INCOME TAX ACT, 1961

Section 14

Head of income - Business income or income from other sources - Interest on loan and advances given to various persons and corporate bodies and bank interest FDRs - AO alleging no commencement of business during the year

Assessee engaged in real estate development earned interest on loan and advances given to various persons and corporate bodies and bank interest on FDRs and declared the same as business income. AO taxed the same as Income from other sources on the ground that company had not commenced any business activity during the year and hence there could not be any computation of business income or loss incurred by the assessee in the relevant accounting year. Held: Substantial activities were carried out by assessee, since the date of incorporation which had culminated in raising loans, making investment in purchase of land, reflected as stock in trade and also advancing loans to associate concerns for purchasing different pieces of land, in order to fulfil condition of Land Bank of 100 Acres or more, to develop township in Haryana. Further, assessee also invested substantial amount in purchase of another property in the year itself, thus, set up of its business as per its Memorandum of understanding was done, since it was engaged in the business of real estate. Accordingly, assessee not only set up its business but also commenced business during the previous year itself and hence interest income was to be treated as business income.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2006-07

INCOME TAX ACT, 1961

Section 37(1)

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