SEARS CONSTRUCTION P.LTD, MUMBAI V. ITO WD 3(3)(2), MUMBAI

ITA 6173/MUM/2014

• Counselvise Citation: 617319914 RSA 2014
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 05-08-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 07-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Revenue expenditure

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (ACCOUNTANT MEMBER ) . . , ./ I.T.A. NO . 6173 / MUM/20 14 ( / ASSESSMENT YEAR : 20 11 - 12 ) M/S SEARS CONSTRUCTIONS P LTD., 514, DALAMAL TOWER, PLOT NO.211, NARIMAN POINT, M UMBAI - 400021 / VS. INCOME TAX OFFICER, 3 (3) (2), MUMBAI ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACS5289E / APPELLANT BY SHRI CHETAN A KARIA / RSPONDENT BY SHRI K P R R MURTY / DATE OF HEARING : 5 .8 . 201 5 / DATE OF PRONOU NCEMENT : 5 . 8. 201 5 / O R D E R PER B ENCH: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 29 - 08 - 2014 PASSED BY LD CIT(A) - 7, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2011 - 12. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE ASSESSMENT OR INTEREST INCOME OF RS.3,44,411/ - AS INCOME FROM OTHER SOURCES. 2. I HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF PROPERTIES. THE ASSES SEE PURCHASED A LAND AT SAHAR, ANDHERI BY AVAILING LOAN FROM BANK ITA NO. 6173 / MUM/20 14 2 AND ALSO STARTED CONSTRUCTION OF A COMMERCIAL BUILDING BY NAME FULCRUM. SINCE THE REPAYMENT OF LOAN IS REQUIRED TO BE MADE IN FIXED INSTALMENTS, THE ASSESSEE COMPANY PARKED ITS FUNDS IN SHO RT TERM DEPOSIT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED INTEREST INCOME OF RS.3,44,411/ - FROM THE SHORT TERM DEPOSITS. THE ASSESSEE TREATED THE SAME AS ITS BUSINESS INCOME AND ACCORDINGLY ADJUSTED THE SAME AGAINST THE WORK IN PROGRESS A CCOUNT BY TREATING THE SAME AS PART OF BUSINESS RECEIPTS. SINCE THE SAID INTEREST INCOME WAS NOT OFFERED TO TAX, THE ASSESSING OFFICER, BY FOLLOWING THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILISE RS LTD (227 ITR 172), HELD THAT THE SAID INTEREST INCOME IS ASSESSABLE AS INCOME FROM OTHER SOURCES. THE LD CIT(A) ALSO CONFIRMED THE SAME. 3. BEFORE ME, THE LD A.R SUBMITTED THAT THE DECISION RENDERED IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FER TILISERS LTD IS NOT APPLICABLE TO THE ASSESSEE, SINCE THE SAID DECISION WAS RENDERED IN RESPECT OF INCOME EARNED DURING THE CONSTRUCTION PERIOD OF THE PROJECT. HE SUBMITTED THAT, IN THE INSTANT CASE, THE BUSINESS OF THE ASSESSEE HAS COMMENCED IMMEDIATELY ON PURCHASE OF LAND AND HENCE THE INCOME EARNED DURING THE RUNNING OF BUSINESS SHOULD BE CONSIDERED AS BUSINESS INCOME ONLY. ACCORDINGLY HE SUBMITTED THAT THERE IS NO QUESTION OF DETERMINING ABOUT THE ASSESSMENT OF INTEREST INCOME EARNED DURING CONSTRUCT ION PERIOD. IN SUPPORT OF THIS PROPOSITION ABOUT COMMENCEMENT OF BUSINESS, THE LD A.R PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RALLIWOLF LTD (121 ITR 262). HE FURTHER SUBMITTED THAT AN IDENTICAL ISSUE WA S CONSIDERED BY THE SMC BENCH OF TRIBUNAL IN THE CASE OF M/S GAMMA CONSTRUCTIONS P LTD (ITA NO.530/MUM/2012 DATED 25.5.2012) AND THE SMC BENCH HELD THAT THE INTEREST EARNED ON SHORT TERM ITA NO. 6173 / MUM/20 14 3 DEPOSITS HAS NEXUS WITH THE BUSINESS OF THE ASSESSEE AND HENCE THE SA ME CANNOT BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. 4. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS REDUCED THE INTEREST INCOME FROM WORK IN PROGRESS AMOUNT AND THE WIP AMOUNT SHALL BE CLAIMED AS REVENUE EXPENDITURE IN THE SUBSEQUENT YEARS, MEANING THEREBY THE WIP AMOUNT SHALL BE ALLOWED ONLY NET OF INTEREST INCOME. ACCORDINGLY HE SUBMITTED THAT, AT THE MOST, THE YEAR OF TAXATION ONLY WOULD GET SHIFTED. 5. ON THE CONTRARY, THE LD D.R PLACED RELIANCE ON THE DECISION RENDERED BY HO NBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SHIPPING CORPORATION LTD (240 ITR 24), WHEREIN THE HONBLE MADRAS HIGH COURT HAS HELD THAT THE INTEREST INCOME EARNED FROM SHORT TERM DEPOSITS IS ASSESSABLE AS INCOME FROM OTHER SOURCES. HE ALSO PLACED HI S RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILISERS LTD (SUPRA) AND SUBMITTED THAT THE INTEREST INCOME SHOULD BE ASSESSED UNDER INCOME FROM OTHER SOURCES. 6. I HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE UNDISPUTED FACT IS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF PROPERTIES. IT HAS PURCHASED LAND BY AVAILING LOAN FROM BANKS AND THE SAID LAND WAS DEVELOPED INTO A COMMERCIAL BUILDING. DURI NG THE YEAR UNDER CONSIDERATION, THE CONSTRUCTION WAS IN PROGRESS AND HENCE THE AMOUNT SPENT ON CONSTRUCTION WAS DECLARED AS WORK IN PROGRESS. HENCE THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE BUSINESS OF THE ASSESSEE HAS COMMENCED UPON PU RCHASE OF LAND, SINCE THE SAID LAND IS BEING DEVELOPED BY CONSTRUCTING A COMMERCIAL COMPLEX THEREON. ITA NO. 6173 / MUM/20 14 4 7. NOW THE NEXT QUESTION THAT ARISES IS ABOUT THE NATURE OF INTEREST INCOME EARNED FROM SHORT TERM DEPOSITS PARKED WITH BANKS. THE LD D.R PLACED RELI ANCE ON THE DECISION RENDERED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SHIPPING CORPORATION LTD (SUPRA). THE FOLLOWING OBSERVATIONS MADE BY HONBLE MADRAS HIGH COURT ARE RELEVANT HERE: AS NOTICED EARLIER, THE INCOME IS REQUIRED TO BE B ROUGHT UNDER ONE OR OTHER HEADS, HAVING REGARD TO THE MANNER IN WHICH IT HAS BEEN EARNED, OR RECEIVED, THE INTEREST RECEIVED ON BANK DEPOSITS CANNOT BE TREATED AS PROFITS OR GAINS RECEIVED FROM CARRYING ON BUSINESS AND ONCE IT IS NOT CAPABLE OF BEING TREAT ED AS BUSINESS INCOME, IT HAS NECESSARILY TO BE TREATED AS INCOME RECEIVED FROM OTHER SOURCES, AND TAXED ACCORDINGLY. HENCE, IN MY VIEW, THE NATURE OF INTEREST INCOME SHOULD BE DETERMINED ON THE BASIS OF FACTS AND CIRCUMSTANCES PREVAILING IN EACH CASE. 8. IN THE INSTANT CASE, IT IS STATED THAT THE ASSESSEE HAS AVAILED LOAN FOR THE PURPOSE OF PURCHASE OF LAND AND THE SAME HAD TO REPAID IN FIXED INSTALMENTS. ACCORDINGLY IT IS STATED THAT, IN ORDER TO REDUCE THE INTEREST BURDEN, IT HAS PARKED SURPLUS F UNDS IN SHORT TERM FIXED DEPOSITS. HENCE, IN THE INSTANT CASE, THE PURPOSE OF PARKING OF FUNDS IN DEPOSITS IS TO COMPENSATE THE PART OF INTEREST EXPENDITURE. HENCE, I AGREE WITH THE CONTENTIONS OF THE ASSESSEE THAT THE SAID INTEREST INCOME, UNDER THESE SET OF FACTS, SHOULD BE ASSESSED AS BUSINESS INCOME ONLY. I FIND SUPPORT TO MY VIEW IN THE ORDER PASSED BY THE SMC BENCH OF TRIBUNAL IN THE CASE OF M/S GAMMA CONSTRUCTIONS P LTD (ITA NO.530/MUM/2012 DATED 25.5.2012). ACCORDINGLY, I SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ASSESSMENT OF INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. ITA NO. 6173 / MUM/20 14 5 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 5 TH AUGUST 2015. 5 TH AUGUST, 2015 SD ( . . / B.R. BASKARAN) / ACCOUNTANT MEMBER MUMBAI: 5 TH AUG , 2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI