INTHEINCOMETAXAPPELLATETRIBUNAL
DELHIBENCH:’C’,NEWDELHI

BEFORESHRIBHAVNESHSAINI,JUDICIALMEMBER
AND
SHRIO.P.KANT,ACCOUNTANTMEMBER

ITANo.1346/Del/2018
AssessmentYear:1996-97

M/s.DelhiMetroRailVs.JCIT,
CorporationLtd.,Circel-10(1),NewDelhi
3rdFloor,MetroBhawan,Fire
BrigadeLane,Barakhamba
Road,NewDelhi
PAN:AAACD3254A
(Appellant)(Respondent)

And
ITANo.2398/Del/2001
Assessmentyear:1997-98

M/s.DelhiMetroRailVs.JCIT,
CorporationLtd.,SpecialRange-24,NewDelhi
N.B.C.C.Place,Bhishma
PitamahaMarg,Pragati
Vihar,NewDelhi
PAN:AAACD3254A
(Appellant)(Respondent)

And
ITANo.1144/Del/2002
Assessmentyear:1998-99

M/s.DelhiMetroRailVs.Addl.CIT,
CorporationLtd.,SpecialRange-24,NewDelhi
N.B.C.C.Place,Bhishma
PitamahaMarg,Pragati
Vihar,NewDelhi
PAN:AAACD3254A
(Appellant)(Respondent)
ITANos.1346/Del/2018;2398/Del/2001;
1144/Del/2002;3356/Del/2002;
1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

And
ITANo.3356/Del/2002
Assessmentyear:1999-2000

M/s.DelhiMetroRailVs.DCIT,
CorporationLtd.,Special10(1),NewDelhi
N.B.C.C.Place,Bhishma
PitamahaMarg,Pragati
Vihar,NewDelhi
PAN:AAACD3254A
(Appellant)(Respondent)

And
ITANo.1874/Del/2004
Assessmentyear:2000-01

M/s.DelhiMetroRailVs.Dy.CIT,
CorporationLtd.,Circle-10(1),NewDelhi
N.B.C.C.Place,Bhishma
PitamahaMarg,Pragati
Vihar,NewDelhi
PAN:AAACD3254A
(Appellant)(Respondent)

And
ITANo.4553/Del/2003
Assessmentyear:2001-02

M/s.DelhiMetroRailVs.Dy.CIT,
CorporationLtd.,Circle-10(1),NewDelhi
N.B.C.C.Place,Bhishma
PitamahaMarg,Pragati
Vihar,NewDelhi
PAN:AAACD3254A
(Appellant)(Respondent)

2
ITANos.1346/Del/2018;2398/Del/2001;
1144/Del/2002;3356/Del/2002;
1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

And
ITANo.5095/Del/2004
Assessmentyear:2002-03
M/s.DelhiMetroRailVs.Addl.CIT,
CorporationLtd.,Range-10,NewDelhi
N.B.C.C.Place,Bhishma
PitamahaMarg,Pragati
Vihar,NewDelhi
PAN:AAACD3254A
(Appellant)(Respondent)

And
ITANo.2081/Del/2003
Assessmentyear:1998-99
M/s.DelhiMetroRailVs.CommissionerofIncome
CorporationLtd.,Tax,
N.B.C.C.Place,BhishmaDelhi-IV,C.R.Building,New
PitamahaMarg,PragatiDelhi
Vihar,NewDelhi
PAN:AAACD3254A
(Appellant)(Respondent)

And
ITANo.2082/Del/2003
Assessmentyear:1999-2000
M/s.DelhiMetroRailVs.CommissionerofIncome
CorporationLtd.,Tax,
MetroBhawan,13,FireDelhi-IV,C.R.Building,New
BrigadeLane,BarakhambhaDelhi
Road,NewDelhi
PAN:AAACD3254A
(Appellant)(Respondent)

AssesseebyShriC.S.Aggarwal,Sr.Adv.;
ShriGautamJain,Adv.;
ShriLalitMohan,CA
Ms.DeepaSharma,CA
DepartmentbyShriS.S.Rana,CIT(DR)

3
ITANos.1346/Del/2018;2398/Del/2001;
1144/Del/2002;3356/Del/2002;
1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

Dateofhearing09.05.2019
Dateofpronouncement28.06.2019
ORDER

PERO.P.KANT,A.M.:

Thecaptionedappealsfiledbytheassesseearerelatedto
assessmentyears1996-97,1997-98,1998-99,1999-2000,2000-
2001,2001-02and2002-03.Outoftheaforesaidnineappeals
filedbytheassessee,twoappealsforassessmentyear1998-99
and1999-2000(ITANo.2081/Del/2003and2082/Del/2003)are
againsttheorder(s)dated18/03/2003underSectionsection263ofthe
Income-taxAct,1961(inshort’theAct’).Theremainingseven
appealsoftheassesseeareagainstrespectiveordersoftheLd.
CommissionerofIncome-tax(Appeals)confirmingtheordersof
theassessmentframedunderSectionsection143(3)oftheActforeachof
theassessmentyears.Asthegroundsraisedinvariousappeals
andissuesinvolvedarecommon,theseappealswereheard
togetheranddisposedoffbywayofthisconsolidatedorderforthe
sakeofconvenienceandtoavoidrepetitionoffacts.

2.First,wetakeupthesevenappealsarisingfromorderofthe
Ld.CommissionerofIncome-tax(Appeals)forassessmentyears
from1996-97toassessmentyear2002-03.Thegroundsraisedin
theseappealsarereproducedasunder:

A.Groundsofappealforassessmentyear1996-97

1.ThatthelearnedCommissionerofIncomeTax(Appeals)haserred
bothonfactsinlawinupholdingthefindingsoflearnedAO,who
hadheldthat,theassesseeisnotan’authority’withinthemeaning
4
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

ofSectionsection10(20A)oftheActandthuswasnoteligibletotheclaimof
exemptionu/s10(20SectionA)oftheI.T.Act.

2.ThatthelearnedCommissionerofIncomeTax(Appeals)has
furthererredinfailingtoappreciatethatRs.2,39,452/-wasnotan
incomeearnedfromothersourcesandwasnotassessabletotax
andhadtobesetofffromworkinprogress.

3.ThatthelearnedCommissionerofIncomeTax(Appeals)has
furthererredinfailingtoappreciatethattheincomecomputedatRs.
2,39,452/-hasincorrectlybeencomputedasagainstthereturned
lossofRs.5,67,775/-.

4.Thattheappellantcravesleave,toadd,toamend,modify,
rescind,Supplement,orafteranyoftheGroundsstatedhere-in-
above,eitherbeforeoratthetimeofhearingofthisappeal.

B.Groundsofappealforassessmentyear1997-98

1.Thatonthefactsandinthecircumstancesofthecase,theLd.
CIT(Appeals)wasnotjustifiedandrathergrosslyerredinconfirming
theactionoftheA.O.byholdingthattheprovisionofSection10(20A)
oftheIncomeTaxAct,1961arenotapplicableinthecaseofthe
appellantandtherebyconfirmingthedisallowanceoftheappellant’s
claimforexemptionofitsincomeunderthesaidsection.

2.Thatonthefactsandinthecircumstancesofthecase,the
LearnedCIT(Appeals)wasnotjustifiedinconfirmingtheactionof
theA.O.byholdingthattheappellanthadnotcommencedits
businessactivity,andtherebyconfirmingthedisallowanceofthe
expenditureincurredonprofessionalandconsultancycharges
amountingtoRs.65.40lacs.

3.Thatonthefactsandinthecircumstancesofthecase,the
LearnedCIT(Appeals)wasnotjustifiedinconfirmingtheactionof
theA.O.innotallowingthedeductionu/s35DoftheAct,amounting
toRs.8,07,227/-asclaimedbytheappellant.

4.Thattheappellantcravesleave,toadd,toamend,modify,
rescind,supplement,oralteranyofthegroundsstatedhere-in-
above,eitherbeforeoratthetimeofhearingofthisappeal.

C.Groundsofappealforassessmentyear1998-99

5
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

1.Onthefactsandinthecircumstancesofthecasethelearned
CommissionerofIncome-tax(Appeals)haserredinlawinholding
thattheprovisionsofSectionsection10(20A)arenotapplicableinthecase
oftheappellant.ExemptionunderSectionsection10-(20A)beingavailableto
theappellantunderthelawthesamedeservestobeallowed.

2.Inthefactsandcircumstancesofthecasethelearned
CommissionerofIncometax(Appeal)haserredinnotallowing
deductionofRs.3,44,23,404/-onaccountofprofessionaland
consultancycharges.Theexpensesincurredunderthisheadbeing
ofallowablenature,deductionforthesamedeservestobefully
allowed.

3.Inthefactsandinthecircumstancesofthecase,the
CommissionerofIncome-tax(Appeal)haserredinnotallowing
deductionofRs.8,07,227/-underSectionsection35-DoftheIncome-taxAct.
Thisdeductionbeingadmissibledeservestobefullyallowed.

4.Inthefactsandinthecircumstancesofthecase,the
CommissionerofIncome-tax(Appea1)haserredinnotallowing
deductionofRs.1,75,49,218/-onaccountoftheclaimfor
depreciation.Theclaimfordepreciationbeingadmissibledeservesto
befullyallowed.

5.Theappellantcravesleavetoadd,amend,modifyoralteranyof
thegroundsofappealstatedaboveeitherbeforeoratthetimeof
hearingofthisappeal.

D.Groundsofappealforassessmentyear1999-2000

1.Onthefactsandcircumstancesofthecasethelearned
CommissionerofIncometax(Appeals)haserredinlawinholding
thattheprovisionsofSectionsection10C20A)arenotapplicableinthecase
oftheappe11ant.ExemptionunderSectionsection10(20A)beingavailable
totheappellantunderthelawthesamedeservestobeallowed.

2.Inthefactsandcircumstancesofthecasethelearned
CommissionerofIncome-tax(Appeals)haserredinnotallowing
deductionofRs.1,01,96,865/-onaccountofprofessionaland
consultancycharges.Theexpensesincurredunderthisheadbeing
ofallowablenature,deductionforthesamedeservestobefully
allowed.

3.Inthefactsandcircumstancesofthecase,theCommissionerof
Income-tax(appeals)haserredinnotallowingdeductionof

6
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

Rs.8,07,227/-,underSectionsection35-DoftheIncome-taxAct.This
deductionbeingadmissibledeservestobefullyallowed.

4.Inthefactsandcircumstancesofthecase,theCommissionerof
Income-tax(Appeals)haserredinnotallowingdeductionof
Rs.2,13,84,915/–onaccountofclaimfordepreciation.Theclaimfor
depreciationbeingadmissibledeservestobefullyallowed.

5.Theappellantcravesleavetoadd,amend,modifyoralteranyof
thegroundsofappealstatedaboveeitherbeforeorattimeof
hearingofthisappeal.

E.Groundsofappealforassessmentyear2000-01

1.Onthefactsandinthecircumstancesofthecase,theLd.
CommissionerofIncome-Tax(Appeals)haserredinlawinholding
thattheprovisionsofSection10(20A)oftheIncomeTaxActarenot
applicableinthecaseoftheappellantandtherebydisallowingthe
appellant’sclaimforexemptionofitsincomeunderthesaidsection.
Theappellant’sclaimforexemptionU/sU/s10(20A)beinglegally
admissibledeservestobeallowed.

2.Onthefactsandinthecircumstancesofthecase,theLd.
CommissionerofIncome-Tax(Appeals)haserredinlawinholding
thattheappellanthadnotcommenceditsbusinessactivityand
therebydisallowingtheclaimfordeductionofbusinessexpensesof
Rs.14,67,87,754/-asperrevisedReturnfiledon27.3.2002.The
businessactivityoftheappellantcompanyhavingcommenced,the
claimfordeductionofbusinessexpensesofRs.14,67,87,754
deservestobefullyallowed.

3.Thecommencementofbusinessoftheappellanthastakenplace.
TheLd.CIT(Appeals)haserredinholdingthatcommencementof
businessisnotasyetstarted.Thisfindingisagainstfactsofthe
case.Infact,businesshascommenced.Hence,expensesofRs.
14,67,87,754/-areliabletobefullyallowed.

4.ThedeductionofexpensesisliabletobeallowedU/s37ofthe
SectionIncomeTaxAct,1961fullytotheappellant.Theclaimofexpenses
hasbeenillegallydisallowedtotheappellantandthesameisliable
tobefullyallowedatRs.14,67,87,754.

5(a)WithoutprejudicetotheabovetheLd.CIT(Appeals)haserred
inreducingtheclaimofdeductionofexpensesforearningofinterest
incomefromRs.56,21,803/-toRs.37,94,354.00.Theclaimfor

7
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

deductionofexpensesatRs.56,21,803/-forearningofinterest
incomebeingbasedontheformulaevolvedbytheCIT,DelhiIV,New
DelhiduringtheproceedingsU/s263oftheSectionI.T.ActforAssessment
Years1998-99and1999-2000deservestobefullyallowed.This
claimfordeductionofexpensesforearningofinterestincomebeing
inaccordancewiththeprovisionsoflawcontainedinSection57of
theI.T.Actdeservestobefullyallowed.

5(b)DeductionofexpensesofRs.56,21,803/-claimedbythe
appellantasdeductionforearningofinterestincomedeservestobe
fullyallowedtotheappellant.

6.Theappellantcravesleavetoaddalterormodifyanygroundof
appealeitherbeforeoratthetimeofhearingofappeal.

F.Groundsofappealforassessmentyear2001-02

1.Onthefactsandinthecircumstancesofthecase,theLd.
CommissionerofIncome-tax(Appeals)haserredinlawinholding
thattheprovisionsofSection10(20A)arenotapplicableinthecase
oftheappellant.ExemptionU/s10(20A)beingavailabletothe
appellantunderthelaw,thesamedeservestobeallowed.

2.Onthefactsandinthecircumstancesofthecase,theLd.
CommissionerofIncome-Tax(Appeals)haserredinlawinholding
thatthebusinessoftheappellantdidnotcommenceduringthe
periodunderAssessment.ThebusinessoftheAppellantcompany
asperitsMemorandumandArticlesofAssociationhaving
commencedduringtheperiodunderassessment,thefindingofthe
learnedCIT(Appeals)onthispointdeservestobecancelled.

3.Onthefactsandinthecircumstancesofthecase,theLd.
CommissionerofIncome-tax(Appeals)haserredinnotallowing
deductionofRs.52,81,704/-onaccountofprofessionaland
consultancycharges.Theseexpenseshavingbeenincurredwholly
andexclusivelyforthepurposeofbusiness,deservetobefully
allowed.

4.Onthefactsandinthecircumstancesofthecase,theLd.
CommissionerofIncome-Tax(Appeals)haserredinnotallowing
deductionofRs.1,53,66,018/-onaccountofclaimfordepreciation.
Theclaimfordepreciationbeingadmissibledeservestobefully
allowed.

