TMI Blog1995 (3) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as business income of the assessee ?" The material facts giving rise to the reference are as follows: The assessee, the Tamil Nadu Dairy Development Corporation Limited, is a public limited company. The assessment for the assessment year 1974-75 was completed on July 31, 1975, which on appeal was set aside. The Income-tax Officer made the reassessment on February 28, 1978. In the course of the proceedings, the Income-tax Officer found that the Tamil Nadu Government has transferred certain units of the Dairy Development Department to the assessee-company by a Government Order, dated June 29, 1972, which has resulted in the transfer of assets and liabilities to the company. Among the assets transferred were land and buildings amounting to Rs. 34,26,510 which were handed over to the corporation and the assessee has claimed depreciation of Rs. 1,61,775 on these assets. The Income-tax Officer found that though the possession has been handed over to the assessee, no transfer by way of registration as contemplated under section 54 of the Transfer of Property Act was made. The Income-tax Officer held that the condition precedent for granting depreciation under section 32 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no error of law in the appellate order of the Tribunal in view of section 2 of the Government Grants Act, 1895, which excludes the operation of the Transfer of Property Act, 1882, to Government grants. There is force in the contention of learned counsel for the assessee-company. The Supreme Court in Express Newspapers (P.) Ltd. v. Union of India, AIR 1986 SC 872, considering sections 2 and 3 of the Government Grants Act, 1895, has, observed as follows (at page 910): "The Act contains two sections and provides by section 2 for the exclusion of the Transfer of Property Act, 1882, and, by section 3 for the exclusion of any rule of law, statute or enactment of the Legislature to the contrary. Sections 2 and 3 read as follows: '2. Transfer of Property Act, 1882, not to apply to Government grants.--Nothing in the Transfer of Property Act, 1882, contained shall apply or be deemed ever to have applied to any grant or other transfer of land or of any interest therein heretofore made or hereafter to be made by or on behalf of the Government to, or in favour of, any person whomsoever; but every such grant and transfer shall be construed and take effect as if the said Act had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from "other sources" and the assessee would not be entitled to set off the unabsorbed development rebate against that income under section 33 of the Income-tax Act, 1961. (ii) In the case of Bokaro Steel Ltd. v. CIT (No. 2) [1988] 170 ITR 545 (Patna), the Patna High Court held that the interest on advances to contractors, rent from quarters let out to the employees of contractors, hire charges on plant and machinery let out to contractors and royalty on stones removed from the assessee's lands and miscellaneous receipts were not assessable as income; that since interest received by the assessee from contractors was not liable to tax, the interest received by the assessee-company from its own employees would also be not taxable; and that the Tribunal had found that surplus money not required for business had been kept in short-term deposits in banks. The bank deposits were not incidental to the business of the assessee nor were they incidental to the construction of the factory of the assessee. The interest on short-term deposits constituted income of the assessee and it was assessable under section 56 of the Income-tax Act, 1961, as income from other sources. (iii) In the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing interest thereon would also be business income and for the purpose of set-off it could not be treated as separate from business income. Therefore, the loss brought forward from the assessment year 1970-71 had to be set off also against the interest income for the assessment year 1971-72. (iii) It was held by this court in Addl. CIT v. Madras Fertilisers Ltd. [1980] 122 ITR 139, as follows (headnote): "In order to meet the cost of construction of its plant the assessee entered into a loan agreement with a bank in America. The agreement, inter alia, required the company to deposit the proceeds of the loan in a special account to be maintained with the bank until all the funds deposited therein have been applied by the company in connection with the project. The assessee's claim for deduction of the amount of interest paid by it on its borrowings was negatived by the officer. The officer, however, took note of the interest received by the assessee. The Commissioner in revision held that the claim of the assessee to deduct the interest paid by it on its borrowings could not be adjusted against the interest received by it on its deposits as the payment of interest had no connect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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