DEPUTY COMMISSIONER OF INCOME TAX v. CAPITAL CARS (P) LTD
[Citation -2007-LL-0131-1]

Citation 2007-LL-0131-1
Appellant Name DEPUTY COMMISSIONER OF INCOME TAX
Respondent Name CAPITAL CARS (P) LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 31/01/2007
Assessment Year 1999-2000
Judgment View Judgment
Keyword Tags disallowance of depreciation • computation of income • development authority • taxability of income • temporary structure • rights of ownership • development officer • capital expenditure • commercial building • capital investment • written down value • short-term deposit • accrual of income • valuation report • land development • purchase of land • ownership right • cross-objection • conveyance deed • interest earned • interest income • revenue nature • house property • built-up area • value of land • cost of land • co-operative • hire charges
Bot Summary: The case of the learned DR was that the facts of the instant case are squarely covered by the decision of Hon'ble Supreme Court in the aforesaid case of Alps Theatre. The case of the learned DR was that the facts of the instant case are distinguishable from the facts of Hindustan Times Ltd.'s case. The facts of the case were squarely covered by the decision of Alps Theatre's case and distinguishable from the facts of the case of Hindustan Times Ltd. Accordingly, it was urged that the order of the learned CIT(Appeals) may be reversed on this issue and that of the Assessing Officer may be upheld. 6.2 Coming to the second issue, which is legal in nature, the case of the learned counsel was that the facts of the case are distinguishable from the facts of Alps Theatre's case and come nearer to the facts of Hindustan Times Ltd.'s case We are afraid that that is no so. The facts are quite distinguishable from the facts of the case of Hindustan Times Ltd. Therefore, we are of the view that the learned CIT grievously erred in summarily holding that the consideration was paid only for the building and the facts of the case were distinguishable from the facts of Alps Theatre's case, in view of the decision in the case of Hindustan Times Ltd. It may be added here that the ratio of the case of Poddar Cement Ltd., goes against the assessee for the reason that the assessee exercises the right of an owner in the proportionate area of the land by way of user and legal right therein. The expression used by the learned counsel 'distinguished the case of Tuticorin' is vague and he has not distinguished the facts of the instant case from the case of the aforesaid Tuticorin. Having considered the decisions in the cases of Tuticorin and Bangaigaon, it is clear that the facts of the instant case are identical to the facts of the case of Tuticorin.


Per K.G. Bansal, Accountant Member: This appeal of revenue arises out of order of CIT (Appeals)-VI, New Delhi, passed on 17-2-2003. corresponding order of assessment was passed by Deputy Commissioner of Income-tax, Circle 3(1), New Delhi (hereinafter called 'the Assessing Officer'), on 28-3-2002 under provisions of section 143(3) of Income-tax Act, 1961. revenue has taken up two grounds of appeal to effect that on facts and in circumstances of case, learned CIT (Appeals) erred in - (i ) allowing deduction of depreciation amounting to Rs. 21,24,315 on cost of land component of building, and (ii ) deleting addition of Rs. 1,92,878 made on account of interest earned during pre- operative period. 2. In regard to ground No. 1, it is mentioned in assessment order that assessee acquired part of commercial complex along with undivided interest in land in relevant previous year. However, in schedule of fixed assets, whole of cost was shown under head 'Building'. Therefore, assessee was required to furnish valuation report with view to find out component of land cost and state why depreciation on value of land claimed in return may not be disallowed. case of assessee was that h e acquired interest in building only and not in land. On this plea, valuation of land and building in separate terms was not furnished. It was claimed that assessee was entitled to deduct depreciation on whole of cost in view of decision of Hon'ble Supreme Court in case of CIT v. Hindustan Times Ltd. [1998] 231 ITR 741. However, Assessing Officer did not accept arguments of assessee. He was of view that case was squarely covered within ratio of decision of Hon'ble Supreme Court in case of CIT v. Alps Theatre [1967] 65 ITR 377, and assessee was not entitled to deduction of depreciation on component of value of land contained in purchase consideration. Since assessee had not furnished valuation report to segregate value of land, he estimated such value at 1/3rd of total purchase consideration, which amounted to Rs. 2,12,43,157. He disallowed depreciation amounting to Rs. 21,24,315on this estimated value of land. Aggrieved by this order, assessee moved appeal before learned CIT(Appeals)-VI, New Delhi. He disposed of this matter in favour of assessee. It was held by him that having considered rival submissions, this ground is decided in favour of assessee in view of fact that decision of Hon'ble Supreme Court relied upon by him in case of Hindustan Times Ltd. (supra), as discussed and distinguished decision in case of Alps Theatre (supra), relied upon by Assessing Officer. 