8

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

5.Onthefactsandinthecircumstancesofthecase,theLd.
CIT(Appeals)haserredinlawinnotallowingdeductionforexpenses
ofRs.19,41,39,559/-asclaimed.Thebusinessoftheappellant
Companyhavingcommencedduringtheperiodunderassessment
claimfordeductionofRs.19,41,39,559/-[Rs.21,47,87,281-
(52,81,704+1,53,66,018)Rs.19,41,39,559/-]beingbusiness
expensesdeservestobefullyallowed.

6.Onthefactsandinthecircumstancesofthecase,thelearned
CIT(Appeals)haserredinlawinlimitingthedeductionofexpenses
forearningofinterestincometoRs.7,76,600/-.Deductionof
expensesincurredforearningofinterestincomedeservestobe
allowedatRs.83,08,123/-onthebasisoffindinggivenbyCIT
(Delhi-IV)inproceedingsU/s263forassessmentyear1998-99
1999-2000,asclaimedduringtheappellantproceedings.

7.Theappellantcravesleavetoamend,modifyoralteranyofthe
groundsoftheappealstatedaboveeitherbeforeoratthetimeofthe
hearingofthisappeal.

G.Groundsofappealforassessmentyear2002-03

1.Onthefactsandinthecircumstancesofthecase,theLd.CIT
(Appeals)haserredinlawinholdingthattheprovisionsofSection
10(20A)arenotapplicableinthecaseoftheappellant.Exemption
U/s10(20A)beingavailabletotheappellantunderthelawthesame
deservestobeallowed.

2.Onthefactsandinthecircumstancesofthecase,theLd.CIT
(Appeals)haserredinlawinholdingthatthebusinessofthe
appellantdidnotcommenceduringtheperiodunderassessment.
ThebusinessoftheappellantcompanyasperitsMemorandum
ArticlesofAssociationhavingcommencedduringtheperiodunder
assessment,thefindingoftheLd.CIT(Appeals)onthispoint
deservestobecancelled.

3.Onthefactsandinthecircumstancesofthecase,theLd.
CIT(Appeals)haserredinnotallowingdeductionofRs.
31,84,59,233/-asdeductionofbusinessexpenses.Thebusinessof
theappellantcompanyhavingbeencommenced,theclaimfor
deductionofbusinessexpensesofRs.31,84,59,233/-beingin
accordancewiththeprovisionsoflawdeservestobefullyallowed.

4.Onthefactsandinthecircumstancesofthecase,theLd.
CIT(Appeals)haserredindisallowingclaimfordeductionof
businessexpensesofRs.31,84,59,233/-.Theseexpenseshaving
9
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

beenincurredwhollyandexclusivelyforthepurposeofbusiness
deservetobefullyallowedasdeduction.

5factsandinthecircumstancesofthecase,theLd.CIT(Appeals)
has’V/erredinallowingdeductionofonlyRs.41,73,789/-against
earningofinterestincomeofRs.71,94,57,145/-asagainsttheclaim
fordeductionofRs.28,80,19,287/-bytheappellantcompany.The
claimfordeductionofexpensesofRs.28,80,19,287/-forearningof
interestincomeofRs.71,94,57,145/-beinginaccordancewiththe
provisionsoflawdeservestobefullyallowed.

6.OnthefactsandinthecircumstancesofthecasetheCIT
(Appeals)haserredinreducingtheclaimfordeductionofexpenses
forearningofinterestincomefromRs.28,80,19,287/-toRs.
41,73,789/-.ExpensesofRs.28,80,19,287/-havingbeenincurred
whollyandexclusivelyforthepurposeofearningofinterestincome
ofRs.71,94,57,145/-deservestobefullyallowedasdeductionU/s
57oftheSectionI.T.Act.

7.Theappellantcravesleavetoamend,alterormodifyanyofthe
groundsofappealsstatedaboveeitherbeforeoratthetimeof
hearingofappeal.

3.Theassesseealsofiledapplicationsdated28/03/2007for
admittingadditionalgroundsforassessmentyears1997-98,
1998-99,1999-00,2000-01and2001-02.Theadditionalgrounds
filedintheseassessmentyearsinvolvedareidenticalandthus,
theadditionalgroundssoughttobeadmittedforassessmentyear
1997-98onlyarereproducedasunder:

AdditionalGroundsforassessmentyear1997-98
………………

2.Itissubmittedthatthesealternativegroundsarisesasaresultof
findingsrecordedintherespectiveorders(whichhavebeendisputedin
thesesappeals)thatthebusinessoftheappellanthadnotcommenced.It
issubmittedsuchfindingshavebeendisputedonthegroundthatthe
findingssoreachedisonmis-appreciationofsettledlegalprovisions.

a)Thatinthealternativeandwithoutprejudicetheinterest
earnedonthefactandcircumstancesofthecaseandoffered
10
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

asbusinessincomeinanycaseoughttohavebeenreduced
fromthecostofprojectandthuswasrequiredtobereduced
fromthecomputationoftotalincome.

b)Thattheexpenditureclaimedanddisallowedinthealternative
andwithoutprejudiceoughttohavebeencapitalizedand
addedtothecostofproject.

…………….

4.Itwascontendedonbehalfoftheassesseethatabove
additionalgroundsarisesfromtheorderoftheassessmentand
goestotheveryrootofthematter.Itwasfurthersubmittedthat
allthefactsrelatingtodeterminationoftheabovegroundsareon
recordandnofreshevidencearerequiredfordeterminationofthe
aforesaidlegalgrounds.Theassesseeinitsapplicationfor
admissionoftheadditionalgroundreliedonthedecisionofthe
Hon’bleSupremeCourtinthecaseofNTPCVs.CITreportedin
229ITR383.

5.TheLearnedDR,ontheotherhand,opposedadmissionof
theadditionalground.

6.Wehaveheardthepartiesontheadmissibilityofthe
additionalground.Wefindthattheissuesraisedintheadditional
groundarelegalinnatureandallthefactsinrelationtothe
issuesraisedareavailableonrecordandnoinvestigationofthe
freshfactsisrequired.Inviewofthesefactsandcircumstances
andrespectfullyfollowingthefindingoftheHon’bleSupreme
CourtinthecaseofNTPCVsCIT(supra),weadmittheadditional
ground.

11

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

7.Asummaryofthegroundsandadditionalgroundsraisedin
variousappealsbytheassesseeisreproducedasunderfor
convenience:

Sr.IssueInvolved1346/D/182398/D/011144/D/02u/s3356/D/02u/s1874/D/044553/D/055095/D/04
No143(3)143(3)
2081/D/03u/s2082/D/03u/s
263263
2002-03
1996-971997-981998-991999-20002000-20012001-02(GroundNo.)
(Ground(Ground(Ground(Ground(Ground(Ground
No.)No.)No.)No.)No.)No.)
1Whethertheassesseeis(1)(1)(I)(1)(1)(1)(1)
entitledtotheclaimof
exemptionu/s10(20SectionA)of
theAct?
(3)(2)(2.3and4)(2,3and4)(2and3)(2)(2)
2Whatisthedatewhenthe
businesshadbeensetup?
3Whetherdisallowanceof
followingexpensesis
justified:
a)Disallowanceof
deductionclaimedu/s358,07,227/-8,07,227/-8,07,227/-8,07,227/-8,07,227/-
DoftheAct(3)(3)(3)(3)
b)
Disallowanceofclaimof1,75.49,218/-2,13,84,915/-3,20,72,656/-1,53,66,018/-
depreciation(4)(4)(4)
c)
Disallowanceof65,40,0003,44,23,404/-1,01,96,865/-53,62,872/-52,81,704/-
ConsultancyExpenses(2)(2)(2)(3)
d)DisallowanceofotherRs.318459233/-
expenses————-
10,85,44,999/-19,41,39,559/-

73,47,227/-5,27,79,849/-3,23,89,007/-14,67,87,75421,47,87,281/-
(2.34)
Total
4.Deductionofexpenses18,27,449/-83,08,123/-
forearninginterest
income

AdditionalGround
5.Theinterestincome
derivedfromthefunds
contributedbythe
shareholderscouldnot
assessedas”incomefrom
othersources”andshould
bereducedfromthecost
oftheprojectand,
furthermore,theexpenses
incurred,claimedand,
disallowedbeaddedto
thecoastofproject.

8.Theassesseehasfiledpaper-booksforalltheyearsinvolved
containingtheAnnualReports,returnofincomeetc.Briefly
statedfactsofthecaseasculledoutfromtheorderofthelower
12
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

authoritiesandpaper-book(s)oftheassesseecompanyfor
assessmentyearinvolvedaresummarizedasunder:

(i)OntherecommendationofM/s.RailIndiaTechnical
andEconomicServicesLtd(‘RITES’)forthefinancingof
theMassRapidTransitSystem(MRTS)projectforNCR
RegionasajointventureofGovernmentofIndiaand
GovernmentofNationalCapitalTerritory(NCT)of
Delhi,throughacorporatestructure,namely,theDelhi
MetroRailCorporation(DMRC)Limited,i.e.,the
assessee,wasincorporatedasacompanyunderthe
SectionCompaniesAct,1956andaccordinglywasregistered
asacompanyon03/05/1995.Themainobjectiveof
the”MRTS”projectwasstatedtobeprovidingfornon-
polluting,efficientandaffordablerail-basedMass
RapidTransitSystemfortheNationalCapitalTerritory
ofDelhi,dulyintegratedwithothermodesoftransport.
Theassesseecompanyclaimedthatitwasconstituted
forthepurposeofplanning,designing,development,
construction,maintenance,operationandfinancingof
MassRapidTransitSystemandothertransportetc.
Assessmentyear1996-97

(ii)Duringthefinancialyear1995-96correspondingto
assessmentyear1996-97,theassesseeshownreceipts
ofRs.2,80,52,272/-andexpenditureofRs.80,52,272/-
.Theun-usedfundsremainedwiththeassessee
companyweredepositedinvariousbanks.The
receiptsofthecompanycameintheformofequity
13
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

contributionreleasedbytheGovernmentofNCTof
DelhiandGovernmentofIndia.Theexpenditure
reportedduringtheperiodconsistsmainlyofstatutory
feespaidforregistrationofthecompanywiththe
registrarofcompanies.IntheBalancesheetason
31/03/1996,the16,104equitysharesamountingto
Rs.1,61,04,000/-havebeenshownasallottedtothe
GovernmentofIndiaandcontributionfromtheDelhi
governmentofRs.1,19,48,000/-hasbeenshownunder
shareapplicationmoneypendingallotment.Outofthe
expensesreported/incurredofRs.80,72,272/-,1/10th
oftheexpenseswerewrittenoffandclaimedas
miscellaneousexpenditureduringtheassessmentyear
1996-97.Duringtheassessmentyear1996-97the
assesseeearnedinterestofRs.2,39,452/-fromfunds
depositedinbanks.Intheprofitandlossaccountthe
assesseeadjustedpreliminaryexpenseswrittenoffof
Rs.8,07,227/-againsttheinterestincomeof
Rs.2,39,452/-,andcalculatednetlossof
Rs.5,67,775/-.

(iii)Forassessmentyear1996-97,theassesseefiledreturn
ofincomeon28/11/1996declaringalossof
Rs.5,67,775/-.Intheprofitandlossaccountforthe
yearendedon31/03/1996,interestaccruedonfixed
depositwithbankswasshownatRs.2,39,452/-.Apart
frominterestincome,therewasnoincomeor
expenditure.Theassesseeclaimedtohaveincurred
14
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

preliminaryexpensesofRs.80,72,270/-whichwere
amortizedand1/10thofthesamei.e.8,07,227/-were
claimedas”preliminaryexpenditurewrittenoff”.The
assesseesoughtdeductionofpreliminaryexpenses
writtenoffamountingtoRs.8,07,227/-underSectionsection
35DoftheActandclaimedsetoffofthesameagainst
interestincomeofRs.2,39,452/-andarrivedatlossof
Rs.5,67,775/-whichwasshowninthereturnof
income.

(iv)AccordingtotheAssessingOfficer,sincetherewasno
losscomputedfrombusinessorprofessionduringthe
year,theinterestincomecouldnotbesetoffagainst
theamountworkedoutforthepurposeofSectionsection35D
oftheActandtherefore,heassessedtheincomeshown
frominterestatRs.2,39,452/-underthehead”Income
fromothersources”intheassessmentorderpassed
u/s143(3)oftheActon29.11.1999,asagainst
returnedlossofRs.5,67,775/-.

(v)Theld.CIT(A)-6,Delhividehisappellateorderdated
12.10.1999,inappealno.9/1999-2000decidedthe
appealoftheassessee.AccordingtotheLd.CIT(A),
sincetherewasnoincomeorexpenditureotherthan
interestonfundslyingwiththebank,itcannotbesaid
thatthebusinessoftheassesseehadcommencedand
thustheclaimoftheassesseeunderSectionsection35Dofthe
Actcannotbeacceptedintheyearunder
consideration.TheLd.CIT(A),thusupheldtheactionof
15
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

theAssessingOfficerofassessingtheamountof
Rs.2,39,452/-underthehead”Incomefromother
sources”rejectingtheclaimofsetoffofpreliminary
expensesofRs.8,07,227/-undersection35DoftheAct

(vi)Againsttheorderpassedbytheld.CIT(A)dated
12.10.1999,theassesseepreferredappealbeforethe
Income-taxAppellateTribunal(ITAT).TheITATinan
orderdated18.7.2006passedinITANo.
1481/Del/2000restoredtheappealoftheassesseeto
thelearnedCIT(A),withthedirectiontorecordhis
findingsontheissuewhethertheassesseeisentitled
toclaimexemptionu/s10(20SectionA)oftheActfortheyear
underconsideration.Therelevantfindingsareas
under:

“5.Aftergoingthroughtheorderofld.CIT(A)both
thepartiesagreedthatld.CIT(A)hasnotgivenany
findingontheissueofapplicabilityoftheprovisions
ofSectionsection10(20A)oftheIncomeTaxAct,1961tothe
assesseealthoughthisgroundwastakenasground
no.3intheappealfiledbeforehim.Itwasalso
agreedthatdecisionofCIT(A)ontheissueof
applicabilityoftheprovisionsofSectionsection10(20A)will
havedirectbearingontheothergroundsinthis
appeal.Thepartieshavenoobjectiontothematter
beingrestoredtold.CIT(A)forrecordinghisfindings
ontheissue.

16

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

6.Weaccordinglyrestorethemattertothefileofld.
CIT(A)withadirectiontorecordhisfindingsonthe
issuewhethertheassesseeisentitledtoclaim
exemptionu/s10(20SectionA)oftheIncomeTaxActforthe
A.Y.underconsideration.Incasetheassesseeis
foundentitledtothebenefitofSectionsection10(20A)?Ld.
CIT(A)mayrecordhisfindingsontheotherissues
alsoarisinginthesaidappeal.Beforepassingthe
orders,ld.CIT(A)mayaffordopportunitiesof
hearingtotheassessee.

