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SARDAR SAROVAR NARMADA NIGAM LIMITED Versus ADDITIONAL COMMISSIONER OF INCOME TAX

2016 (6) TMI 597 - GUJARAT HIGH COURT

Commencement of business - whether in case of an assessee, whose main object is to construct dam, canal, etc., the business commences only when the entire project for construction of dam, canal, etc. is complete, and not when the first brick was put up at the construction site? - Held that:- What is to be regarded is as to whether the business of the assessee has been set up or not so that the assessee could avail benefits under the Act. Broadly speaking, the activity of the assessee could be di .....

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ifferent stages where different activities take place and those activities being integral part of business and when they are set up phase wise, the assessee cannot be deprived of the benefits of fiscal legislation in disregard of the well settled principles on the issue. - Decided in favour of assessee

Allowability of interest expenditure u/s.57 against the interest income - Held that:- The expenditure of interest paid on borrowings raised by the assessee for the purpose of constructi .....

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SOPARKAR, ADVOCATE FOR THE OPPONENT : MR SUDHIR M MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. These appeals involve identical questions on law and facts and therefore, they are decided by this common judgment. 2. Tax Appeal No.449/2004, 477/2004 to 488/2004 are preferred against the order dated 31.08.2004 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench B in ITA No.349/A/2001 & group raising the following substantial questions of law: (1) Whether, i .....

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s and circumstances of the case, the ITAT was right in law in not allowing interest expenditure u/s.57 of the Incometax Act against the interest income even though there is a direct and proximate nexus between the two? (4) Whether, in the facts and circumstances of the case, the ITAT was right in law in not allowing expenditure such as salaries, administrative expenses and other such expenses to maintain the corporate status of the appellant u/s.57 of the Act against the interest income ? 4. For .....

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449/2004 2000-2001 5. The facts in brief are that the assessee is a Company established under the provisions of the Companies Act, 1956 and is entrusted with the work of execution of the Sardar Sarovar Project , which mainly consists of the construction of a terminal major Dam on the riverNarmada in Gujarat. For the purpose of executing the Project, a Nigam was formed by the State Government, which executed a part of the Project. As the Project was under construction, the assessee did not file r .....

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ate Mr. Soparkar submitted that the expenses claimed by the assessee are revenue in nature and are required to be allowed as deduction while computing income from business . It was submitted that the stand adopted by Revenue that business can be said to have commenced only on completion of the Canal is misconceived. What is to be looked into is the setting up of a business and not the commencement of business. All expenses incurred after the setting up of the business but, before its commencemen .....

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is Court rendered in the case of Commissioner of Incometax, Gandhinagar v. Sardar Sarovar Narmada Nigam Ltd. reported in [2013] 37 taxmann.com 344 (Gujarat) and more particularly, on the observations made in Para17, which reads as under; 17. We are of the firm opinion that the activities mentioned in the object clause of Memorandum of Association do not contemplate a single activity. Under the fiscal legislation when it is vital to determine what is the business of the assessee and what are the .....

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s can be said to have set up. In a project like Sardar Sarovar, there are bound to be different stages where different activities take place and those activities being integral parts of the business and when they are set up phase vice, assessee cannot be deprived of benefits of fiscal legislation in disregard to well settled principles on the issue by adopting over technical approach. For determining as to when the business can be said to have been set up, the flow of the water from Narmada Cana .....

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nto existence, in a project of this big a size, it will surely be not right to hold that the business of the assesseerespondent has not been set up. The construction of dam and canal are essential and inseparable parts of the activity which would necessarily precede other activities. As well laid down by this Court in the decisions in case of Saurashtra Cements and Chemicals Ltd. (supra) and other judgments, when each one of the activities essential & vital, combined together, constitutes bu .....

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with the entire issue. No question of law much less any substantial question of law arises. Resultantly, Tax Appeal is dismissed. 8. Mr. Sudhir Mehta, learned counsel appearing for the Revenue, submitted that the business had neither commenced nor it had been set up, as the Project undertaken by the assessee was not only for the construction of canal but, also to operate and earn income by supplying water and generating electricity. It was submitted that the assessee was not doing the constructi .....

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. The expenditure must have been laid out or expended wholly and exclusively for the purpose of making or earning income from other sources . If there is no evidence to show that the expenses incurred by the assessee were to facilitate the earning of or at least for protecting the income, it cannot be an allowable deduction. Therefore, the Assessing Officer was justified in not allowing interest expenditure u/s.57 of the Act. 9. The issue raised by way of Question no.1 has already been answered .....

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set up a Hydropower plant at the foot of the Dam and at the canal head. To promote and facilitate navigation in the Narmada river and also for irrigation and water supply in the State. These are some objects set out in the object clause of the Memorandum of Association of the assessee. In our opinion, the activities mentioned in the object clause of Memorandum of Association do not contemplate a single activity. 10. What is to be regarded is as to whether the business of the assessee has been se .....

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