ICL Hitech Educational Society, Panchkula V. ITO, Panchkula

ITA 781/CHANDI/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77036 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 30-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Assessee Lawyers: A K JINDAL
• Keywords: Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.781/CHD/2012 ASSESSMENT YEAR : 2008-09 M/S ICL HITECH EDUCATIONAL SOCIETY, VS THE I NCOME TAX OFFICER, 372, INDUSTRIAL AREA, WARD 3, PHASE 1, PANCHKULA. PANCHKULA. PAN : AAAA1813L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K.JINDAL RESPONDENT BY : SHRI J.S.NAGAR DATE OF HEARING : 22.04.2014 DATE OF PRONOUNCEMENT : 30.04.2014 O R D E R PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH DA TED 17.05.2012 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF TH E INCOME-TAX ACT, 1961 ( 'THE ACT' FOR SHORT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE LD. CIT (A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 5,86,290/- ON A CCOUNT OF INTEREST EARNED ON FDR UNDER THE FACTS & CIRCUMSTANCES OF THE CASE. 2. THAT THE LD. CIT (A) IS NOT JUSTIFIED IN HOLDING TH AT INTEREST OF PRE-OPERATIVE PERIOD CANNOT BE REDUCED FROM EXPENSES CAPITALISED SINCE IT IS CHARGEABL E UNDER THE HEAD ' INCOME FROM OTHER SOURCES' 3. THAT THE LD. CIT (A) IS NOT JUSTIFIED IN HOLDING THAT THERE IS NO DIRECT NEXUS BETWEEN THE INCOME EARNED AND THE BUSINESS OF THE APPELLANT. THE INTEREST EARNE D BY KEEPING SURPLUS FUNDS IN FDR'S IN PRE COMMENCEMENT 2 PERIOD IS CLEARLY TAXABLE AS INCOME FROM OTHER SOUR CES. 4. THAT THE LD. CIT (A) IS NOT JUSTIFIED IN UPHOLDIN G AN ADDITION OF RS. 12,225/- ON ACCOUNT OF SALE OF EMPT Y CEMENT BAGS AS INCOME FROM OTHER SOURCES UNDER THE FACTS & CIRCUMSTANCES OF THE CASE. . 5. THAT THE APPELLANT CRAVES LEAVE FOR ANY ADDITION, DELETION OR AMENDMENT IN THE GROUNDS OF APPEAL ON O R BEFORE THE DISPOSAL OF THE SAME 3. THE LD. AR FOR THE ASSESSEE AT THE OUTSET POINTE D OUT THAT GROUND NOS. 1 TO 3 ARE COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE HON'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTI LIZERS V CIT, 227 ITR 172 (S.C). 4. IN RESPECT OF THE ISSUE RAISED VIDE GROUND NO. 4 , THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE COST OF EMPTY BAGS SH OULD BE REDUCED FROM THE COST OF CONSTRUCTION I.E. THE CAPITAL WORK IN P ROGRESS. 5. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON TH E ORDER PASSED BY THE ASSESSING OFFICER. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED VIDE GROUND NO. 1 TO 3 ARE AGAINST THE ASSESSABILITY OF THE INTEREST INCOME RECEIVED BY THE ASSESSEE. 7. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE SOCIETY WAS FORMED ON 31.08.2007 AND WAS REGISTERED WITH THE RE GISTRAR OF SOCIETIES. DURING THE YEAR UNDER CONSIDERATION, THE SOCIETY HA D PURCHASED LAND, CONSTRUCTED BUILDING, ACQUIRED OTHER ASSETS BUT NO INSTITUTE OR COLLEGE HAD STARTED. THE ASSESSEE SOCIETY HAD EARNED INTEREST INCOME ON FDRS AT RS. 586,290/- AND HAD ALSO EARNED RS. 12,225/- FROM SAL E OF CEMENT BAGS. BOTH THESE AMOUNTS WERE REDUCED FROM THE PRE-OPERAT IVE EXPENSES BEFORE CAPITALIZING THE SAME AS CAPITAL WORK IN PROGRESS. 8. THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN AS TO WH Y THE SAID TWO ITEMS OF RECEIPTS SHOULD NOT BE ADDED AS INCOME FRO M OTHER SOURCES IN THE 3 HANDS OF THE ASSESSEE. IN REPLY, THE ASSESSEE SUBM ITTED THAT THE INTEREST EARNED DURING THE CONSTRUCTION PERIOD HAS BEEN REDU CED FROM THE EXPENSES CAPITALIZED AND THE SAME SHOULD NOT BE TAXED AS OTH ER INCOME. THE ASSESSING OFFICER, REJECTING THE PLEA OF THE ASSESS EE HELD THAT THE INCOME EARNED COULD NOT BE REDUCED FROM THE EXPENSES WHICH WERE CAPITALIZED AS PRE-OPERATIVE EXPENSES. ACCORDINGLY, THE INCOME OF RS. 586,290/- I.E. INTEREST ON FDRS AND MISCELLANEOUS INCOME OF RS. 12 ,225/- WAS ADDED AS INCOME FROM OTHER SOURCES IN THE HANDS OF THE ASSES SEE. 9. THE COMMISSIONER OF INCOME TAX (APPEALS), IN VIE W OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS V CIT (SUPRA) HELD THAT THAT THE INTERE ST INCOME OF A COMPANY PRIOR TO COMMENCEMENT OF BUSINESS WAS ASSESSABLE AS INCOME. THE MISCELLANEOUS INCOME WAS ALSO ADDED IN THE HANDS OF ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS), THUS UPHELD T HE ORDER OF THE ASSESSING OFFICER ON BOTH THE COUNTS. THE ASSESSEE IS IN APPEAL AGAINST THE SAME. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS IN THE PROCESS OF SETTING UP AN EDUCAT IONAL INSTITUTION AND DURING THE YEAR UNDER CONSIDERATION, THE BUSINESS O F THE ASSESSEE SOCIETY HAD NOT STARTED. IT HAD INVESTED ITS FUNDS IN THE FDRS WITH THE BANK ON WHICH INTEREST WAS EARNED TO THE EXTENT OF RS. 586, 290/-. THE SAID INTEREST INCOME WAS NOT BOOKED AS INCOME BY THE ASSESSEE SOC IETY BUT WAS DEDUCTED FROM ITS EXPENDITURE BEFORE CAPITALIZING T HE SAME AS CAPITAL WORK IN PROGRESS. WE FIND NO MERIT IN THE SAID STAND OF THE ASSESSEE IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COUR T IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS V CIT(SUPRA), WHEREIN IT WAS HELD AS UNDER : ......... WHETHER A PARTICULAR RECEIPT IS OF THE N ATURE OF INCOME AND FALLS WITHIN THE CHARGE OF SECTION 4 IS A QUESTION OF LAW WHICH HAS TO BE DECIDED BY THE COURT ON THE BASIS OF THE PROVISIONS OF THE ACT AND THE INTERPRETATION OF THE TERM 'INCOME' GIVEN IN A LARG E NUMBER OF DECISIONS OF THE HIGH COURTS, THE PRIVY COUNCIL AND ALSO THIS COURT. IT 4 IS WELL-SETTLED THAT INCOME ATTRACTS TAX AS SOON AS IT ACCRUES. THE APPLICATION OR DESTINATION OF THE INCOME HAS NOTHIN G TO DO WITH ITS ACCRUAL OR TAXABILITY. IT IS ALSO WELL-SETTLED THAT INTEREST INCOME IS ALWAYS OF A REVENUE NATURE UNLESS IT IS RECEIVED BY WAY OF DAMAGES OR COMPENSATION. 11. FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE SU PREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS V CIT (SUP RA) WE HOLD THAT THE INTEREST INCOME EARNED BY THE ASSESSEE IS ASSESSABL E AS INCOME FROM OTHER SOURCES IN THE HANDS OF THE ASSESSEE. THE GR OUND OF APPEAL NOS. 1 TO 3 RAISED BY THE ASSESSEE ARE THUS, DISMISSED. 12. THE SECOND ISSUE RAISED BY THE ASSESSEE IS AGAI NST THE TREATMENT OF MISCELLANEOUS INCOME. THE SAID INCOME WAS EARNE D ON SALE OF EMPTY BAGS. THE ASSESSEE HAD UNDERTAKEN THE CONSTRUCTION OF THE BUILDING AND EMPTY BAGS AVAILABLE WITH THE ASSESSEE DURING THE C ONSTRUCTION PERIOD WERE SOLD FOR RS. 12,225/- IN THE YEAR UNDER CONSID ERATION. THE COST OF THE SAID EMPTY BAGS IS TO BE DEDUCTED FROM THE PURC HASE PRICE OF THE ITEMS AS IT IS DIRECTLY LINKED TO THE CONSTRUCTION COST. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO REDUCE THE COST OF EMPTY BAGS FROM THE CAPITAL WORK IN PROGRESS AND DELETE THE ADDITION OF RS.12,225/-. THE GROUND OF APPEAL NO. 4 RAISED BY THE ASSESSEE IS TH US, ALLOWED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL,2014. SD/- SD/- ( T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH APRIL,2014 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR. ASSISTANT REGISTRAR ITA T,CHD.