7.Intheresulttheappealistreatedasallowedfor
statisticalpurposes.”

9.PursuanttotheaforesaiddirectionoftheITAT,thelearned
CIT(A)videhisorderdated19.2.2018,rejectedtheclaimof
exemptionu/s10(20SectionA)oftheAct.

10.Brieffactsinrespectofotherassessmentyearsarealso
summarizedasunder:

Forassessmentyear1997-98

(i)Intheassessmentyearconcerned,thesharecapital
allottedstandsatRs.1,61,05,000/-,alongwithshare
applicationmoneyofRs.57,94,99,000/-,whichwas
pendingforallotment.Duringtheyear,theassesseehad
showntheonlyactivityofLandandBuildingacquisition
ofRs.16,73,23,400/-(forpurchaseofofficespaceat
17
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

NBCCPlace,BhishmaPitamahaMarg,NewDelhi)
underthefixedassets.Thebalancefundsavailablewere
investedwithBanksandearnedinterestthereon.In
profitandlossaccount,theassesseeshowninterest
receivedofRs.31,09,770/-andinterestaccruedbutnot
dueofRs.6,93,151/-.Againstincome,theassessee
claimedexpensesofRs.74,19,134/-andreportednetloss
ofRs.36,02,450/-.Theexpensesdebitedincluded
consultancyexpensesofRs.65,40,000/-(Rs.65,00,000/-
toM/s.RITESfortechnicalconsultancyRs.40,000/-

toJainKapilaAssociatesforInternalAuditFee),
Advertisement(Rs.33,338/-),Honorariumcharges
(Rs.15,000/-),PrintingandStationary(Rs.2,235/-),
PreliminaryexpenseswrittenoffofRs.8,07,227/-,Staff
Welfare(Rs.2296/-)etc.

(ii)Theassesseefiledreturnofincomeon28.11.1997
declaringlossofRs.36,02,450/-.Inthereturnofincome,
theassesseeclaimedexemptionu/s10(20SectionA)oftheAct
andmentionedthatbusinessoftheassesseecommenced
intermsofthemainobjectasspecifiedinMemorandum
andArticlesofAssociationsforwhichithasbeensetup.
TheAssessingOfficerinorderpassedu/s143(3)ofthe
Acton08.11.1999rejectedtheclaimofexemptionof
incomeu/s10(20SectionA)oftheAct.TheAssessingOfficeralso
heldthatthebusinessoftheassesseewasnot
commencedanddisallowedtheclaimofpreliminary
expenseswrittenoffofRs.8,07,227/-u/s35DoftheAct
18
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

andconsultancyexpensesofRs.65,40,000/-.The
AssessingOfficerassessedthetotalincomeat
Rs.37,44,777/-.

(iii)Onfurtherappealbytheassessee,theLd.CIT(A)upheld
therejectionofexemptionu/s10(20SectionA)oftheAct
,disallowanceofpreliminaryexpenseswrittenoffof
Rs.8,07,227/-u/s35DoftheActandconsultancy
expensesofRs.65.40lakhs.

Forassessmentyear1998-99

(i)Intheconcernedyear,theissuedandsubscribedshare
capitalstandsatRs.2,05,61,04,000/-.Duringtheyear,
theassesseepurchasedvariousitemunderfixedassets
likecomputer,telephoneequipment,car,furniture
fixtureetc.,amountingtoRs.79,84,243/-andclaimed
depreciationonthesamealongwithdepreciationonland
andbuilding.Thecapitalwork-in-progresswascomputed
atRs.10,80,65,862/-,whichrepresentedadvancespaid
forcapitalexpenditure.InProfitLossaccount,the
assesseeshowninterestincomeofRs.15,26,70,209/-
andsaleoftenderdocumentsatRs.17,95,243/-.On
expensesside,totalexpensesofRs.04,11,99,255/were
shown-andafterreducingdepreciationof
Rs.18,51,811/-preliminaryexpenseswrittenoffof
Rs.8,07,227/-netprofitofRs.11,06,07,159/-was
reported.Theexpensesincurredcomprisedof
consultancycharges(Rs.3,44,23,404/-);Advertisement
(Rs.14,01,669/-),businesspromotion(Rs.1,71,300/-),
19
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

Conveyance(Rs.33,552/-),Groundrent(Rs.15,75,000/-),
SalaryExpenses(Rs.15,32,687/-)andotherexpenseson
maintenanceofcar,officeetc.

(ii)Theassesseefiledreturnofincomeon30.11.1998,
declaringtotalincomeofRs.11,06,07,159/-.The
AssessingOfficerinassessmentorderu/s143(3)ofthe
Actdated30.11.2000rejectedtheclaimofexemptionof
incomeu/s10(20SectionA)oftheActanddisallowedthe
preliminaryexpenseswrittenoffofRs.8,07,227/-
consultancychargesofRs.3,44,23,404/-,holdingthat
thebusinessoftheassesseewasnotcommencedduring
theyear.TheAOalsodisallowedtheclaimofdepreciation
ofRs.18,51,811/-made.Theinterestincomewas
assessedunderthehead”incomefromothersources”
andremainingexpensesinprofitlossaccountother
thendisallowedbytheAO,wereallowedasexpense
againstincomefromothersourcesu/s57oftheAct.

(iii)ThelearnedCIT(A)upheldthefindingoftheAssessing
Officer.

(iv)TheLdComisionerofincome-tax(CIT)having
administrativejurisdictionovertheAssessingOfficer
,calledfortherecordsoftheAssessingOfficerandafter
examinationoftherecord,issuedshowcausenoticeto
theassesseeunderSectionsection263oftheAct.Accordingto
theLd.CIT,theAssessingOfficerhaderroneously
allowedexpensesagainstinterestincomeandthusafter
takingintoconsiderationsubmissionoftheassessee,he,
20
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

inorderdated18/03/2003u/s263oftheAct,heldthe
orderoftheAssessingOfficeraserroneousand
prejudicialtotheinterestofRevenueandcomputedthe
expenses,tobeallowedagainstinterestincomeunder
Sectionsection57oftheAct.Incompliance,theAssessingOfficer
passedconsequentialorder.

Forassessmentyear1999-2000

(i)Asperthebalance-sheetason31.03.199,thesubscribed
sharecapitalofRs.40,46,10,400/-andshareapplication
moneyofRs.40,00,00,000/-isappearinginbalance
sheet.Duringtheyear,theassesseepurchasedfixed
assetsitemslikecomputer,airconditioning,electrical
equipments,furniturefixtureetc.andclaimed
depreciationonthesame.Duringtheyearcapitalwork-
in-progresswasvaluedatRs.57,59,14,052/-and
advanceforcapitalexpenditurewasshownat
Rs.23,89,19,303/-.Inprofitandlossaccount,interest
incomeofRs.36,58,38,183/-andmisc.incomeof
Rs.26,15,340/-hasbeenshown.Onexpenseside,
expenditureofRs.825,48,214/-wasdebitedwhich
includedemployeesremunerationandbenefitof
Rs.2,06,21,133/-,Administrativeotherexpensesof
Rs.4,90,38,445/-,depreciationofRs.1,12,46,873/-,
preliminaryexpenseswrittenoffofRs.8,07,227/-.The
assesseetransferredincidentalexpensesduringthe
constructionofRs.7,56,54,241/-toCapitalwork-in-
progressleavingexpensesofRs.68,93,973/-underthe
21
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

profitandlossaccountandcomputednetprofitof
Rs.36,15,59,550/-.

(ii)Theassesseefiledreturnofincomeon28.12.1999
declaringtotalincomeofRs.36,20,49,611/-.In
assessmentorderdated26.02.2002,theAssessing
Officerrejectedtheclaimofincomeexemptedu/s
10(20SectionA)oftheAct.TheAssessingOfficeralsoheldthat
businessoftheassesseewasnotcommencedduringthe
yearandhence,hedisallowedpreliminaryexpenses
writtenoffofRs.8,07,227/-,consultancychargesof
Rs.1,01,26,865/-(whichweredebitedinAdministrative
expenses)anddepreciationofRs.2,13,84,915/-.The
interestincomewasassessedunderthehead”Income
fromothersources”andremainingexpensesinprofit
lossaccountotherthendisallowedbytheAO,were
allowedasexpenseagainstincomefromothersources
u/s57oftheAct.

(iii)ThelearnedCIT(A)dismissedtheappealoftheassessee
upholdingtheorderoftheAssessingOfficer.

(iv)Inthisyearalso,theLd.CITpassedorderunderSectionsection
263oftheActonlinesidenticaltotheorderu/s263
passedinAY1998-99andtheAssessingofficerpassed
consequentialorder.

Forassessmentyear2000-01

(i)Asperbalancesheetfortheyearendingon31.03.2000,
thesubscribedsharecapitalstandsatRs.58,56,10,400/-
.Theassesseepurchaseditemoffixedassetsincluding
22
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

computer,furniturefixtures,vehicles,other
equipmentsetc.andclaimeddepreciationontheblockof
assets.Thecapitalwork-in-progresswasvaluedat
Rs.83,58,66,730/-andadvanceforcapitalexpenditure
wasshownatRs.31,58,26,373/-.Thebalanceideal
fundsremaininvestedinfixeddepositwithBank.Asper
profitandlossaccount,theassesseeearnedintereston
BankdepositsofRs.59,67,94,426/-;interestonadvances
tocontractorofRs.85,80,848/-andmiscincomeof
Rs.1,49,66,897/-.Againstthereceipts,theassessee
reportedexpenditureofRs.13,50,92,518/-which
comprisedofemployeesremunerationandbenefits
(Rs.4,71,67,078/-),Administrativeotherexpenses
(Rs.7,15,89,352/-);depreciation(Rs.1,49,06,402/-)etc.
Theassesseeaddedprovisionwrittenbackof
Rs.44,403/-andexpenditurenotrelatedtoconstruction
ofRs.94,07,630/-tothegrossreceiptRs.62,03,42,171/-.
Theassesseeadjustedentireincomeagainstthe
expenditureandbalanceprofitofRs.49,47,01,686/-was
transferredtowardscapitalwork-in-progress.InSchedule
12oftheAnnualReport,theassesseehasreportedthat
expensesduringtheyeararebookedtoincidental
expenditureduringconstructionandtransferredto
capitalwork-in-progressandincidentalexpenditurenot
relatedtoconstructionhavebeentransferredtodeferred
revenueexpenditure.Theassesseefurthernotedthat
deferredrevenueexpenditurewouldbeproportionally
23
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

chargedoffoveraperiodoffiveyearsstatingfromthe
yearinwhichtheassetsarefirstputtouse.

(ii)Theassesseefiledreturnofincomeon31.01.2000
declaringtotalincomeofRs.59,57,94,426/-under
businesshead.Theassesseelateronrevisedthereturn
on27.03.2002,computingtheincomeatNILasunder:

RevisedComputationofTotalIncomeandTaxPayable
ParticularsAmount(inRs.)
ProfitandGainsfromBusinessor59,67,94,426
Profession
Less:(a)Deprecationallowableas3,20,72,656
perIncomeTax(Asper
Annexure/Attached)

(b)Expensesallowableasrevenue11,29,07,871
expenditureinaccordancewiththe
assessmentsofearlieryearsasper
detailsenclosed.

(c)Deductionallowableu/s35D8,07,227
(1/10thofPreliminaryExpenses-4th
year)
(d)Donation10,00,00014,67,87,754
GrossTotalIncome45,20,06,672
Less:DeductionunderChapterVIA10,00,000
DonationpaidtoNationalDefence
Fund
TotalIncome45,10,06,672
Less:ExemptunderSection45,Section10,Section06,Section672
Section10(20A)oftheI.T.Act.
TotalNil
TaxesPaid:
Taxdeductedatsourcesasper17,66,94,569
originalreturn
Advancetaxpaidasperoriginal4,13,00,000
return
Taxandinterestpaidu/s140Aas1,29,64,586
peroriginalreturn
Totaltaxpaid23,09,59,155
Refunddue23,09,59,155

24
ITANos.1346/Del/2018;2398/Del/2001;
1144/Del/2002;3356/Del/2002;
1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi

(iii)TheAssessingOfficerinassessmentorderdated
31.03.2003rejectedtheclaimofexemptionofincomeu/s
10(20SectionA)oftheAct.TheAOheldthatbusinessofthe
assesseewasnotcommencedandheassessedthe
interestincomefromfixeddepositswithBanksunderthe
head”Incomefromothersources”asagainstclaimof
theassesseeasincomeunderthehead”profitandgains
ofthebusinessandprofession”.TheAssessingOfficer
alsorejectedclaimoftheassesseetoallowexpensesof
Rs.14,67,87,754/-againsttheincomefromothersources
holdingthatthoseexpenseswerenotrelatedtothe
activityoftheearninginterest.

(iv)Onfurtherappeal,thelearnedCIT(A)inorderdated
19.02.2004upheldtherejectionofexemptionofincome
u/s10(20SectionA)oftheAct.ThelearnedCIT(A)alsoupheld
thatbusinessoftheassesseewasnotcommencedand
henceconfirmed,thefindingoftheAOonexpenditureon
constancypreliminaryexpenseswrittenoff.

(v)Asfarasinterestincomeisconcerned,theLd.CIT(A)
upheldtheactionofassessingthesameunderthehead
“Incomefromothersources”,butallowedtheexpenditure
ofRs.37,94,354/-underSection57oftheActforearning
interestincomefollowingthefindingoftheLd.CITin
order(s)underSectionsection263passedforAssessmentyear
1998-991999-2000.

25

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

Forassessmentyear2001-02

(i)Asperbalancesheetfortheyearendingon31.03.2001,
thesubscribedsharecapitalstandsat
Rs.9,05,61,04,000/-alongwithshareapplicationmoney
ofRs.83,00,00,000/-.Duringtheyear,theassessee
madeadditionofRs.85,77,24,851/-tothefixedassets
includingleaseholdlandbuilding,computer,plant
machinery,furniturefixturesvehicles,other
equipmentsetc.andclaimeddepreciationthereon.The
capitalwork-in-progresswasvaluedat
Rs.1,99,80,95,099/-andconstructionstoresadvance
werereportedatfigureofRs.2,14,96,89,581/-.Theideal
orun-usedfundremainedinvestedinBankfixed
deposits,onwhichtheassesseeearnedinterestincome.
IntheProfitLossaccount,theassesseeshowntotal
receiptsofRs.91,96,95,370/-includinginterestonFDR
ofRs.88,11,43,805/-andagainstwhichclaimed
expenditureofRs.21,53,28,615/-.Aftermakingsmall
adjustmentstoincomeofRs.66,11,719/-forrevenue
expenditure,thebalanceprofitofRs.71,09,78,474/-was
adjustedagainstthecapitalwork-in-progress.