3. Before us, learned DR referred to discussion made by Assessing Officer on pages 4, 5 and 6 of his order under head 'Land'. It was, inter alia, pointed out on basis of purchase deed that purchaser was desirous of purchasing and seller was willing to sell all interest, rights and title whatsoever comprised in and to superstructure of basement and ground floor of complex as constructed as of Effective Date, including undivided interest in common areas, service areas and facilities appurtenant thereto, admeasuring in aggregate approximately 84,972.63 sq. ft. and more particularly described in Schedule 2 annexed hereto and undivided interest in ownership of land on which complex is situated, for purpose of setting up dealership of cars, on terms and conditions hereinafter appearing. case of learned D.R. was that aforesaid recital in deed clearly shows that assessee purchased not only building but also undivided interest in ownership of land on which building was constructed. It was in this connection that Assessing Officer asked assessee to furnish valuation of land and building so that value of land and building could be segregated. That was not done by assessee. Therefore, Assessing Officer had no option but to estimate value of land. It was his case that estimate made by Assessing Officer was fair and reasonable and matter was discussed by him on page 6 of order. It was mentioned therein that it was common knowledge that construction cost is normally between 100 per cent to 200 per cent of cost of land. Therefore, it would not be wrong to estimate 1/3rd of purchase consideration to be cost of land. 3.1 Coming to legal issue, learned DR read out extensively from decision in case of Alps Theatre (supra). In that case, Tribunal while accepting case of assessee had observed that you cannot conceive of accepting case of assessee had observed that you cannot conceive of building without land beneath it. It was not possible to conceive building without bottom. What section 10(2)(vi ) of 1922 Act says is that depreciation will be allowed on building. word 'building' itself connotes land on which something has been constructed. It was, therefore, wrong on part of authorities below to exclude value of land upon which some construction was made. true meaning of word 'building' itself connotes land upon which something has been constructed. It was, therefore, wrong on part of authorities below to exclude value of land upon which some construction was made. true meaning of word 'building' means land upon which some construction had been made. two must necessarily go together. High Court also answered question referred to it against revenue and it was observed that under Act, building is placed on par with machinery and furniture and is treated as unit. Therefore, for this purpose, building cannot be split up into building and land. It was further observed that depreciation is allowed on capital, which is unit of building in this case. If same is sold and it fetches more than its written down value, then, surplus is liable to be taxed. Hon'ble Supreme Court referred to schedule of depreciation as it existed for relevant period. It was pointed out that rate of depreciation is fixed on nature of structure. first class building will depreciate slower than second class building. Temporary structures would depreciate even faster. However, contention of assessee was that same rate of depreciation should be allowed in respect of land under temporary structure and land under first class building. It would be difficult to appreciate why land under temporary structure would depreciate faster than land under first class building. Hon'ble Court referred to another important consideration, namely, computation of income after allowing expenditure and deduction. deduction of depreciation is allowable on general principles of accountancy as well as under Income-tax Act. reason for same is that true picture of real income of business has to be arrived at. However, land does not depreciate at all and if depreciation is allowed, it would give wrong picture of true income. Thus, question was decided against assessee and in favour of revenue. case of learned DR was that facts of instant case are squarely covered by decision of Hon'ble Supreme Court in aforesaid case of Alps Theatre (supra). 3.2 He also referred to decision of Hon'ble Supreme Court in case o f Hindustan Times Ltd. (supra). In that case assessee had purchased existing building in residential area. Subsequently it wanted to convert its user from residential to commercial. formal agreement was entered into between it and Land Development Officer (LDO), under which sum of Rs. 3,65,875 was paid to LDO. Higher rent was also fixed for land. assessee demolished existing structure on land and constructed multistoreyed building thereon, which was several times original area of said land. After completion of construction, assessee applied to LDO for using building for commercial purposes and paid further sum of Rs. 36,06,516 for such user. Assessing Officer disallowed deduction of depreciation on this payment by holding that impugned amount was paid for conversion of land user and, therefore, it should be added to cost of