TMI Blog1987 (10) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... were answered in favour of the assessee and against the Revenue. In the present references, all except one are common to the earlier cases disposed of by the earlier Bench by judgment dated August 7, 1987. For that purpose, I must set out the questions referred to us. A consolidated reference has been made to us, at the instance of the Revenue as well as the assessee. The questions referred at the instance of the assessee are the following : " (1) Whether, on the facts and in the circumstances of the case, the receipts arising from the letting out of the quarters to the outsiders, such as employees of the contractors engaged in the construction of the plant can be treated as the income of the assessee and/or, in any event, should be adjusted against the cost of construction so as to reduce such cost ? (2) Whether, on the facts and in the circumstances of the case, the receipts from the letting out of the properties to outsiders, such as the employees of the contractors engaged in the construction of the plant are to be assessed as income from property under section 22 of the Incometax Act, 1961, or the said income should be assessed under section 28 of the Income-tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the construction of the plant are to be assessed as income from property under section 22 of the Incometax Act, 1961, or the said income should be assessed under section 28 of the Income-tax Act, 1961, as business income or, in any event, under section 56 of the Income-tax Act, 1961, as income from other sources ?" These very questions form questions Nos. (1) and (2) on behalf of the assessee in the present references. In relation to the assessment year 1970-71, the first question related to the receipt of interest by the assesseecompany on the sums advanced to the contractor. The answer given by this court in the earlier case was that they were not taxable. In the present case, question No., (3) at the instance of the assessee is whether interest received by the assessee from the sums advanced by it to its own employees was liable to be assessed as income from other sources in the hands of the assessee or whether such interest would reduce the cost of construction of the assessee and should not be treated as income chargeable to tax. On a parity of reasoning, the answer to the third question referred to us at the instance of the assessee must be answered in the same terms as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired by it, was deposited in call-deposits in certain banks. On these deposits, the company received during the accounting year a total amount of Rs. 20,763,92 as interest. The company showed this amount of interest as " cash and bank balances " in its accounts. In the profit and loss account, the amount was shown as " interest on deposits ". In the return of income for the assessment year in question, the assessee showed a total loss of Rs. 15,110. Before the Income-tax Officer the assessee contended that being a newly established undertaking, it did not have income liable to tax, and that further the interest receipts should be assessed as income from business as it was authorised to do money-lending business also under clause 13 of the memorandum of association. The Income-tax Officer held that though the company was authorised to do money-lending business, the interest received by it on deposits from the banks was not income received from money-lending business. He treated the interest income as income from " other sources " under section 56 of the Act. No doubt, he allowed deduction of a part of the expenses incurred in earning this interest income. In those circumstances, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage, etc. Article 3 of the memorandum of association of the assessee enumerated its objects and clause (v) there of read as follows : " To invest and deal with the funds of the company not immediately required upon such security and in such manner as may from time to time be determined." In the assessment for the assessment year 1962-63, the assessee claimed that the deposit of the share capital was carried on by the company, as empowered by the clause mentioned above. The claim was rejected by the Income-tax Officer. The assessee had claimed Rs. 34,139, mentioned above, as an allowable deduction. The assessee company further contended that even if the bank interest was not income from business, it was entitled to deduct the said expenditure under section 57 of the Act. This was also rejected by the Appellate Assistant Commissioner and the Tribunal. A reference having been made to the High Court in regard to the receipt of interest from bank deposits, the Kerala High Court rejected the contention of the assessee in the following words (p. 505) : " But the short question for decision in this case is whether, as matter of fact, the company carried on such a business during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that court. Before elevation, his income was being assessed as income from profession. The assessee had some outstanding dues from his erstwhile clients the fees for which he received after his elevation during the calendar years 1958 and 1959, during no part of which he had carried on any profession. The assessee contended that the sums received as fees for work done as lawyer were not income from profession and was, therefore, not liable to tax. The Revenue, on the other hand, contended that although it could not be taxed as income from profession, since the assessee had ceased to be a lawyer, it could certainly be assessed as income from the residuary head " Income from other sources " mentioned in section 6(v) of the Indian Income-tax Act, 1922. The central question, therefore, was whether an income which does not fall under any other could be assessed under the residuary head " Income from other sources " in that connection, Sarkar C.J., with whom Mudholkar J. concurred (Bachawat J. dissenting), observed that the several heads mentioned in section 6 were mutually exclusive. In that connection, his Lordship observed that an item of income cannot change its character with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income. In that situation, the income would have remained income from business and would not be thrown under the head of the residuary item " income from other sources ". It is well established that a source of income cannot be brought under the residuary head, if it comes under any of the specific heads. In the instant case, the income from bank deposits was never income from business. It would, therefore, fall in the category of section 14(f) " income from other sources " and computed in terms of section 56(1) of the Income-tax Act, 1961. Learned counsel for the assessee then placed reliance upon the decision of the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. In that case the question was whether payment of interest before the commencement of production on amounts borrowed by the assessee represented an element of the actual cost of machinery, plant, etc., and as such whether depreciation allowance and development rebate was admissible on interest paid by the assessee. The Supreme Court observed that the accepted accountancy rule for determining cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t carried on the business of colonisation, i.e., it used to purchase lands situate in villa es contiguous to the city if Delhi and sell them as commercial or residential plots. During 1950 to 1956, the assessee purchased land in two villages and developed them into a residential colony. Subsequently, during October 26, 1956, to April 4, 1957, the assessee also purchased about 300 bighas and odd agricultural land and raised a farm thereon. The land was shown by the assessee in its accounts under the head " Stock-in-trade ". No steps were taken by the assessee to develop any part of those 300 bighas and carve out plots. Out of the lands owned by the assessee, nearly 300 bighas were acquired and compensation of Rs. 7,90,540 was paid to the assessee during the accounting year ending September 30, 1980, resulting in a profit of Rs. 1,65,660. The question was whether it was a trading asset or it was a capital receipt exempted from taxation. The Delhi High Court held that since at no stage the assessee had made any attempt to convert or alter the character of the land and had used it for agriculture alone, it was not a trading asset and the compensation received was a capital receipt and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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