(ii)Theassesseefiledreturnofincomeon30.10.2001
declaringbusinessincomeofRs.8,80,367,205/-after
claimingexpensesofRs.776,600/-againstinterest
receiptsofRs.8,81,713,805/-.Thisincomewasclaimed
asexemptu/s10(20A)andthusfiledNILincomeforthe
purposeofIncome-tax.

26

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

(iii)TheAssessingOfficerinassessmentorderdated
21.03.2003rejectedtheclaimofexemptionofincomeu/s
10(20SectionA)oftheAct.TheAOheldthatbusinessofthe
assesseewasnotcommencedandthushedisallowedthe
claimedofsetoffofpreliminaryexpenseswrittenoffu/s
35DoftheAct,anddeductionofexpensesagainstthe
interestonfixeddeposits.Healsodisallowedtheclaimof
expensesofRs.7,76,000/-againstincomefromother
sourcesforearningtheinterestincome.

(iv)Onfurtherappeal,thelearnedCIT(A)rejectedtheclaimof
exemptionofincomeu/s10(20SectionA)oftheAct.Healso
upheldthatbusinessoftheassesseewasnotcommenced
duringtheyearandhencejustifiedtheactionoftheAO
ofholdingtheconsultancychargespaidonpreoperative
expenseseligibleforamortizationu/s35D(2)(a)ofthe
Act.Ontheissueofallowingexpensesagainstinterest
income,heacceptedtheclaimoftheassesseeand
allowedexpensesofRs.7,76,600/-againsttheinterest
income.

Forassessmentyear2002-03

(v)Theassesseefiledreturnofincomeon31.10.2002
declaringtotalincomeofRs.40,03,08,800/-,whichwas
computedasunder:

IncomefromBusiness/Profession:

InterestIncomeonBankDepositsRs.71,94,57,145

ConsultancyFeesReceivedRs.3,10,837Rs.71,97,67,982

27
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

Less:ExpensesincurredforearningRs.28,80,19,287
of

(a)Interestincomeasperstatement
enclosed

(b)DepreciationallowableasRs.3,04,39,946Rs.31,84,59,233
RevenueExpenditureinaccordance
withtheassessmentofearlieryears
GrossTotalIncomeRs.40,13,08,749

Less:Deductionu/s80-GRs.10,00,000

TotalIncomeRs.40,03,08,749

GrossTotalIncomeroundedoffRs.40,03,08,800

TaxonTotalIncomeRs.14,01,08,080

Add:Surcharge@2%Rs.28,02,162

TaxpayableRs.14,29,10,242

Less:TaxDeductedatsourcesRs.14,97,05,171

Less:AdvanceTaxPaidon15.06.2001Rs.1,36,00,000
“”on15.09.2001Rs.1,78,00,000
“”on15.12.2001Rs.5,04,00,000
“”on15.03.2002Rs.2,37,00,000

RefundDueRs.11,22,94,929

(ii)TheAssessingOfficerinassessmentorderdated
30.01.2004disallowedtheclaimofexemptionofincome
u/s10(20SectionA)oftheAct.TheAssessingOfficerfurtherheld
thatbusinessoftheassesseewasnotcommencedhence,
hedisallowedtheclaimofexpensesofRs.31,84,59,233/-
againsttheinterestincome.Againsttheclaimofthe

28
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

assesseeforallowingexpensesofRs.28,80,19,287/-
againstincomefromothersources,theAssessingOfficer
estimatedexpenseforearninginterestincomeof
Rs.9,12,000/-andallowedaccordingly.Thelearned
CIT(A)upheldthefindingoftheAssessingOfficeronthe
issueofrejectionof10(20A)exemptionand
commencementofbusinessandconsequentialdenialof
Rs.31,84,59,233/-asbusinessexpenses.Butunderthe
head”Incomefromothersource”,heallowedexpensesof
Rs.41,73,789/-outofexpenseofRs.28,80,19,287/-
claimedanddisallowedthebalance.

11.Inbackgroundofabovefacts,now,wetakeupthevarious
issuesinvolvedinthegroundsraisedinalltheappeals.

12.Thefirstissueraisedinthegroundsiswhetherthe
assesseeisentitledtotheclaimofexemptionu/s10(20SectionA)of
theAct.

13.Beforeus,thelearnedSeniorAdvocate,ShriC.S.Aggarwal
filedapaper-book(combinedforallyears)containingpages1to
76andaseparatepaperbookforassessmentyear1997-98
containingpages1to432inadditiontotheyearwisepaper-book
filedearlierbytheassessee.TheLd.SeniorCounselcontended
thatassesseeisan’authority’eligibleforclaimofexemptionu/s
10(20SectionA)oftheAct.Itwassubmittedthatassesseecametobe
constitutedon3.5.1995asajointventurecompanybetweenthe
‘GovernmentofIndia’and’GovernmentofDelhi’.Itwas
29
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

submittedthatassesseewasincorporatedwiththeobjectiveof
planning,development,construction,maintenance,operationand
financingofmasstransitandurbantransportsysteminthe
NationalCapitalTerritoryforthepurposeofdevelopmentand
improvementofthecityofDelhi.ItwassubmittedthatSectionsection
10(20A)oftheActexemptsanyincomeofanyauthorityconstituted
inIndiabyorunderanylawenactedeitherforthepurposeof
dealingwithandsatisfyingtheneedforhousingaccommodationor
forthepurposeofplanning,developmentorimprovementofcities,
townsandvillages,orforboth.Itwassubmittedthatinorderto
claimexemptionunderthissection,theassesseemustsatisfy
followingtwoconditions:

i)Itmustbean”Authority”constitutedinIndiabyor
underany’law’;and

ii)Thelawmustbeenactedforthepurposespecifiedin
thissub-Sectionsection

13.1Itwassubmittedthatassesseeisajointventurecompany
formedbytwogovernments,i.e.GovernmentofIndiaand
GovernmentofDelhi,whothemselvesareauthorities.Itwas
submittedthat’authority’hasnotbeendefinedundertheAct.It
wassubmittedthatasperBlack’sLawDictionary,”anauthority
isabodyhavingjurisdictionincertainmattersofapublic
nature”.Itwassubmittedthatstatutorycorporations,whoare
the”voiceandhands”ofCentralGovernment,are’authorities’
underSectionArticle12oftheConstitutionandwillbeconsideredasa
‘State’.Itwassubmittedthatapublicauthorityisabody,which
30
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

haspublicorstatutorydutiestoperformandwhichperforms
thesedutiesandcarriesoutitstransactionsforthebenefitofthe
publicandnotfortheprivateprofit.ItwassubmittedthatState
isanabstractentityanditcanonlyactthroughthe
instrumentalityoragencyofnaturalorjuridicalpersons.Itwas
submittedthatmerelybecauseitisacompanyincorporated
undertheSectionCompaniesAct,1956,itdoesnotceasetobean
authority.ReliancewasplacedonthejudgmentofSectionAjayHasiav.
KhalidMujibAIR1981SC487whereinithasbeenheldthata
societyregisteredundertheSectionSocietiesRegistrationAct,1898,is
anagencyof”instrumentalityoftheState”andhencea”State”
withintheambitofSectionArticle12.Reliancewasalsoplacedonthe
judgmentofSupremeCourtinthecaseofSectionRamanaDayaram
Shettyv.InternationalAirportAuthorityofIndia1979AIR(SC)
1628,whereinithasbeenheldthattheGovernmentwhich
representstheexecutiveauthorityoftheState,mayactthrough
theinstrumentalityoragencyofnaturalpersonsoritmayemploy
theinstrumentalityoragencyorjuridicalpersonstocarryoutits
functions.Thereafterreferencewasmadetochronological
sequenceofeventstosupportthattheclaimofexemptionthatit
isanauthorityhavingitsownrightandpowersandenacted
underlawforthepurposeofdealingwithandsatisfyingtheneeds
oftransportationandforthepurposeofplanning,developmentor
improvementofcities,townsandvillagesorboth:

“DATEEVENT/ITEMOUTCOME
13.1.1994FirstCabinetnoteUnionCabinetdecidedtomeeton
byMOUDwas27.1.1994.

31

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

senttoCabinet
forseekingin
principleapproval
ofDelhiMRTS
Project.

27.1.1994UnionCabinetDecidedthatapresentationon
met.DelhiMRTSbemadetoGroupof
Ministers.
25.4.1994PresentationtoTheGroupofMinisters
GroupofrecommendedtotheCabinetforin
Ministerswasprincipleapprovalforthe
made.preparationofDPRsubjectto
certainconditionssuchaspricingof
Govt.landatmarketvalue,no
changeinFSI,conducting
environmentimpactassessment
studyetc.
23.5.1994SupplementaryReferringtotheoutcomeofthe

notewassentbypresentationmadetoGroupof
MOUDtotheMinisterson25.4.1994,approvalof
Cabinet.theCabinetwassoughtfor:

i.togoaheadinprincipleforDelhi
MRTSProject;

ii.totakeupthepreparationof
DPR;

iii.Totakeupenvironment
assessmentstudy;

iv.Toapprovefinancingpattern;

v.Forrailwayland;

vi.Allowingparticipationofprivate
sector;

vii.Posingtheprojectforassitance
tointernationalaidagencies;

viii.ConstitutionofGOM;

ix.ConstitutionofEmpowered
Committee;

32

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003
DelhiMetroRailCorporationLtd.,NewDelhi

x.SettingupofDMRCLtd.;

xi.ConstitutionofaCellin

Ministry;

19.7.1994ThemeetingofTheCabinetapprovedtheproposal

CabinettookofMOUDwiththestipulationthat

place.thetotalcostofPhase-Iofthe

Projectaswellasthesourcesof

financingindicatedinthenoteof

MOUDwillbeconsideredas

indicative.

3.5.1995Companywasincorporated

17.10.1995ThefirstmeetingItwasdecided:

ofEmpowered

Committeetooki.AsmallgroupofMOUDandMOR

placewhereinabeconstitutedtoexaminethe

presentationofextentofrailwaylandwhichcanbe

DelhiMRTSwassparedforMRTProject;

madebyRITES.

ii.MOUDtoconsultPlanning

Commissionfortheaccuracyofthe

estimatedcost;

iii.MOUDtosendacopyof

environmentimpactstudytoMOEF;

iv.Aproposalbesubmittedto

Cabinetforseekinginvestment

approvaltotheprojectsaskingfor

exemptionfromPIBprocedure;

9.9.1996TheprojectwasPIBfeltthattheprojectisnotripe

submittedtoPIBforclearanceunlesscertainbasic

foritsissuesareresolvedsuchastrue

considerationandfullcostoftheproject,

andapproval.availabilityoftheRailwaylandat

marketpriceorinter-departmental

Governmentprice,bearing

exchangefluctuationriskforOECF

loan,etc.

9.12.1996CabinetnotefromTheCabinetconsideredthisnotein

MOUDtoCabinetthemeetingheldon14.9.196.
whereinapproval

oftheCabinet

wassoughtfor

themodified

PhaseIofthe

33

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
DelhiMRTS.Vide

thisnote

executive

summaryofDPR

wasalso

submittedtothe

Cabinet.

14.9.1996CabinetmeetingCertainissuesrelatingtotrueand

heldtodiscusscorrectcostofDelhiMRTSProject,

theMRTSProject.interestduringconstruction,landat

marketrates,etc.,werediscussed

anditwasdecidedthatthese

figuresmaybeworkedoutof

MOUDandsubmittedto

EmpoweredCommitteewhichmay

discusstheseatitsspecial

meeting.Itwasfurtherdecidedthat

themattermaybereferredagainto

theCabinetinitsnextmeetingtobe

heldon17.9.1996.

16.9.1996EmpoweredItwasdecidedthata

CommitteemetsupplementarynotefortheCabinet

anddiscussedwouldbepreparedbyMOUD

thecommentsofwhereinlandcostshouldbe

MOUDandrecalculatedonthebasisthatitwill

MinutesofPIB.betakenonleasebothfrom

RailwaysandGNCTDandIDCwill

beincludedinthecapitalcostof

theProject.

16.9.1996SupplementaryFinalapprovalwassoughtfrom

notefromMOUDCabinet.
incorporating

thereinthe

suggestionsfrom

Empowered

Committeewas

circulatedtothe

Cabinet

members.

17.9.1996CabinetmeetingCabinetconsideredthenotedated

tookplace.9-12.9.1996andsupplementary

notedated16.9.1996and

approvedthefollowingproposals:

i.Alignment-Approvalof55.3kms.

34
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
longalignment;

ii.Capitalcost-4860Croresat

April'96prices;

iii.Land;
iv.ImplementationofProjectby

GOIandGNCTDinequal

proportion;
v.FinancingPlan;
vi.Provisionofplannedfunds

towardsequitycapital,land

acquisitioncost,etc.;
vii.ApprovaltoDelhiGovt.to

nominateequalnumberofDirectors

ontheDMRCBoard;
viii.ChairmanandMDtobe

appointedbyGOIandGNCTD

respectively;
ix.AuthorisingtheEmpowered

Committeetograntallnecessary

Govt.sanctionstoavoidcost

escalationduetodelays";
13.2Itwassubmittedbyreferringtosupplementarynoteforthe

Cabinetdated16.9.1996thattheGovernmentofIndiahadsought

toimplementtheprojectthroughDMRCLtd.whichhadcomeinto

existenceon3.5.1995.Reliancewasalsoplacedonthecabinet

notedated19.7.1994,which,inter-alia,providedasunder:

"x)SettingupofacompanyundertheSectionCompaniesActfor

implementationofDelhiMRTSprojectwithparticipationby

Govt.OfIndia,Govt.OfNCtofDelhiandothers."

35
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
13.3Itwassubmittedthathavingregardtothesubstanceofthe

formationofthecompanysincetheimplementationoftheproject

havetobedonebythecompany,itcannotbestatedthatthe

implementationoftheprojectisnotbyanauthority.Itwas

submittedthatHon'bleHighCourtofDelhiinitsjudgmentinthe

caseofassesseehasheldthatthetaxleviedbyDelhiMunicipal

CorporationTaxAct1957ontheassesseei.e.M/sDelhiMetro

RailCorporationLtd.wasnotleviableinviewofSectionsection184ofthe

IndiaRailwayAct'1989.ItwasheldthatDMRCis,infacta

'railway'and,canberegardedaswithintheexpression"railway

administration".Itwascontendedthataforesaidjudgment

establishesbeyonddoubtthatassesseehasbeenconstitutedin

Indiaunderanylawenactedthoughintheformofacompanyand

isanauthority.Itwasalsosubmittedthatassesseecannotbe

subjectedtotaxbecauseonecannottaxitself.Itwasalso

submittedthatcompanyisacompendiousnameofits

shareholders,andisacreatureofCentralGovernment.To

support,followingillustrationswereprovided:

a)Clause(k)tosub-section(1)ofsection2ofDelhiMetro

RailwayActprovidesthatmetrorailwayofficialmeans

anypersonemployedbytheCentralGovernmentorby

ametrorailwayadministrationinconnectionwiththe

servicesofametrorailway.

b)ThenotificationsundertheDelhiMetroRailwayAct

meansanotificationpublishedintheOfficialGazettee.