land. matter was decided in favour of revenue by CIT(Appeals) and Tribunal. High Court gave finding that conversion of user had already taken place when assessee paid sum of Rs. 3,65,875 to LDO in earlier year and, therefore, there was no question of any further commercialization of land. amount paid after construction of building, which had been constructed by assessee, formed part of cost of building for purpose of construction of additional office space. Therefore, it formed cost of building. Hon'ble Supreme Court distinguished facts of case of Alps Theatre (supra) in this case for reason that findings of Hon'ble High Court was that sum of Rs. 36,96,516 was paid after construction of building in relation to construction of extra space. Therefore, decision of Hon'ble High Court was upheld. case of learned DR was that facts of instant case are distinguishable from facts of Hindustan Times Ltd.'s case ( supra). assessee had not paid any extra money for creating extra office space after construction of building. It had purchased land and building which, inter alia , consisted of certain built-up area and proportionate ownership right in land on which building was constructed. Therefore, facts of case were squarely covered by decision of Alps Theatre's case (supra) and distinguishable from facts of case of Hindustan Times Ltd. (supra). Accordingly, it was urged that order of learned CIT(Appeals) may be reversed on this issue and that of Assessing Officer may be upheld. 4. As against aforesaid, learned counsel for assessee pointed out that question to be decided in this case is whether any cost was paid for land? If answer is in affirmative, decision in case of Alps Theatre (supra) will apply. Otherwise, whole consideration will have to be allocated to cost of building. It was his case that entire money paid under agreement was for purpose of securing superstructure and for this purpose, document has to be read as whole. In this connection, he referred to decision of Hon'ble Supreme Court in case of Union of India v. Gosalia Shipping (P.) Ltd. [1978] 113 ITR 307. question in that case was whether amount, which company was required to pay to owners of ship, was payable on account of carriage of goods of owners of ship within meaning of section 172(2) of Act or not? company paid hire charges to owners of ship, but it loaded ship with company's own goods. It was held that company received nothing on account of carriage of goods and, therefore, provisions of section 172(2) were not applicable. Hon'ble Court pointed out that it was true that excessive reliance could not be placed on form which parties gave to their agreement, or on label which they attached to payment due from others. One must have regard to substance of matter and, if necessary, veil may be lifted in order to see true character of payment. In this very connection, he also relied on decision of Hon'ble Supreme Court in case of Controller of Estate Duty v. Aloke Mitra [1980] 126 ITR 599. decision of Hon'ble Court was that section 5(1) of that Act alone was capable of imposing charge of duty. By no rule of construction, operation of this section can be curtailed by operation of section 6, as latter section is in addition to provisions of this section. object of section 6 is to catch properties in net of section 5, which do not really passed on death of person, such as recoverable gifts etc. Thus, where deceased was real owner of certain shares held by him as benami in names of wife and sons, shares passed on death of real owner. He also relied on decision of Hon'ble Calcutta High Court in case of CIT v. Stanton & Stavely (Overseas) Ltd. [1984] 146 ITR 405, in which it was held that terms which have not been defined in taxing statute should be interpreted in accordance with commercial principles. It was also held that nomenclatures used in documents were not conclusive of matter in interpretation of document. 4.1 Coming to facts of case, it was pointed out that original owner had acquired land from Ghaziabad Development Authority (GDA), which permitted them to develop and construct multi-storied shopping-cum- office complex and sell various constructed units to prospective purchasers, as evidenced from page 33 of paper book. Thus, while assessee was authorized to sell only units, Assessing Officer relied on recital (j ) on page 4 of agreement to sell, which included within ambit of sale not only units but also undivided interest in ownership of land. It was his case that undivided interest in land has not been defined in agreement, which may undergo change as and when FAR utilization permitted by GDA is changed. Therefore, his case was that on combined reading of pages 4 and 33 of paper book lead to conclusion that what seller could sell was only units and not land. Relying on cases discussed above, it was argued that substance of transaction should be taken into account and not form as mentioned in recital. We, however, find that mention of land is there not only in recital but also in paragraph 1.1, forming main portion of agreement and undivided proportionate ownership of land, on which building is situated, also forms part of contract as per this paragraph. It is no doubt true that agreement has to be read as whole. However, it is not proved that mention of land is there only in recitals. 4.2 learned counsel pointed out that land will be of no use to buyer if he received right of possession and occupation of superstructure only and, therefore, issue should be decided on basis of ground realities. In this connection, he relied on decision of Hon'ble Supreme Court in case of CIT v. Poddar Cement (P.) Ltd. [1997] 226 ITR 625 where Hon'ble Court was occupied with interpretation of term 'owner', occurring in section 22 for purpose of bringing to tax income from house property. Hon'ble Court pointed out that construction of statute should be so made as to take into account changes occurring after enactment of statute. On that basis, it account changes occurring after enactment of statute. On that basis, it was held that owner must be that person who can exercise rights of ownership in his own right and not on behalf of owner. Thus, it was held that registration of sale deed was not sine qua non for coming to conclusion whether person was owner of house property or not. 4.3 Thereafter, learned counsel took us through paragraph 2.2 of agreement, which fixes consideration at Rs. 6,73,29,473 at rate of Rs. 750 per sq. ft., consisting of price of land and superstructure. His case was that consideration was fixed with reference to constructed portion. It was also mentioned that physical possession of ground floor and vacant physical possession of one quarter of basement of property will be effected by possession letter to that effect. He also referred to paragraph 4.1.3(d ) regarding representations and warranty and it was undertaken by seller that execution, delivery or purpose of agreement of consummation of transaction will not conflict with, violate or result in breach of any provision of terms of conveyance deed between seller and GDA. Thus, while this clause gave warranty to buyer that he had right to purchase building as well as of proportionate right in land, case of learned counsel was that this was in conflict with authority given by GDA to sell only constructed units. He also referred to paragraphs 4.8.1, 4.8.2 and 4.8.3 making representations about various defects etc. Paragraphs 6.8 and 6.9 contain undertakings of seller regarding completion of common areas, service areas, which was to continue even after execution of sale deed. reference was made to paragraph 7.2 which undertook to hand over possession of entire property purchased by 30-9-1998 free from all lien, charges, encumbrances etc. He also referred to sale deed placed in paper book from pages 32 to 48 and pointed out that clauses therein are same as in agreement to sell. 4.4 Coming to legal issue, he referred to decision of Apex Court in case of Hindustan Times Ltd. (supra), in which it was held that payment made after construction of complex was payment in respect of extra space constructed because land remained to be land and its user had been converted from residential to commercial at earlier date. He also referred to decision of Hon'ble Madras High Court in case of CIT v. Southern Petro Chemical Industrial Corpn. Ltd. [1998] 233 ITR 391, in which it was, inter alia, held that for purpose of depreciation roads laid within factory premises are necessary adjuncts to factory building and are to be treated as building for purpose of depreciation. 4.5 It was also claimed that depreciation on land, for purpose of disallowance, was calculated as if land and building were used in business for more than 180 days. However, fact is that it was used for less than 180 days and, therefore, disallowance was excessive. It was also claimed that apportionment to cost towards land at 1/3rd of overall consideration was excessive and matter may be restored to file of Assessing Officer for this purpose. 5. In rejoinder, learned DR referred to number of clauses in main agreement which speak about proportionate ownership of land passing t o assessee under agreement. It was pointed out that in spite of requisition of valuation report by Assessing Officer, it was not filed by assessee and, therefore, his estimate may be upheld. It was also pointed out that assessee had not taken any ground about excessive disallowance of depreciation on land. It was clarified that stipulation of sale of units in agreement with GDA was made to ensure that assessee constructed commercial building and did not sell land to prospective buyers. It was agitated that issue has to be decided on basis of facts as they existed in relevant previous year and in this connection argument of increase in FAR, etc., was totally extraneous to consideration of matter. 