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TMI Blog2017 (9) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... me, earned on FDRs made out of the unutilised fund borrowed for the setting up of the business should be reduced from the cost of the project instead of taxing it as an income from other sources". " (ii) Whether the Income Tax Appellate Tribunal is justified in dismissing the department's appeal beyond the law laid down by the Hon'ble Apex Court in Tuticorin Alkali Chemical and Fertilizers Ltd. Vs. Commissioner of Income Tax (1997) 227 ITR (SC) and Commissioner of Income Tax Vs. Indo Gulf Fertilizers and Chemical Corporation Ltd. (2006) 280 ITR 261 (AII). " Whether the Income Tax Appellate Tribunal is justified in holding beyond the statutory provision of Sec. 56 (2) of the Income Tax Act that income by way of interest on securities is taxable even if not arises from the profits and gains of the business or profession". 4. The relevant facts in the giving rise to the present dispute are that M/S Sangam Power Generation Company Ltd, Noida (hereinafter referred to as " Assesses Company") is a company registered under "Companies Act, 1956" (hereinafter referred to as " Act, 1956") and is 100 percent subsidiary company of "M/S Jaiprakash Power Ventures Ltd". In the A.Y in qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y A.O. 10. It is not in dispute that Assessee company has not commenced its business during the A.Y in question. The amount kept in fixed deposit is surplus capital fund possessed by Assessee after deciding to invest fruitfully during interregnum period when business is yet to be established and commenced. 11. A.O, however, treated it "Revenue receipt" taxable under Act, 1961. A.O and CIT (A) have treated this income being "from other sources" and taxable under Section 56 of Act, 1961. However, Tribunal in taking a different view has followed its earlier decision in ITA No. 625 and 626/LKW/2013 in M/s Prayag Raj Power Corporation. The relevant findings of Tribunal in this regard are as under:- "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 maybe 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee company for earning interest income and therefore, the previous 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, 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". (emphasis added) 12. From the facts noticed above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m "other sources" 17. We find that issue raised in this appeal is squarely covered by three judges judgment of Supreme Court in Tuticorin Alkali Chemical and Fertilizers Ltd. Vs. ITC, 1997 (6) SCC 117. Therein company was incorporated on 03.12.1971 and commenced business on 31.06.1982. It has taken term loan from various banks and financial institutions but substantial amount of borrowed funds, which was not immediately required by Company was kept invested in short-term deposits with banks. For the A.Y 1982-83 (financial year 1981-82) , Assessee received a total amount of interest of Rs. 2,92,440 and disclosed the said amount as "income from other sources". Company then disclosed a business loss of Rs. 3,21,802 and after setting off interest income against business loss, it claimed benefit of carry forward of net loss of Rs. 29,360/-. Subsequently revised return was filed by company, claiming a business loss of Rs. 3,21,802/- and with respect to interest income, it claimed that it will go to reduce pre- production expenses, therefore, interest income was not exigible to tax. A.O rejected this claim and CIT (A) confirmed the view of A.O. Tribunal also rejected appeal of company. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer (2010) 322 ITR 283 (SC) and by this Court in ITA No. 186 of 2000, Commissioner of Income Tax Vs. M/s Brij Bhusan Lal and Sons decided on 20.07.2012 wherein, Court in para-17 of judgment, has said as under:- "After hearing learned counsel for the parties and considering the judgments cited by them, we are of the opinion that in view of the clarification made by the Supreme Court in Totgar's Co-operative Society Ltd's case (supra), in the present case the interest on the FDRs cannot be treated as income from profits and gains of business. The word 'income' has been defined in Section 2 (24) (i) of the Act to include 'profits and gains'. Sub-section is an inclusive. The business profits have been specifically included in the word 'income'. The assessee-company had invested the surplus funds, which were not immediately required by it, in FDRs, which were later on encashed and used for expansion of business. The deposits made by the company were not in the regular course of business, nor it was the business of the company to make deposits and earn interest. The interest income cannot be said to be attributable to the activities of the company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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