36
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi

c)Section4ofDMRActprovidesthatthegeneral

superintendenceandcontrolofaGovernmentmetro

railwayistovestintheGeneralManagertobe

appointedbytheCentralGovernment.Further,

section14ofDMRActprovidesthatthemetrorailway

inthemetropolitancityofDelhishallnotbeopenedfor

thepubliccarriageofpassengersexceptwiththe

previoussanctionoftheCentralGovernment.The

poweru/s18ofDMRActforclosingofmetrorailway

andreopeningofclosedmetrorailwayu/s19ofDMR

ActalsovestswiththeCentralGovernment.

d)Section86ofDMRActprovidesthatthemetrorailway

administrationshall,inthedischargeofitsdutiesand

functionsunderthisAct,beboundbysuchdirections

onquestionsofpolicyastheCentralGovernmentmay

giveinwritingtoitfromtimetotime.

e)Section88providesprotectionofactiontakeningood

faithbyanymetrorailwayadministrationofficialor

againstanyotherperson,foranythingisingoodfaith

doneorintendedtobedoneinpursuanceofthisActor

anyrules,regulationsorordersmadethereunder.

f)Section89ofDMRActprovidesthatnorollingstock,

metrorailwaytracks,machinery,plant,tools,fittings,

materialoreffectsusedorprovidedbyametrorailway

administrationforthepurposesoftrafficonitsrailway,

oritsstationsorworkshops,orofficesshallbeliableto

37

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
betakeninexecutionofanydecreeororderofany

courtorofanylocalauthorityorpersonhavingbylaw

thepowertoattachordistrainpropertyorotherwiseto

causethepropertytobetakeninexecution,without

theprevioussanctionoftheCentralGovernment.

g)Section90ofDMRActfurtherprovidesthatallpersons

intheemploymentofthemetrorailwayadministration

shallwhenactingorpurportingtoactinpursuanceof

theprovisionsofthisAct,bedeemedtobepublic

servantswithinthemeaningofSectionsection21oftheIndian

PenalCode(45of1860).

h)ThemembersoftheCommitteeforfixationoffarefor

carriageofpassengersu/s33ofDMRActistobe

nominatedbytheCentralGovernmentandthe

GovernmentoftheNationalCapitalTerritoryofDelhi

respectively.

i)Theperiodformakingfarefixationu/s36ofDMRAct

isrequiredtobespecifybytheCentralGovernment.

13.4Theassesseealsosoughttoplacerelianceonthejudgment

ofSupremeCourtinthecaseofSectionGujaratIndustrialDevelopment

Corporationv.CIT227ITR414whereinithasbeenheldthata

corporationisanauthorityundertheActandtheprovisionsof

Sectionsection10(20A)willapplytoacorporationinthesamemanneras

itappliestoanauthority.Reliancewasalsoplacedonthe

decisionofMumbaiBenchinthecaseofVidarbhaIrrigation

38

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/SectionDel/2003

DelhiMetroRailCorporationLtd.,NewDelhi
DevelopmentCorporationv.JCIT102ITD1tocontendthat

assesseeiseligibleforexemptionu/s10(20SectionA)oftheAct.Further

reliancewasplacedonthefollowingjudgments:

a)SectionU.P.StateWarehousingCorporationv.ITO94ITR129,

132(All)affirmedbyApexCourtinthecaseofSectionUOIv.

U.P.StateWarehousingCorporation187ITR54

b)SectionM.D.U.P.StateWareshousingCorporationv.Vijay

NarayanVajpayee1980AIR(SC)840

c)SectionShriAnandiMuktaSadguruv.Rudani1989AIRSC

1607atpage1612

d)AISSEASSCOCNv.DefenceMinister1989AIR(SC)88-

91
13.5TheappellantfurthersubmittedthatDelhiMetroRailisa

"Railway"takingreferencefromSectionsection184oftheIndianRailway

Actwhichdefinesrailwaytomeanarailway,oranyportionofa

railwayforthepubliccarriageofpassengersorgoods.Itwasalso

submittedthatDelhiMetroRailwayisarailwayasisevidentfrom

TheDelhiMetroRailway(OperationandSectionMaintenance)Act,2002.

ItwassubmittedthatHon'bleSupremeCourtinthecasereported

in1981AIR(SC)487-503RamanaShettyVs.International

AirportAuthorityhasheldthatpower/authoritytoissue

directions,disobedienceofwhichwouldbepunishableasa

criminaloffence,constitutesan"authority".Itwassubmittedthat

Sectionsection62(3)ofDelhiMetroRailway(OperationandSectionMaintenance)

Act,2002contemplatesthatifaDMRCofficialdirectsanyperson

toleaveanycompartment,carriageorpremisesandherefusesto

39

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
goheshallbepunishablewithimprisonmentforatermwhich

mayextenttosixmonthsorwithafinewhichmayextendtoone

thousandrupeesorwithboth.SimilarlySectionsection36ofMetro

Railway(ConstructionofWorks)Act,1978applicabletoDMRC

alsoenvisagespenaltyforfailuretocomplywithdirectionsissued

u/s21ofSectionMetro(ConstructionofWorks)Act,1978.Itwasalso

submittedthatSectionsection82ofDelhiMetroRailway(Operationand

SectionMaintenance)Act,2002empowerstopunishapersonwho

commitsanyoffencementionedinSectionsections59,Section61,Section65toSection79of

DelhiMetroRailway(OperationandSectionMaintenance)Act,2002and

toarrestwithoutwarrantorotherwrittenauthoritybyanymetro

railwayofficialorbyapoliceofficernotbelowtherankofahead

constableorbyanyotherpersonwhomsuchmetrorailwayofficial

orpolicemaycalltohisaid.

13.6ItwassubmittedthatthereisnorequirementunderSectionsection

10(20A)oftheActtobemandatorilyconstitutedbyanActof

ParliamentorStateLegislature.Theincorporationofcompany

undertheSectionCompaniesAct'1956alsomeetstheconditions

prescribedinSectionsection10(20A)oftheAct,sinceitisacompany

constitutedunderanylaw.Itwassubmittedthat,thereisa

mandatorypreconditioninSectionsection10(23BB)and,10(23BBA)of

theActthat,anauthorityshouldbeeitherestablishedor

constitutedorappointedbyCentral,StateorSectionProvincialActand,

notsimplyconstitutedbyorunderanylawinIndia;whereasfor

thepurposesofSectionsection10(20A)oftheAct,thereisnosuch

requirementthat,theauthoritymustbeestablishedbyanActof

ParliamentplacedbeforeboththeHousesorevenbytheState

40

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Legislature,asistherequirementintheaforesaidprovisions.It

wasthussubmittedthat,underSectionsection10(20A)oftheActevena

companyincorporatedundertheSectionCompaniesAct'1956canbean

"authority"forthepurposeofSectionsection10(20A)oftheAct,ofcourse

ithastobeanauthority.Itwasalsosubmittedthatwherethe

twoGovernmentsaretheshareholdersand,assesseeis

dischargingquasiGovernmentalfunctionandisauthorizedto

administerrevenueproducingpublicenterprise,hencethe

assesseeisanauthority.Theassesseehasdesiredsupportfrom

thefollowingsub-sectionsofSectionsection10oftheAct:

SrSectionTowhomEstablishedUnder

Noexemptionis

availableunder

therelevant

section.

i)10(26AAB)anagriculturalConstitutedunderanylaw

producemarketforthetimebeinginforce.

committeeor

board

ii)10(26B)acorporationEstablishedbyaCentral,

StateorSectionProvincialActorof

anyotherbody,institution

orassociation(beingabody,

institutionorassociation

whollyfinancedby

Government).

iii)10(26BB)acorporationEstablishedbytheCentral

GovernmentoranyState

Government.

iv)10(26BBB)acorporationEstablishedbyaCentral,

StateorSectionProvincialAct.

13.7Itwas,therefore,submittedthat,languageemployedin

Sectionsection10(20A)oftheActiswiderand,nowhereenvisagesthat,

authoritymustnecessarilybecreatureoftheCentralonStatue

41

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Act.Allwhatitprovidesthat,itmustbeconstitutedinIndiaby

orunderanylaw,whichinthecaseoftheappellantisduly

satisfied.

13.8TheappellantalsoreliedonnotesonclausesoftheFinance

BilltoinsertionofSectionsection10(20A)oftheActwhichstatesas

under:

"Sub-clause(a)seekstoinsertanewclause(20A)inSectionsection

10oftheIncomeTaxActretrospectivelyfromthe1stApril,

1962,i.e.,thedateofcommencementoftheIncometaxAct.

Theeffectoftheproposedamendmentisthatincomeofthe

HousingBoardsorotherstatutoryauthoritiessetupforthe

purposeofdealingwithorsatisfyingtheneedforhousing

accommodationorforthepurposeofplanning,developmentor

improvementofcities,townsandvillageswillbeexemptfrom

incometax"

13.9ItwassubmittedthatCentralBoardofDirectTaxesafter

theinsertionoftheaforesaidprovisionsissuedacircular.Inthe

CircularNo.45issuedbyCBDTdated02.09.1970whereinitis

providedasunder:

"Statehousingboards,developmentboards,etc.

41.SeveralStateshavesetupstatutoryHousingBoardsfor

theframingandexecutionofhousingandotherdevelopment

schemes.TheseBoardsareautonomousorganizationsand

theyplayanimportantroleinimplementingthehousing

programmesofGovernmentforthecommongood.Asthese

Boardsareservinganimportantpublicpurposeanddonot

existforprivateprofit,theSectionFinanceAct,1970hasmadea

specificprovisioninanewclause(20A)ofSectionsection10

exemptingtheincomeofsuchBoardsfromtaxaltogether.This

provisionexemptsfromtaxanyincomeofanauthority

constitutedinIndiabyorunderanylawenactedeitherforthe

purposeofdealingwithandsatisfyingtheneedforhousing

42

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
accommodationorforthepurposeofplanning,developmentor

improvementofcities,townsandvillages,orforboth.This

provisionhasbeenmadewitheffectfrom1-4-1962thatbeing

thedateofcommencementoftheSectionIncome-taxAct.
[Section10(20A)insertedbySectionsection4(a)oftheFinance
13.10Itwasalsosubmittedthattheaforesaidsub-sectionwas

omittedbytheSectionFinanceAct2002,whenaCircularNo.8/2002

dated27.08.2002hadbeenissuedbytheCBDTwhereinitwas

statedasunder:

"IncomeofcertainHousingBoardsetc.tobecometaxable.

13.1Undertheexistingprovisionscontainedinclause(20A)

ofSectionsection10,incomeoftheHousingBoardsorotherstatutory

authoritiessetupforthepurposeofdealingwithorsatisfying

theneedforhousingaccommodationsorforthepurposeof

planning,developmentorimprovementofcities,townsand

villagesisexemptfrompaymentofincometax.

13.2SectionThroughFinanceAct,2002clause(20A)ofSectionsection10

hasbeendeletedsoastowithdrawexemptionavailableto

theabovementionedbodies.TheincomeofHousingBoardsof

theStatesandofDevelopmentAuthoritieswould,therefore,

alsobecometaxable."

13.11Inlightoftheabove,itwassubmittedthatDMRChasbeen

constitutedunderalegislativeenactmenti.e.SectionCompaniesAct'

1956forthepurposeofplanning,designing,development,

construction,maintenance,operationandfinancingofMass

TransitandotherUrbanTransportandPeopleMoversystemsof

alltypesanddescriptionintheNationalCapitalTerritoryofDelhi

andotherareasoftheNationalCapitalRegion;andiseligiblefor

exemptionu/s10(20SectionA)oftheAct.

43
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
14.Onthecontrary,theLd.DRsubmittedthattheassessee

doesnotfulfilleligibilityofclaimofexemptionunderSectionsection

10(20A)oftheactduetofollowingreasons:

(i)Forclaimingtheexemptiontheassesseemustbean

"authority"buttheassesseeissimplyajoint-venture

registeredunderSectionsection617oftheCompaniesActand

itisnotanauthority.

(ii)Forclaimingtheexemption,theauthoritymustbe

constitutedinIndiabyorunderanylawbutthe

assesseehasnotbeenconstitutedbyunderanylaw

anditisonlyregisteredundertheSectionCompaniesAct.

(iii)Forclaimingtheexemption,theauthoritymustbe

constitutedforthepurposeofdealingwithand

satisfyingtheneedforhousingaccommodationorfor

thepurposeofplanning,developmentorimprovement

ofcities,townsandvillagesorforboth.Ifargumentof

theLd.Counseloftheassesseeisaccepted,thenany

companyregisteredundertheSectionCompaniesActwouldbe

eligibleforexemptionunderSectionsection10(20A)oftheAct,

butthesameisnottrue.

(iv)Merelyobtainingofnecessaryapprovalsforits

Constitution,fundingandfunctioningfromtheCentral

Government,donotprovethat,theassesseehasbeen

constitutedbyorunderanylaw.TheOperationand

SectionMaintenanceAct(2002)aswellasMetroRailway(
44

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
ConstructionofWorks)ActassuchareActsbythe

governmenttoregulateitsfundingandoperation.

14.1TheLd.DRdistinguishedthedecisioninthecaseofGujarat

IndustrialDevelopmentCorporationVs.CIT(supra)statingthat

sadCorporationwasconstitutedunderanActofthestate

governmentofGujaratandthus,astatutorybody,whereasthe

assesseehasbeenincorporatedasacompanyunderthe

companiesact,1956andregisteredasaGovernmentcompanyas

definedinSectionsection617oftheCompaniesAct.

14.2TheLd.DRreliedonthedecisionofthecoordinatebenchof

theTribunalinthecaseofUttarakhandPurvSainikKalyan

NigamLtd.VsACIT(2019)102taxmann.com227(Delhi-

Trib)/175ITD107whereintheexemptionsoughtunderSectionsection

10(26BBB)oftheActclaimingtobeaCorporationestablishedby

Central,StateorprovincialActwasdeniedfortheassesseebeing

merelyregisteredundertheSectionCompaniesAct.