6. We have considered facts of case and rival submissions. first issue in this case is regarding interpretation of documents. case of learned counsel was that documents should be read as whole to find out its true and intent and purpose. For this purpose, he relied on decision in case of Gosalia Shipping (P.) Ltd. (supra) , Aloke Mitra's case (supra), etc. On basis of these decisions, we tend to agree with learned counsel that documents should be read as whole to find out what was subject- matter of agreement and whether consideration paid was only for purpose of purchase of building or purchase building and proportionate land. 6.1 When we read documents executed by seller with GDA and documents executed by assessee with seller, it becomes clear that subject-matter of sale was building, proportionate share in land etc. This is so not only under recitals but also under article 1 regarding subject-matter of sale and article 2 regarding fixation of consideration. GDA had permitted seller to develop land and sell units. That does not mean that there was any exclusion on part of seller to pass title in proportionate land to prospective buyers. As rightly pointed out by learned DR, aforesaid stipulation was incorporated in that agreement so that seller could be obliged to develop land, construct building thereon and thereafter sell units rather than sell land itself, which would have fuelled speculation in land transactions. Therefore, that agreement does not coming way of finding that assessee had purchased not only building but also right of ownership in proportionate land. learned counsel had also relied on consideration clause which fixed rate at Rs. 750 per sq. ft. of constructed area to canvass proposition that what was sold was only building. We are unable to persuade ourselves to agree with such interpretation of consideration clause contained in article 2 of agreement. reason being that paragraph 2.1 clearly mentions that consideration was for purchase of property comprising of land price and building super structure cost at rate of Rs. 750 per sq.ft. It was further mentioned that said total consideration shall include consideration for common areas, service areas and facilities described in Schedule 2 of agreement. Thus, it is clear that subject- matter for which consideration was fixed was land, building, common areas, service areas and facilities. fixation of rate was merely methodology to work out total consideration for aforesaid land, building, common areas, service areas and facilities. It could have been fixed with reference to proportionate area of land or constructed space as two are linked with each other by multiplication factor of FAR. article nowhere curtailed right of assessee to ownership of undivided proportionate share in land. It was also argued by learned counsel that land was of no use to assessee. There is nothing on record to suggest same. In fact, common areas, service areas are necessary to get ingress into building for its effective utilization. building cannot stand without land beneath it. Therefore, for effective use of building, ownership of land and interest in common areas and service areas was of equal importance. In any case, if assessee purchases useless asset for consideration, its cost will not become nil . Thus, we are of view that subject-matter of agreement was land and building for which consideration was paid. 6.2 Coming to second issue, which is legal in nature, case of learned counsel was that facts of case are distinguishable from facts of Alps Theatre's case (supra) and come nearer to facts of Hindustan Times Ltd.'s case (supra) We are afraid that that is no so. issue in case of Hindustan Times Ltd. (supra) was whether amount of about Rs. 36.96 lakh was for conversion of land from residential user to commercial user. decision of Hon'ble Court was that aforesaid amount was paid after construction of building in relation to extra space constructed and, therefore, payment was for purpose of extra space. land conversion charges had already been paid, which formed cost of land and assessee was also paying higher rental after such conversion. Such is not case here. assessee has entered into agreement which can be said to be composite agreement for purchase of building, proportionate ownership right in undivided land, common areas and service areas. Thus, subject-matter of agreement was land and building. No further amount was paid after purchase of land & building for construction of any further area. Thus, facts of case are identical to facts in case of Alps Theatre (supra), in which it was held that land is not depreciable asset. facts are quite distinguishable from facts of case of Hindustan Times Ltd. (supra) Therefore, we are of view that learned CIT (Appeals) grievously erred in summarily holding that consideration was paid only for building and facts of case were distinguishable from facts of Alps Theatre's case (supra), in view of decision in case of Hindustan Times Ltd. (supra). It may be added here that ratio of case of Poddar Cement (P.) Ltd. (supra), goes against assessee for reason that assessee exercises right of owner in proportionate area of land by way of user and legal right therein. position of roads is quite different from that of land, which falls within ratio of decision in Alps Theatre's case (supra) and, therefore, decision in case of Southern Petro Chemical Industrial Corpn. Ltd. (supra) does not come in aid of assessee's case. 6.3 assessee had also taken plea that land and building were used in business for less than 180 days and, therefore, disallowance of depreciation relatable to land at rate of 10 per cent was excessive, which should be reduced to 5 per cent. His case was that as respondent, he could support findings of learned CIT (Appeals) by any other argument or on any other ground. We find that this view is supported by decision of Hon'ble Bombay