of Income-tax (Appeals) against the view of the assessee that it should be abated against capital work-in-progress. The facts of the cases that the appellant-company was under an obligation as per clause 3.14 of terms and conditions of allotment letter of DDA for purchase of hotel plot to furnish performance guarantee in the form of bank guarantee of ₹ 1,61,05,000 accordingly the company raised .....

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d therefore the assessee's action of putting bank fixed deposit receipt is inextricable link with the business of the company. Further a loan of ₹ 20 crores was obtained by the assessee. The assessee was to deposit ₹ 23,96,00,000 with DDA within 180 days from the date of allotment of plot. For which against the loan amount ₹ 20 crores were disbursed therefore the appellant kept it in fixed deposit receipt for just 9 days and earned ₹ 2,41,095 as interest. This money w .....

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issue of taxability of interest income would have been under the head of income from other sources as per the decision of the hon'ble Supreme Court in case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC). However, in the case of the assessee, it was not a surplus money but it was use of the money for the purpose of the business, which has resulted into interest income. Before us, the learned authorised representative has submitted decisions of various autho .....

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2007 dated February 26, 2009 [2009] 315 ITR 255 (Delhi) held as under (page 259) : "12. The test, therefore, to our mind is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. The clue is perhaps available in section 3 of the Act which states that for newly set up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, as per .....

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ad 'Profits and gains of business or profession' it would have to be an activity which is in some manner or form connected with business. The word 'business' is of wide import which would also include all such activities which coalesce into setting up of the business. See Mazagaon Dock Ltd. v. CIT/Excess Profits Tax [1958] 34 ITR 368 (SC), and Narain Swadeshi Weaving Mills v. Commis sioner of Excess Profits Tax [1954] 26 ITR 765 (SC). Once it is held that the assessee's incom .....

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he interest earned from the bank would have a hue different than that of business and be brought to tax under the head 'Income from other sources'. It is well-settled that an income received by the assessee can be taxed under the head 'Income from other sources' only if it does not fall under any other head of income as provided in section 14 of the Act. The head 'Income from other sources' is a residuary head of income. See S. G. Mercantile Corporation P. Ltd. v. CIT [19 .....

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ncement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. In the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) it was found by the authorities that the funds available with the assessee in that case were 'surplus' and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as 'income from other sources'. On the other hand in .....

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rest on share capital which is issued for a specific purpose to defray expenses for construction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in sub-sections (2) to (7) of section 208. This section was specifically noted by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC). The Supreme Court went on to observe at page 175 as follows : 'We have already referred to section 208 of the Companies Act which mak .....

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plant. The above provision thus gives statutory recognition to the principle of capitalising the interest in case the interest is paid on money raised to defray expenses of the construction of any work or building or the provision of any plant in contingencies mentioned in that section even though such money constitutes share capital. The same principle, in our opinion, should hold good if interest is paid on money not raised by way of share capital but taken on loan for the purpose of defrayin .....

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rest could have been capitalised and in the later situation it cannot be capitalised. To test the principle we could extend the exam ple, that is, would our answer be any different had assessee passed on the interest to the respective shareholders. If not, then in our view the only conclusion possible is that interest earned in the present circumstances ought to be capitalized. 16. In view of the discussion above, in our opinion the Tribunal misdirected itself in applying the decision of the Sup .....

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of the assessee and against the Revenue. These appeals are allowed and the impugned judgment is set aside." 7. Therefore respectfully following the decision of the honourable High Court we hold that interest income earned by the assessee is also inextricably linked with the business of the company and therefore the Assessing Officer and the Commissioner of Income-tax (Appeals) both erred in applying the ratio of decision of the honourable Supreme Court in the case of Tuticorin Alkali Chemic .....

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I. T. A. No. 4419/Del/2013 for the assessment year 2009-10 8. Ground Nos. 1 and 2 of the appeal are not pressed and therefore the same are dismissed. 9. Ground No. 3 of the appeal is regarding taxability of interest income of ₹ 14,44,838 being interest on fixed deposit receipt which is taxed by the Assessing Officer as income from other sources against the treatment given by the assessee of its reduction from the capital work-in-progress of the project. We have decided this issue in this o .....

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pt interest income of ₹ 14,44,835 will go to reduce the cost of hotel and will not be chargeable to tax under the head of income from other sources. Therefore, ground No. 3 of this appeal is allowed. 10. The next ground of appeal is against the disallowance of claim of depreciation of ₹ 1,88,288 earned tools used for the business of the appellant. The brief facts are that the assessee has claimed depreciation of ₹ 1,88,288 on such as batching plant, submersible pumps, etc., whi .....

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