14.3TheLd.DRalsoreferredtothedecisionoftheHon'ble

SupremeCourtinthecaseofCITVs.CanaraBank(2018)406

ITR161(SC).TheLd.DRalsoreliedonfollowingdecisions:

1.AgriculturalProduceMarketCommitteeVs.CIT[2008]173

Taxman115(SC)/[2008]305ITR1(SC)/[2008]CTR433

(SC)

2.NewOkhlaIndustrialDevelopmentAuthority(NOIDA)Vs.

CCIT[20018]95taxmann.com58(SC)/[2018]256Taxman

296(SC)/[2019]406ITR178(SC)/[2018]303CTR448

(SC);

45
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi

3.IncomeTaxOfficerVs.UrbanImprovementTrust[2018]98

taxmann.com237(SC)/[2018]259Taxman61(SC)/[2018]

409ITR1(SC)

5.AdityapurIndustrialAreaDevelopmentAuthorityVs.Union

ofIndia[2006]153Taxman107(SC)/[2016]283ITR97

(SC)/[2006]202CTR464(SC),

6.ShardaSahayakSamadeshKshettraVikasNigamLtd.Vs.

CIT[2000]109Taxman24(Allahabad)/[2000]244ITR264

(Allahabad)/[2000]162CTR220(Allahabad)

7.KarnatakaStateSmallIndustriesDevelopmentCorpn.Ltd.

Vs.Asstt.CommissionerofIncomeTax[2013]40

taxmann.com212(Karnataka)/[2014]220Taxman4

(Karnataka)(MAG.)

8.M.P.AudyogikKendraVikasNigam(Indore)Ltd.Vs.Asstt.

CommissionerofIncomeTax[2018]98taxmann.com191

(MadhyaPradesh)/[2018]258Taxman273(MP)

9.SoneCommandAreadDevelopmentAgencyVs.Unionof

India[2011]16taxmann.com179(Patna)/[2011]203

Taxman96(Patna)(MAG.)/[2011]333ITR102(Patna).

10.CITVs.StateofIndustriesPromotionCorpn.OfTamilNadu

Ltd.[2008]167Taxman36(Madras)/[2009]311ITR197

(Madras)/[2007]212CTR334(Madras.)

15.Wehaveheardtherivalsubmissionsandperusedthe

relevantmaterialonrecord.Theissuebeforeusiswhetherthe

assesseeisentitledtobenefitofSectionsection10(20A)oftheActornot.

TheSectionsection10(20A)oftheActhasbeenomittedbytheSectionFinance

Act,2002,w.e.f.,01/04/2003.Todecidethecontroversy,itis

relevanttoreproducetheprovisionsofSectionsection10(20A)oftheAct,

priortotheomission,insertedbytheSectionFinanceAct,1970w.e.f.

01/04/1990,asunder:

"Section10(20A)anyincomeofanauthorityconstitutedinIndiaby

orunderanylawenactedeitherforthepurposeofdealingwithand

satisfyingtheneedforhousingaccommodationorforthepurposeof
46

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
planning,developmentorimprovementofcities,townsandvillages,

orforboth;"

15.1Theplainreadingoftheabovesectionmakesitclearthatfor

eligibilityoftheexemptionunderthesection,following

requirementsmustbesatisfied:

(i)Theentityclaimingtheexemptionmustbean

authority.

(ii)ThesaidauthoritymustbeconstitutedinIndiabyor

underanylawenacted.

(iii)Thesaidauthoritymustbeconstitutedforthe

purposeofdealingwithandsatisfyingtheneedfor

housingaccommodationorforthepurposeof

planning,developingaimprovementofcities,towns

andvillagesorforboth.

15.2Beforeus,theLd.Sr.counselreferredtotheMemorandum

andArticleofAssociationoftheassesseecompanyavailableon

pages38to133ofthepaper-bookforassessmentyear1997-98.

ThemainobjectsofthecompanyasperClauseIIIAofthe

MemorandumofAssociation,availableonpage42ofthesaid

paperbookreadsasunder:

A:MainObjectsoftheCompanytobepursuedbytheCompanyon

itsincorporation:

(a)Planning,designing,development,construction,

maintenance,operationandfinancingofMassTransitandother

UrbanTransportandPeopleMoverSystemsofalltypesand

descriptionintheNationalCapitalTerritoryofDelhiandotherareas

oftheNationalCapitalRegion(NCR),eitherindividuallyofIn
47

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
associationwithotherUndertakingsorCompaniesinIndiaand/or

abroad,includingbutnotlimitedto:

(i)FeasibilityReports,DetailedProjectReports,Techno-Economic

investigations,siteselection,supplyofbasicengineeringand

detaileddesignsandworkingdrawingsforconstructionofthe

system,equipmentselectionthereinandmanufactureofrolling

stockandequipment,includingtheircomponents,spares,

assembliesandsub-assembliesofallkindsanddisciplines,

materialhandling,preparationofspecificationandtender

documents,tenderevaluationandpurchaseassistanceofall

materialsandgoodspertainingtosuchprojects,expediting

inspectionandtesting,constructionsupervision,project

management,commissioning,operationandmaintenance,

trainingofpersonnelandanysuchotherservices.

(ii)ProvisionofEngineering,technicalandmanagementservices

includingbutnotlimitedtoengineering,commercialand

operationalmanagement,marketresearchandpersonnel

management,organizationalstructure,improvementinthe

systemofadministration,trafficforecasts,transportplanning,

investmentplanning,modernizationofexistingsystemsand

facilities,modernizationofmotivepowerandrollingstock,

improvementinoperationalandmaintenancepracticestowards

optimumutilizationoftheassets,inter-modalrelationshipof

variousformsoftransportandengagedinresearchofall

problemsrelatingtomasstransit,urbantransportandother

peoplemoverSystemsandpromotionorpropositionofsuch

methods,studiesandmeasuresasmaybeconsidered

desirablebyorbeneficialtotheinterestofthecompany.

15.3Accordingtothemainobjectclausetheassesseecompany

hasbeenconstitutedforplanning,designinganddevelopmentof

Metro-RailfornationalCapitalTerritoryofDelhiandotherareas

ofnationalcapitalregion.Thus,inviewofthelearnedCounsel,

theassesseefulfilsthethirdconditionoftheSectionsection10(20A)of

theActasmentionedabove.TheRevenuehasalsonotseriously

objectedonthiseligibilitycondition.

15.4AsfarastheremainingtwoeligibilityconditionsofSectionsection

10(20A)i.e."theassesseeshouldbeanauthority"and"the

48

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
authorityshouldbeconstitutedinIndiabyorunderanylaw

enacted",isconcerned,theLd.SeniorCounselhassubmittedthat

theassesseefulfilsboththeconditions.

15.5Letus,firstexaminethesecondconditionfirsti.e.whether

theassesseewasconstitutedinIndiabyorunderanylaw

enacted.Inthisreference,wemayliketorefertothedecisionof

thecoordinatebenchoftheTribunalinthecaseofM/s

UttarakhandPurvSainikKalyanNigamLimited(supra)cited

bytheLd.DR.Inthiscase,theassesseewasincorporatedon

01/03/2004undertheprovisionsoftheSectionCompaniesAct,1956.It

wasclaimedthatitwasestablishedforthewelfareandeconomic

upliftmentofex-servicemen,beingcitizensoftheIndiaandthe

assesseeclaimedbenefitofexemptionunderSectionsection10(26BBB)of

theAct.Therelevantsectionprescribedthatanyincomeofa

CorporationestablishedbyCentral,StateorSectionProvincialActforthe

welfareandeconomicupliftmentoftheex-servicemenbeingthe

citizensofIndiaisexemptedfromtheIncome-tax.Beforethe

Tribunal,theassesseecontendedthattheassesseehasbeen

establishedundertheSectionCompaniesAct,andthus,itshouldbe

treatedasanestablishedunderSectionCentralAct.TheTribunalafter

consideringsubmissionoftheparties,heldthattheassesseeis

merelyregisteredundertheSectionCompaniesActandnotestablished

byorunderaSectionCentralAct.TherelevantfindingoftheTribunalis

reproducedasunder:

"5.Wehaveconsideredtherivalsubmissionsandperusedthe

materialavailableonrecord.Section10(26BBB)oftheI.T.Act

providesthattheincomewhichdonotformpartoftotalincome-

49
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
"anyincomeofaCorporationestablishedbyCentral,Stateor

ProvincialActforthewelfareandeconomicupliftmentofex-

servicemenbeingthecitizenofIndia".TheExplanationtothis

Sectionprovidesthedefinitionof"Ex-servicemen".Accordingtothe

aboveprovisions,whenassesseeseeksexemptionofincomeunder

theaboveSection,theassesseeshallhavetoprovethatthe

CorporationhavebeenestablishedbyCentral,StateorSectionProvincial

Act.Inthepresentcase,theassesseehasbeenregisteredunderthe

SectionCompaniesActonly.NoCorporationhavebeenestablishedbyany

suchActinthecaseoftheassessee.Itwasincorporatedasany

otherCompanyundertheprovisionsofSectionCompaniesActanditsname

waslateronchangedtoUttarakhandPurvSainikKalyanNigam

Limited.However,bymerementionofCorporationinthenameofthe

assesseewouldnotserveanypurposeunlesstheassesseeis

incorporatedasaCorporationasisrequiredbySection10(26BBB)of

theI.T.Act.ItmaybeaStateGovernmentownedCompanybutit

wouldnotservethepurposeofclaimingexemptionunderSectionsection

10(26BBB)oftheI.T.Act.Sincetheassesseehasadmittedlynot

beenestablishedbyCentral,StateorSectionProvincialAct,itisdisqualified

onthispointitselfforexemptionundertheaboveprovision.Wemay

alsonotethattheword'Corporation'establishedbyCentral,Stateor

SectionProvincialAct,isastandardtermusedinseveralenactmentsto

denotestatutoryCorporationestablishedorbroughtintoexistence

byorundersamestatute.Ontheotherhand,aCompanyisnot

establishedundertheSectionCompaniesAct.AregisteredCompany,does

notoweitsexistencetotheSectionCompaniesAct.Anincorporated

Companyisformedbytheactofrequiredpersonsassociatedfor

anylawfulpurposessubscribingtheirnametotheMemorandumof

Associationandbycomplyingwiththerequirementsofthe

SectionCompaniesActinrespectofregistration.ACompanyisincorporated

andregisteredundertheSectionCompaniesActandnotestablishedunder

theSectionCompaniesAct.Thus,theA.O.miserablyfailedtoenquireand

investigateintothesubstantiveprovisionsofLaw-whether

assesseeisentitledforexemptionunderSectionsection10(26BBB)ofthe

I.T.Act.TheimpugnedassessmentordershowsthatA.O.askedfor

theexplanationofassesseeandtheentirereplyoftheassesseehas

beenreproducedintheassessmentorderandtheA.O.without

examiningandwithoutverifyingthecontentsofthereplyofthe

assesseehaspartlydisallowedtheexemptionunderSectionsection

10(26BBB)oftheI.T.ActinasumofRs.52,23,503/-.TheA.O.inthe

assessmentorderhasnowherementionedorconcludedthat

assesseehassatisfiedtheconditionsofSection10(26BBB)ofthe

I.T.Act.Therefore,itisacasewhereA.O.didnotmakeanyenquiry

withregardtoapplicabilityofsubstantiveprovisionsofSection

10(26BBB)oftheI.T.Act.TheA.O.hasfailedtoapplyhismindto

thefactsandcircumstancesofthecase.TheA.O.didnotmakeany
50

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
enquiryintotheissueinvolvedinthepresentappeal.TheA.O.

merelyreproducedthereplyoftheassesseeandacceptedtheclaim

ofassesseepartly.Therefore,thereisnoquestionoftakingany

possibleviewintothematterasiscontendedbyLearnedCounsel

fortheAssessee.Duringthecourseofarguments,theLearned

CounselfortheAssesseewasnotabletosatisfyastohowthe

assesseesatisfiedtherequirementsofSection10(26BBB)oftheI.T.

ActandhowtheJudgments,relieduponbyhimareapplicabletothe

factsandcircumstancesofthecase.TheLd.D.R.ontheotherhand

hassuggestedthatboththedecisionsrelieduponbytheLearned

CounselfortheAssesseesupportthecaseoftheRevenue.Onthis

reasonitself,theassessmentorderwascorrectlyfoundtobe

erroneousinsofarasitisprejudicialtotheinterestsoftheRevenue.

Onthisreasonitself,theappealofassesseeisliabletobe

dismissed.WemayalsonotebrieflythatLearnedCIThasnotedthat

eventhecaseoftheassesseewouldnotfitwithinthedefinitionof

theterm"Ex-servicemen"appearinginSection10(26BBB)oftheI.T.

Act,onwhich,noargumentshavebeenmadeduringthecourseof

hearingoftheappeal.Sincetheassesseefailedtosatisfythe

conditionsofSection10(26BBB)oftheI.T.ActandA.O.didnot

examinethisissueatall,therefore,learnedCIT,Delhiwasjustified

insettingasidetheassessmentorderandtoenhancetheincomeof

assesseebyholdingthatassesseeisnotentitledforexemption

undertheprovisionsofSection10(26BBB)oftheI.T.Act.Noinfirmity

havebeenpointedoutintheOrderofthelearnedCIT.We,

accordingly,donotfindanyerrorintheOrderforinterference.The

appealofassesseehavenomeritandthesameisaccordingly

dismissed.

15.6Intheinstantcasebeforeusalso,theassessee-company

hasbeenconstitutedundertheprovisionsoftheSectionCompaniesAct,

1956.Acopyofcertificateofincorporationissuedbythe

AdditionalRegistrarofCompaniesisavailableonpage40ofthe

paperbookforassessmentyear1997-98whichreadsasunder:

"IherebycertifythatDelhiMetroRailCorporation

limitedisthisdayincorporatedunderthe

SectionCompaniesAct,1956(No.1of1956)andthe

companieslimited.

51
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
GivenundermyhandatNewDelhithis3rddayof

May1995."

15.7TheLd.counselhasreferredtovariouscorrespondence

amongtheMinistryofUrbanDevelopmentandother

stakeholders,whichhavebeenenclosedwiththesynopsisand

filedalongwiththepaperbook.Asummaryofchronologicalevent

resultingintoformationoftheassesseecompanyandassociated

CabinetCommitteemeetingnotessubmittedbythelearned

Seniorcounselbeforeushavebeenreproducedabove.Wefind

thatthoughformationoftheassesseehasbeendiscussedinthis

cabinetnote,however,theassesseehasbeenincorporatedunder

theSectionCompaniesAct,1956only,thoughSectionMetroRailways

(ConstructionofWorks)Act,1978andDelhiMetroRail(Operation

andSectionMaintenance)Act,2002havebeenlegislatedbythe

Parliament,buttheseActsdonotcontainanysectionorlaw

relatedtoconstitutingorestablishingoftheassesseecompany.