High Court in case of B.R. Bamasi v. CIT [1972] 83 ITR 223. Hon'ble Court pointed out that position of appeal under section 33 of Income-tax Act, (1922 Act) and appeal under Code of Civil Procedure is identical. In case of Venkatarao v. Satyanarayanmurthy ILR 1994 Mad. 147, it was held that it was open to respondent in appeal, who had not filed cross-objection with regard to portion of decree which had gone against him, to urge in opposition to appeal of appellant contention which if accepted by trial court would have necessitated total dismissal of suit, but decree insofar as it was against him would stand. In view of this judgment, it was pointed out that if ground of respondent succeeds in income-tax proceedings, only result would be that appeal will fail. ground will serve as weapon of defence against appeal and not weapon of offence. In view of this judgment, we tend to agree with learned counsel that he could have taken any plea, not taken before learned CIT (Appeals) which would go to support order of ld. CIT(A) and if it succeeds, appeal of revenue will fail. It was his further contention that if he could wholly support order of learned CIT (Appeals), he could also partly support it by any other argument. To our mind, such conclusion follows naturally from decision in case of B.R. Bamasi (supra). However, judgment is to effect that assessee could have taken any other ground to support order of learned CIT (Appeals). It will not be open for him to canvass new facts before us to come to decision which will be contrary to position of revenue taken in its appeal. case of learned counsel is not based upon any legal argument or ground. It is based upon finding of fact whether land and building were used for 180 days or more or less than 180 days. assessee had not taken up any ground in this regard before learned CIT (Appeals) and has also not pointed out anything in this matter before Assessing Officer. Therefore, issue requires finding of fresh facts, which cannot be done in guise of raising another ground to support order of learned CIT (Appeals), wholly or partly. Thus, this plea also fails. In any case, if there is factual error apparent from record in order of Assessing Officer, assessee can very well approach him and seek rectification of order under section 154 of Act. 6.4 It was also argued by learned counsel that rate of land fixed by Assessing Officer at 1/3rd of consideration was excessive and same may be reduced suitably. We find that Assessing Officer had directed assessee to file his own valuation report so that value of land could be fixed properly. same was not done. report was also not filed before learned CIT (Appeals). In view of these facts, it will not lie in mouth of learned counsel now to say that rate fixed by Assessing Officer was excessive for reasons that (i ) there is no evidence on record to support case of assessee, and (ii ) Assessing Officer had adopted very reasonable method of allocating cost in absence of any evidence filed before him. 6.5 In nutshell, it is held that on complete reading of documents, it is found that subject-matter of agreement was land and building and fixation of rate on basis of built-up area and clause in agreement between seller and GDA do not detract us from aforesaid conclusion in any manner. land was very much useful for enjoyment of built-up area and in any case that issue is irrelevant in determining that proportionate land had any cost or not. issue is regarding subject-matter of agreement and consideration paid, which is against assessee. determination of value of land and depreciation claimed thereon involve finding of new facts, which is beyond ambit of this appeal even after taking into consideration decision in case of B.R. Bamasi (supra). 7. result of aforesaid discussion is that ground No. 1 of appeal of revenue is allowed. 8. Ground No. 2 is against finding of learned CIT (Appeals) in which he deleted taxation of amount of Rs. 1,92,878 as interest earned by assessee during pre-operative period. 8.1 In this connection, it is mentioned in assessment order that case of assessee was that such interest would go to reduce cost of capital investment, as held by Hon'ble Supreme Court in Bongaigaon Refinery & Petrochemicals Ltd.'s case (supra). However, Assessing Officer did not accept this position. He was of view that ratio of aforesaid case was against assessee, in which it was categorically held that if interest income is earned from investment of surplus funds which have no nexus with capital expenditure incurred, then, same would be taxed as 'income from other sources'. learned CIT (Appeals) was of view that Assessing Officer appeared to have misinterpreted ratio of judgment of aforesaid case of Bongaigaon Refinery & Petrochemicals Ltd. (supra). true ratio of case is that amount directly connected with or incidental to capital expenditure can be adjusted against capital cost. Thus, appeal was decided in favour of assessee. 