Income Tax Appellate Tribunal - Bangalore
Swire Holdings (P.) Ltd. vs Ito on 8 February, 2005
Equivalent citations: [2006]6SOT621(BANG)
ORDER
1. This appeal is by the assessee directed against the order of the Commissioner (Appeals)IV, Bangalore, dated 26-2-2003.
2. The only issue involved in this appeal is taxability of a sum of Rs. 1,89,025 as income for the year. This amount represents interest earned by the assessee-company. The assessing officer has taken the view that the assessee had not canvassed its business and therefore, interest is to be assessed as income from other sources. The action of the assessing officer was confirmed by the Commissioner (Appeals). The assessee is in appeal before this Tribunal.
3. The learned counsel for assessee submitted that the assessee's main business is real estate business. The assessee identifies and procures landed properties and develops them into commercial/ residential apartments and markets them. One of the objectives of the assessee is to the procurement of landed property for real estate purposes. For carrying out this business, the assessee had advanced monies to various land owners for the purpose of acquiring and dealing in landed properties. The learned counsel for assessee further submitted that the activities of the real estate company will commence immediately on incorporation of the company as the activity of such business does not involve erection of machinery, power sanction etc. There is no pre-operation period or post operation period. The assessing officer did not dispute the fact that the assessee had advanced monies for the purpose of fulfilling objectives of the Memorandum of Association of the company and earned interest income. The decision relied on by the assessing officer is factually distinguishable and not applicable to the facts of the case. Therefore, the learned counsel for assessee contended that the income earned has to be treated as business income.
On the other hand, the learned Departmental Representative fully relied on the orders of the Authorities below. He submitted that there is no business activity. The assessee had not cornmenced the business. Therefore, income earned by way of interest h as to be treated as income from surplus fund. The decisions relied on by the authorities below are fully applicable to the facts of the case and hence, the addition has to be confirmed.
4. I have heard the rival submissions E ind perused the records. The fact that the assessee's main business is real estate business is not in dispute. The fact that the assessee had advanced money to various land owners for the purpose of acquiring and dealing in landed properties is not in dispute. Therefore, as rightly contended by the learned counsel for assessee, the moment company is corporated and the amounts have been advanced for the purpose of acquiring and dealing in landed property, the business of the assessee should have been treated as commenced. Interest earned there lay, cannot be treated as pre-operative. The case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT( 1997) 227 ITR 1721 (SC) relates to the assessec company incorporated on 3-12-1971 for the purpose of manufacturing heavy chemicals such as arrunoniurn chloride and soda ash. The trial production of the factories of the company commenced on 30-7-1982. For the purpose of setting up of factories, the assessee had taken term loans from various banks and financial institutions. That part of borrowed funds which was not immediately required by the company was kept invested in short-term deposits with banks. The assessee-company earned interest income from various loans given by the company and also from the bank deposits. On the aforesaid facts, the Hon'ble Supreme Court held that the assessee company could not claim any relief under sections 70 and 71 since its business had not started and there could not be any computation of income or loss incurred by the assessee in the relevant accounting years. As rightly contended by the learned counsel for assessee, the ekcisions relied on by the authorities below are factually distinguishable. In the case of the assessee neither setting up factory or erection of machinery is required. The moment the assessee-company incorporated and the amounts advanced, it will lead to the conclusion that the business of the assessee has been commenced. Therefore, I find much more in the stand taken by the assessee. The income shown by the assessee has to be treated as income from business and necessary benefits or deductions claimed by the assessee have to be allowed in accordance with law. It is ordered accordingly.
5. In the result, the appeal filed by the assessee is allowed.