TheLearnedSeniorCounselwasaskedtoproduceacopyofany

NotificationissuedundertheSectionMetroRailways(Constructionof

Works)Act,1978orDelhiMetroRail(Operationand

SectionMaintenance)Act,2002,inrelationtoconstitutionoftheassessee

companyhowever,hefailedtoproduceanysuchNotification

issuedunderthoseActsforconstitutionoftheassesseecompany.

Thus,itisevidentthattheassesseecompanyismerelyregistered

undertheSectionCompaniesAct.

15.8TheHon'bleSupremeCourtinthecaseofCanaraBank

(supra)hasdiscussedindetailaswhatisaCorporation,under

theSectionCompaniesActandanauthorityestablishedbyorunderthe

52

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Central,StateorProvincialact.Inthesaidcase,NewOkhla

IndustrialDevelopmentAuthority(NOIDA)whichhasbeen

constitutedbynotificationdated17/04/1996issuedunder

section3oftheUttarPradeshIndustrialAreaDevelopmentAct,

1976,washeldtobeaCorporationestablishedbyaSectionStateAct

and,therefore,entitledtoexemptionfrompaymentoftaxat

sourceunderSectionsection194A(1)oftheAct.

15.9TherelevantpartofthedecisionoftheHon'bleSupreme

CourtinthecaseofCITVsCanaraBank(supra),isreproduced

asunder:

"17.OnemoreprinciplewhichwasreiteratedbythisCourtinabove

ConstitutionBenchjudgmentisthatCorporationswhichare

instrumentalitiesoftheGovernmentaresubjecttothelimitationas

containedintheConstitution.TheCorporationswhichwereunder

considerationintheabovecase,namely,LifeInsuranceCorporation

ofIndia,OilandNaturalGasCommission,IndustrialFinance

CorporationwereheldtobeconstitutedwithinthemeaningofSectionArticle

12oftheConstitution.TwocategoriesofCorporationshavebeen

noticedi.e.statutorycorporationsandnon-statutorycorporations.

Whereas,thestatutorycorporationsowetheirexistencefrom"byor

under"statute,non-statutorybodiesandcorporationsarenot

createdbyorunderstatuteratheraregovernedbyastatute.

"ESTABLISHEDBYACENTRAL,STATEORPROVINCIALACT"

18.TheappellantontheonehandsubmitsthattheAuthorityhas

notbeenestablishedby1976Actratherithasbeenestablished

underthe1976Act,henceitisnotcoveredbyNotificationdated

22.10.1970whereastherespondentsubmitsthatAuthorityhas

beenestablishedbythe1976Acthence,itfulfillstheconditionas

enumeratedunderNotificationdated2.10.1970.Alternatively,itis

submittedthatwords"byandunder"havebeeninterchangeably

usedintheSectionITAct,1961andthereisnodifference,evenif,the

Authorityisestablishedunderthe1976Act.

19.Section194A(3)(iii)clauses(b),(c)and(d)refertoexpression

"established".Insubclause(b)expressionusedis"establishedby

53

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
orunderaCentral,StateorSectionProvincialAct",insubclause(c)the

expressionusedis"establishedundertheSectionLifeInsurance

CorporationAct"andinsubclause(d)expressionusedis

"establishedundertheSectionUnitTrustofIndiaAct".TheSectionthus

usesboththeexpressions"byorunder".Theexpressionestablished

byorunderanActhavecomeforconsiderationbeforethisCourton

severaloccasions.

Inthiscontext,itshallbeusefultorefertofewjudgmentsofthis

Court.InSukhdevSingh(supra),theCourthadoccasiontoconsider

thestatusofcompanyincorporatedundertheSectionCompaniesAct.The

CourtheldthatCompanyincorporatedisnotaCompanycreatedby

theSectionCompaniesAct.InparagraphNo.25followingwasheld:

"25AcompanyincorporatedundertheSectionCompaniesActisnot

createdbytheSectionCompaniesActbutcomesintoexistencein

accordancewiththeprovisionsoftheAct.Itisnotastatutory

bodybecauseitisnotcreatedbythestatute.Itisabody

createdinaccordancewiththeprovisionsofthestatute."

20.MathewJ.,writingconcurrentopinionwhilediscussingthe

publiccorporationheldthatsuchcorporationsarecreatedbyState.

SectionInExecutiveCommitteeofVaishDegreeCollege,ShamliandOthers

vs.LakshmiNarainandOthers,(1976)2SCC58,thequestionfor

considerationfellastowhethertheExecutiveCommitteeofadegree

collegeisastatutorybody.ContentionbeforetheCourtwasthatthe

ExecutiveCommitteewasthestatutorybodysinceitwasaffiliated

totheAgraUniversitywhichwasestablishedbythestatute.The

ExecutiveCommitteewasfurthercoveredbythestatuteframedby

theAgraUniversity.Intheabovecontext,thisCourtheldthatthere

isacleardistinctionbetweenabodywhichiscreatedbytheStatute

andabodywhichhavingbeencomeintoexistenceisgovernedin

accordancewiththeprovisionsofthestatute.InparagraphNo.10

followingwasheld:

"10Itis,therefore,clearthatthereisawellmarkeddistinction

betweenabodywhichiscreatedbythestatuteandabody

whichafterhavingcomeintoexistenceisgovernedin

accordancewiththeprovisionsofthestatute.Inotherwords

thepositionseemstobethattheinstitutionconcernedmust

oweitsveryexistencetoastatutewhichwouldbethe

fountainheadofitspowers.Thequestioninsuchcasestobe

askedis,ifthereisnostatutewouldtheinstitutionhaveany

legalexistence.Iftheanswerisinthenegative,then

undoubtedlyitisastatutorybody,butiftheinstitutionhasa

separateexistenceofitsownwithoutanyreferencetothe
54

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
statuteconcernedbutismerelygovernedbythestatutory

provisionsitcannotbesaidtobeastatutorybody

21.AgaininS.S.Dhanoa(supra),thisCourthadoccasiontoconsider

aRegisteredSocietywhichwasabody/corporate.Thequestionwas

astowhethertheStateBody/corporateisaCorporationwithinthe

meaningofClauseTwelfthofSection21oftheIPC(IndianPenal

Code).ThisCourtagainheldthatexpressionCorporationmeansa

Corporationcreatedbythelegislature.InparagraphNo.7following

washeld:

"7Inouropinion,theexpression'corporation'must,inthe

context,meanacorporationcreatedbythelegislatureandnota

bodyorsocietybroughtintoexistencebyanactofagroupof

individuals.Acooperativesocietyis,therefore,notacorporation

establishedbyorunderanActoftheCentralorState

Legislature."

22.FurthernoticingthedistinctionbetweenCorporationestablished

byorunderActorbodycreatedbyorunderAct,followingwasheld

inparagraphNo.10:

"10.Thereisadistinctionbetweenacorporationestablishedby

orunderanActandabodyincorporatedunderanAct.The

distinctionwasbroughtoutbythisCourtinSectionSukhdevSinghv.

BhagatramSardarSinghRaghuvanshi.Itwasobserved:[SCC

p.435:SCC(LS)p.115,para25]
"AcompanyincorporatedundertheSectionCompaniesActisnot

createdbytheSectionCompaniesActbutcomesintoexistencein

accordancewiththeprovisionsoftheAct."

Thereisthusawell-markeddistinctionbetweenabodycreated

byastatuteandabodywhich,aftercomingintoexistence,is

governedinaccordancewiththeprovisionsofa

statute.................."

23.Anotherjudgmentwhichhadoccasiontoconsidertheexpression

establishedbyorundertheActisajudgmentofthisCourtinSectionDalco

EngineeringPrivateLimitedvs.SatishPrabhakarPadhyeand

Others(2010)4SCC378.TheCourthadoccasiontoexaminethe

provisionofSection2k,ofthePersonswithDisabilities(Equal

Opportunities,ProtectionofRightsandFullParticipation)Act,1995,

specificallyexpression"establishment"meansaCorporation

establishedbyorunderCentral,ProvincialorSectionStateAct.ThisCourt

heldthatthephraseestablishedbyorundertheActisastandard
55

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
termusedinseveralenactmentstodenoteastatutorycorporation

establishedorbroughtintoexistencebyorunderthestatute.On

Companyitwasheldthatthecompanyisnotestablishedunderthe

SectionCompaniesActandanincorporatedcompanydoesnot"owe"its

existencetotheSectionCompaniesAct.InparagraphNo.20followinghas

beenlaiddown:

"20.A"company"isnot"established"undertheSectionCompanies

Act.Anincorporatedcompanydoesnot"owe"itsexistenceto

theSectionCompaniesAct.Anincorporatedcompanyisformedbythe

actofanysevenormorepersons(ortwoormorepersonsfora

privatecompany)associatedforanylawfulpurposesubscribing

theirnamestoamemorandumofassociationandbycomplying

withtherequirementsoftheSectionCompaniesActinrespectof

registration.Therefore,a"company"isincorporatedand

registeredundertheSectionCompaniesActandnotestablishedunder

theSectionCompaniesAct.Percontra,theSectionCompaniesActitself

establishestheNationalCompanyLawTribunalandthe

NationalCompanyLawAppellateTribunal,andthesetwo

statutoryauthoritiesowetheirexistencetotheSectionCompaniesAct."

24.ThisCourtfurtherelaboratingtheexpressionheldthatwhenthe

expressionusedis"establishedbyorundertheAct",theemphasize

shouldbeontheword"established"inadditiontothewords"byor

under".ItisusefultorefertowhathasbeensaidinparagraphNos.

21and22ofthejudgmentwhichistothefollowingeffect:

"21.Wherethedefinitionof"establishment"usestheterm"a

corporationestablishedbyorunderanAct",theemphasis

shouldbeontheword"established"inadditiontothewords

"byorunder".Theword"established"referstocominginto

existencebyvirtueofanenactment.Itdoesnotrefertoa

company,which,whenitcomesintogovernedinaccordance

withthetheSectionCompaniesAct.Butthen,differencebetween

"establishedexistence,isprovisionsofwhatisthebyaSectionCentral

Act"and"establishedunderaSectionCentralAct"

22.Thedifferenceisbestexplainedbysomeillustrations.A

corporationisestablishedbyanAct,wheretheActitself

establishesthecorporation.Forexample,Section3oftheState

BankofIndiaAct,1955providesthatabanktobecalledState

BankofIndiashallbeconstitutedtocarryonthebusinessof

banking.Section3oftheLifeInsuranceCorporationAct,1956

providesthat
56

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi

3.EstablishmentandincorporationofLifeInsurance

CorporationofIndia.--(1)Witheffectfromsuchdateasthe

CentralGovernmentmay,bynotificationintheOfficialGazette,

appoint,thereshallbeestablishedaCorporationcalledtheLife

InsuranceCorporationofIndia.

StateBankofIndiaandLifeInsuranceCorporationofIndiaare

twoexamplesofcorporationsestablishedby"aSectionCentralAct"."

25.ThisCourthasalsoreferredtoprovisionsofSectionTheStateFinancial

CorporationsAct,1951whichprovidesforestablishmentofvarious

financialcorporationsundertheAct.Itisusefultorefertodefinition

offinancialcorporationascontainedinSection2(b)whichistothe

followingeffect:

"2(b)FinancialCorporationmeansaFinancialCorporation

establishedunderSection3andincludesaJointFinancial

CorporationestablishedunderSection3A;"

26.Section3dealswithestablishmentofStateFinancial

Corporationwhichprovidesasfollows:

"3.EstablishmentofStateFinancialCorporations.:(1)TheState

Governmentmay,bynotificationintheOfficialGazette,

establishaFinancialCorporationfortheStateundersuchname

asmaybespecifiedinthenotification.

(2)TheFinancialCorporationshallbeabodycorporatebythe

namenotifiedundersub-section(1),havingperpetual

successionandacommonseal,withpower,subjecttothe

provisionsofthisAct,to[acquire,holdanddisposeof]property

andshallbythesaidnamesueandbesued."

27.ThisCourtclearlyinabovecase,DalcoEngineering(supra)has

heldthatsuchFinancialCorporationsareestablishedbyanActor

underanAct.InparagraphNo.23ofthejudgmentfollowinghas

beenheld:

"23.WemaynextrefertoSectionTheStateFinancialCorporationsAct,

1951whichprovidesforestablishmentofvariousfinancial

corporationsunderthatAct.Section3ofthatActrelatesto

establishmentofStateFinancialCorporationsandprovidesthat

"theStateGovernmentmay,bynotificationintheOfficial

Gazette,establishafinancialcorporationfortheStateunder

suchnameasmaybespecifiedinthenotification"andsuch

financialcorporationshallbeabodycorporatebythename
57

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
notified.Thus,aStateFinancialCorporationisestablished

underaSectionCentralAct.Therefore,whenthewords"byandunder

anAct"areprecededbythewords"established",itisclearthat

thereferenceistoacorporationestablished,thatitisbrought

intoexistence,byanActorunderanAct.Inshort,theterm

referstoastatutorycorporationascontrastedfromanon-

statutorycorporationincorporatedorregisteredunderthe

SectionCompaniesAct."

28.Now,werevertbacktotheprovisionsof1976,Act.Thevery

preambleofthatActreads"anActtoprovidefortheConstitutionof

anAuthorityforthedevelopmentofcertainareasintheStateinto

industrialandurbantownshipandformassesconnectedthrough

with".

29.Thus,theActitselfprovidesforconstitutionofanauthority.

Section2(b)ofthe1976ActdefinesAuthorityasauthority

constitutedunderSection3oftheAct.Section3whichisvery

relevantforthepresentcaseisasfollows:

"3.(1)TheStateGovernmentmay,bynotification,constitutefor

thepurposesofthisAct,Anauthoritytobecalled(Nameofthe

area)IndustrialDevelopmentAuthority,foranyindustrial

developmentarea.

(2)TheAuthorityshallbeabodycorporate.

(3)TheAuthorityshallconsistofthefollowing:-

(a)TheSecretarytotheMember

Government,UttarPradesh,

IndustriesDepartmentorhisChairman

Nomineenotbelowtherankof

JointSecretary-ex-official.

(b)TheSecretarytotheMemberMember

Government,UttarPradesh,

PublicworksDepartmentorhis

nomineenotbelowtherankof

JointSecretaryex-official.

(c)TheSecretarytotheMember

Government,UttarPradesh,

LocalSelf-Governmentorhis

nomineenotbelowtherankof

jointSecretary-exofficial.

(d)TheSecretarytotheMember

Government,UttarPradesh,

58

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
FinanceMemberDepartmentor

hisnomineenotbelowtherank

ofJointSecretary-exofficial.

(e)TheManagingDirector,U.P.Member

StateIndustrialDevelopment

Corporation-exofficial.
(f)Fivememberstobenominated

MemberbytheState

Governmentbynotification.

(g)ChiefExecutiveOfficer.Member

Secretary

(4)TheheadquartersoftheAuthorityshallbeatsuchplaceas

maybenotifiedbytheStateGovernment.