8.2 Before us, learned DR relied on decision in aforesaid case of BongaigaonRefinery & Petrochemicals Ltd. (supra). question before Hon'ble Court was whether, on facts and in circumstances of case, Tribunal was justified in holding that items of income derived by assessee during formation period for main business, were not taxable but were to be adjusted against project cost for oil refinery and petrochemicals, main business for which company was set up? In this connection, Hon'ble Court referred to decision in case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) and it was pointed out that that was case in which question related to interest earned by company during formative period by investments, which was held to be taxable as 'income from other sources'. Court had held in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC) that it is so confined and did not apply where receipts were directly connected with or were incidental to work of construction of assessee's plant. decision in case of Bokaro Steel Ltd. (supra) had been followed in case of CIT v. Karnal Co-operative Sugar Mills Ltd. [2000] 243 ITR 2 (SC) and CIT v. Karnataka Power Corporation [2001] 247 ITR 268 (SC). It was also pointed out that in latter case, it was not disputed by revenue that question related to hire charges paid by contractors had to be answered in light of judgment in case of Bokaro Steel Ltd. (supra). Therefore, it was not now possible to take any different view than view taken in Bokaro Steel Ltd.'s case (supra). 9. As against aforesaid, learned counsel relied on decision of learned CIT(A). He also mentioned that Tribunal has subsequently distinguished decision in case of Tuticorin Alkali Chemical & Fertilizers Ltd. (supra) in case. 10. We have considered facts of case and rival submissions. In case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) Hon'ble Supreme Court had pointed out that charge to tax is attracted at point when income is earned. taxability of income does not depend upon its utilization. Therefore, what has to be seen are (i ) point of accrual of income and, (ii ) it is of revenue nature or not. If income has accrued at particular point of time and it is of revenue nature, amount will have to be taxed. It was further pointed out that interest income is always of revenue nature, unless it is received by way of compensation or damages. Thus, if money is borrowed for purpose of business but utilized for earning interest, howsoever temporarily, interest income will be taxable under section 4 of Act. After generation of income, assessee may utilize it in whatever manner he likes. It was also pointed out that under Income-tax Act, under section 14, income has to be classified under one or other head. If company has not commenced business, there cannot be any question of assessment of its profits and gains of business. However, that does not lead to conclusion that it cannot have income under other heads before commencement of business. company may keep surplus fund in short-term deposit in order to earn interest. Such income will be chargeable to tax under section 56 of Act. In coming to this conclusion, fact that money was raised by issue of shares, debentures or borrowings will not make any difference. It is true that company may have to pay interest on borrowed money, but that cannot be ground for non-taxation of pay interest on borrowed money, but that cannot be ground for non-taxation of interest income and it only mean that expenditure incurred for earning income may be set off under provisions of section 57 of Act. We may also examine facts of case of Bongaigaon Refinery & Petro Chemicals Ltd. (supra) relied upon by learned counsel and learned CIT (Appeals). In that case contractors were working at premises of assessee for installing plant and machinery. contractor was occupying certain portions of building owned by assessee for executing project, for which rental charges were received and set off against payment to be made to contractor. finding of Hon'ble Court was that such receipts can be set off against expenditure for finding out cost of installation of plant & machinery. learned counsel had also spoken about some case of Tribunal, which distinguished case of aforesaid Tuticorin. That case was, however, not cited before us. We are of view that Tribunal can legitimately distinguish facts of case at hand from facts of case decided by any Court and thereafter may come to appropriate conclusion in matter. However, expression used by learned counsel 'distinguished case of Tuticorin' is vague and he has not distinguished facts of instant case from case of aforesaid Tuticorin. Having considered decisions in cases of Tuticorin and Bangaigaon, it is clear that facts of instant case are identical to facts of case of Tuticorin. It is not case where certain recoveries were made from contractors by assessee, who were executing capital projects, which reduced outgoings to be paid to contractors. It is case of utilization of surplus funds for earning interest income, which has been held to be taxable by Hon'ble Supreme Court under residuary head. Respectfully following ratio of decision in case of Tuticorin, it is held that learned CIT (Appeals) erred in holding that interest income was not taxable under section 56 of Act. 11. result of aforesaid discussion is that ground No. 2 of appeal of revenue is allowed. 12. In result, appeal of revenue is allowed. *** DEPUTY COMMISSIONER OF INCOME TAX v. CAPITAL CARS (P) LTD.
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