(5)Theprocedurefortheconductofthemeetingsforthe

Authorityshallbesuchasmaybeprescribed.

(6)NoactorproceedingsoftheAuthorityshallbeinvalidby

reasonoftheexistenceofanyvacancyinordefectinthe

constitutionoftheAuthority."

30.WhenwecomparetheprovisionsofSection3of1976Actwith

thoseofSectionTheStateFinancialCorporationsAct,1951,itisclearthat

theestablishmentofCorporationinboththeenactmentsisbya

notificationbyStateGovernment.Inthepresentcase,notification

hasbeenissuedinexerciseofpowerofSection3,theAuthorityhas

beenconstituted.ItisusefultoextractparagraphNo.2ofthe

Notificationdated12.04.1976:

"2.TheGovernorisherebyfurtherpleased,inexerciseofthe

powersunderSection3ofthesaidAct,toconstitute,inrespect

oftheabove-mentionedIndustrialDevelopmentArea,forthe

purposesofthesaidAct,anAuthoritytobecalledthe'New

OkhlaIndustrialDevelopmentAuthority',consistingofthe

following,namely,

(i)SecretarytotheGovernment,Member

UttarPradesh,IndustriesChairman(Under

Department,MemberChairmanClause(a))

Exofficio

(ii)SecretarytotheGovernment,Member

UttarPradesh,PublicWorks

Department,ExOfficio(UnderClause(b))

(iii)SecretarytotheMember(Under

Government,UttarPradesh,Clause(c))

59

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Localself-Government,

DepartmentExofficio

(iv)SecretarytotheMember(Under

Government,UttarPradesh,Clause(d))

FinanceDepartment,Exofficio

(v)ManagingDirector,UPStateMember(Under

IndustrialDevelopmentClause(e))

CorporationLtd.Ex.Officio

(vi)Chairman,UPStateMember(Nominatedunder

ElectricityBoard,Ex-officioClause(f))

(vii)ChiefEngineer,UPJalMember

NigamBoard,Ex-officio(Nominatedunder

Clause(f))

(viii)ChiefEngineer,IrrigationMember

DepartmentUP,Ex-officio(Nominated

under(f))

(ix)ChiefTownandCountryMember

Planner,UP,Ex-officio(Nominatedunder

Clause(f))

(x)DistrictMagistrate,Member

Bulandshahr,Ex-officio(Nominatedunder

Clause(f))

(xi)ChiefExecutiveOfficerMember

Secretary(Under

Clause(g))"

31.ThisCourthavingalreadylaiddowninDalcoEngineering

(supra)thatestablishmentofvariousfinancialcorporationsunder

SectionStateFinancialCorporationAct,1951isestablishmentofa

CorporationbyanActorunderanAct.Weareoftheviewthatthe

aboveratiofullycoversthepresentcaseandwehavenodoubtthat

theAuthorityhavebeenestablishedbythe1976Actanditisclearly

coveredbytheNotificationdated22.10.1970.Itisfurtherrelevantto

notethatcompositionoftheAuthorityisstatutorilyprovidedby

Section3of1976Actitself,hence,thereisnodenyingthatAuthority

hasbeenconstitutedbyActitself.

15.10Intheinstantcasebeforeustheassesseehasnot

producedbeforeusanynotificationissuedbyorunderany

Central,StateorSectionProvincialActforconstitutionoftheassessee.In

ourconsideredview,theassessee-companyhasbeenmerely
60

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
registeredorincorporatedundertheSectionCompaniesAct,1956and

notcreatedasaconsequenceoftheSectionCompaniesAct,1956.

15.11InthecaseofShardaSahayakSamdeshKshettraVikas

NigamLtd(supra)theHon'bleAllahabadHighCourtheldas

under:

"3.Theassessee-companywasregisteredasaGovernmentpublic

company,asdefinedinSections.617oftheCompaniesAct,1956fora

largenumberofobjectswhicharementionedincls.(1)to(42)ofthe

memorandumofassociation,whichincludestheobjectslike(a)

modernization,maintenanceandoperationoftheirrigationsystem,

(b)developmentoffieldchannelsandfielddrainswithinthe

commandofeachoutlet,(c)consolidationofholdingsandre-

drawingoffieldboundary,(d)developmentofgroundwaterto

supplementsurfaceirrigation,(e)developmentofmarketingand

processingandcommunication,(f)townplanning,etc.,etc.During

thetwoyearsunderconsideration,noactivityofanysort

mentionedinitsobjectswastakenupandtheonlyincomederived

wasfrominterestearnedonfixeddeposit,etc.Itclaimeditsincome

tobeexemptunderSections.10(20A)oftheAct.Thisclaimhasbeen

negativedthroughout,andinourviewrightly,becausethe

assesseewasnotanauthorityconstitutedbyorunderanylaw

enactedeitherforthepurposesofdealingwithandsatisfyingthe

needforhousingaccommodationorforthepurposeofplanning,

developmentorimprovementofcities,townsandvillages.Itwasa

companyregisteredunderthegenerallawrelatingtocompaniesas

containedintheSectionCompaniesAct,1956and,therefore,itcould

notbetreatedasauthorityascontemplatedbySections.10(20A)of

theAct.Therefore,weanswerquestionNo.1,asreproduced

above,intheaffirmative,i.e.,infavouroftheCITandagainstthe

assessee."

(emphasissuppliedexternally)
15.12SimilarlyinthecaseofCITVs.StateIndustries

PromotionCorporationoftheTamilNaduLimited(supra),the

Hon'bleHighCourtrejectedtheclaimofbenefitunderSectionsection

10(20A)observingasunder:

"8.Itisanadmittedcasethattheassesseeisnotanauthority

constitutedinIndiabyorunderanylawenactedeitherforthe

purposeofdealingwithandsatisfyingtheneedforhousing

61

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
accommodationorforthepurposeofplanning,developmentor

improvementofcities,townsandvillages,orforboth.Itisalsoan

admittedcasethattheassesseehasbeenincorporatedunderthe

provisionsoftheSectionCompaniesAct,1956.Hence,theassesseecannot

claimthebenefitunderSections.10(20A)oftheITAct,1961,thoughit

mightcomewiththelaterpartoftheprovisionsofSections.10(20A)ofthe

ITAct,1961.

9.Forarrivingattheopinion,wecantakethesupportofsimilar

viewtakenbytheAllahabadHighCourtinthecaseofSectionSharda

SahayakSamadeshKshettraVikasNigamLtd.vs.CIT(2000)162

CTR(All)220:(2000)244ITR364(All),inwhich,whileanswering

thequestionastowhethertheTribunalwasjustifiedinholdingthat

theassesseecompanywasnotanauthorityasenvisagedinSections.

10(20A)oftheITAct,1961hasheldthattheassesseecompanywas

notentitledtoexemptionundercl.(20A)ofSections.10oftheITAct,

inasmuchasitwasregisteredasaGovernmentpubliccompanyas

definedinSections.617oftheCompaniesAct,1956andnotanauthority

constitutedbyorunderanylawenactedeitherforthepurposeof

dealingwithandsatisfyingtheneedforhousingaccommodationor

forthepurposeofplanning,developmentorimprovementofcities,

townsandvillages.

10.Mr.Ramachandran,learnedseniorcounselappearingforthe

assesseesubmitsthatinSectionCITvs.U.P.ForestCorporation(1998)145

CTR(SC)402:(1998)230ITR945(SC),theSupremeCourtwhile

rejectingthefindingoftheHighCourtthattheU.P.Forest

Corporationisalocalauthority,howeverremittedbackthematterto

theauthoritiesconcernedtoconsiderwhethertheU.P.Forest

CorporationisentitledtotakeadvantageoftheprovisionsofSections.11of

theITAct.Thesametreatmentmaybegiventotheassesseeherein

byrelegatingthemtogobeforetheauthoritiestoadvancetheircase

thattheyareentitledtotheadvantageoftheprovisionsofSections.11of

theAct.

11.Hereagain,wearenotabletoacceptthesuggestionmadeby

thelearnedseniorcounselforthereasonthatinthatcaseduringthe

courseofassessmentproceedingsfor1977-78,1980-81and1984-

85,theForestCorporationclaimeditsstatustobethatofalocal

authorityentitledtoexemptionunderSections.10(20).TheAOrejectedthe

claimandinrespectofasst.yrs.1977-78and1980-81,hetaxedit

inthestatusofartificialjuridicalpersonandinrespectoftheasst.

yr.1984-85asacompany.Theassesseethenfiledanappealin

respectoftheasst.yrs.1977-78and1980-81andtheCIT(A)came

totheconclusionthattherespondentwasalocalauthorityandas

suchitsincomewasexemptedfromtax.Thatorderwaschallenged
62

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
inappealbyRevenuebeforetheTribunal,whichsetasidetheorder

oftheCIT(A).Insteadoffollowingtheprocedureprescribedbythe

ActbywayofreferenceunderSections.256oftheITAct,theassesseefiled

threewritpetitionsintheAllahabadHighCourtchallengingthe

ordersofHighCourtinrespectoftheasst.yrs.1977-78and1980-

81andtheorderoftheassessingauthorityfortheasst.yr.1984-85.

Thewritpetitionswereallowedbycomingtotheconclusionthatthe

ForestCorporationwasalocalauthorityandthereforeitsincome

wasexemptfromtax.BeforetheHighCourt,itwascontendedthat

theassesseewasacharitableinstitutionandthereforeitsincome

wasinanycaseentitledtobeexemptedunderSections.11(1)oftheAct.

ThatcontentionwasfoundfavouredbytheHighCourt.Onappeal

byRevenuetotheSupremeCourt,theSupremeCourthasheldthat

theHighCourtwasnotcorrectincomingtotheconclusionthatthe

respondentwasalocalauthorityandentitledtoexemptionunderSections.

10(20)oftheAct,howeverrelegatedtheassesseesbeforethe

authoritiestoseektheclaimunderSections.11oftheAct.Thefactsofthe

presentcasearenotcomparabletothatofthedecisionofthe

SupremeCourtsoastograntthereliefbywayofrelegationtothe

authorities.Inthatcase,theSupremeCourthasalsogivena

cautionarynotethattheHighCourtwouldnothaveentertainedthe

writpetitionsandgrantedtherelief.Hence,wearenotableto

acceptthecontentionandthecontentionisrejected.

12.ThereliancemadeinSectionGujaratIndustrialDevelopment

CorporationOrs.vs.CIT(1997)142CTR(SC)181:(1997)227ITR

414(SC)bytheassesseedoesnotalsoadvancethecaseofthe

assesseeinviewofthefactthattheassesseeinthecitedcasewas

anauthoritycreatedundertheprovisionsofGujaratIndustry

DevelopmentAct,1962whichsatisfiedtherequirementofSections.10(20A)

oftheAct.Buttheassesseeinthiscasewasincorporatedunderthe

SectionCompaniesAct.

13.Inthelightoftheabovediscussions,thequestionoflawNos.1

and2inTaxCaseNos.112to114of2004andquestionoflawNos.

1to4inTaxCaseNo.205of2004areansweredagainstthe

assessee.ThequestionoflawNo.3inTaxCaseNos.112to114of

2004doesnotariseforconsiderationinthefactsandcircumstances

ofthecaseandhencethesameisnotanswered.ThusTaxCase

Nos.112to114of2004areallowedandTaxCaseNo.205of2004

isdismissed."

15.13TheLd.Seniorcounselhasplacedrelianceonthedecision

oftheHon'bleSupremeCourtinthecaseofGujaratIndustrial

DevelopmentCorporationVs.CIT(supra)tosupportthe

63

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
contentionthatassesseeisanauthorityconstitutedbyorunder

SectionCentralActi.e.theSectionCompaniesAct,1956.Butinthesaidcasethe

Hon'bleSupremeCourthasobservedthatsaidassessee-company

wascreatedundertheGujaratIndustrialDevelopmentAct,1962,

whereasintheinstantcase,theassesseehasbeenregisteredwith

theSectionCompaniesActonlyandnotcreatedundertheSectionCompaniesAct

oranyotherCentralorSectionStateActandthustheratioofthesaid

decisioncannotbeimportedovertothefactoftheinstantcase.In

thecaseofVidarbhaIrrigationDevelopmentCorporation

(supra)also,theissuewhethertheassesseewasconstitutedby

underCentralorSectionStateActwasnotindisputeandthus,theratio

ofthesaiddecisioncannotbeappliedoverthefactsoftheinstant

case.

15.14Similarly,theratiooftheotherdecisionsrelieduponbythe

assesseearenotapplicableoverthefactsoftheinstantcase.The

Ld.Seniorcounselalsoplacedrelianceonthedecisionofthe

Hon'bleDelhiHighCourtwhereinthetaxleviedbytheDelhi

MunicipalCorporationTaxAct,1957ontheassesseewasheldto

benotleviableinviewoftheSectionsection184oftheIndianRailway

Act,1989.TheLd.counselsubmittedthattheHon'bleCourtheld

thattheassesseeis,infacta"Railway"and,canberegardedas

withintheexpression"RailwayAdministration".Inviewofthe

aboveobservationoftheHon'bleDelhiHighCourt,theLd.

counselsubmittedthatitestablishesandbeyonddoubtthatthe

assesseehasbeenconstitutedinIndiaunderanylawenacted

thoughintheformofacompanyandisanauthority.Wedonot

agreewiththeaboveargumentoftheLd.counselbecausethe

64

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
saiddecisionwasinrelationtolevyofmunicipaltaxesandnotin

relationtotheIncome-taxprovisionsofparticularlySectionsection

10(20A)oftheAct,whereithasbeenspecifiedthattheassessee

shouldbeanauthorityconstitutedinIndiabyorunderCentral,

StateorSectionProvincialAct.

15.15TherelianceplacedbytheLd.counselontheCBDT

circular(supra)isalsoofnoassistancetotheassesseeasthesaid

circularwasinrelationtoincomeofthehousingboardsorother

statutoryauthoritiessetupbythestategovernmentforthe

purposeofdealingwithorsatisfyingtheneedforhousing

accommodationorforthepurposeofplanningdevelopmentor

improvementofthecities,townsandvillages.

15.16Inviewofthedecisionsdiscussedaboveandkeepingin

viewthefactscircumstancesofthecase,werejectthe

contentionoftheLd.counseloftheassesseethatthelanguage

employedinSectionsection10(20A)oftheActiswideranditisnot

necessarythattheassesseebecreatureofCentralorSectionStateAct,as

providedinSectionsection10(23BB)andSectionsection10(23BBA)oftheAct.

15.17Thus,theassesseefailedtosatisfytheconditionof

"authorityconstitutedbyunderanyCentral,StateofProvincial

Act".Inviewofthefailuretosatisfythiscondition,theassessee

cannotbegrantedbenefitofexemptionunderSectionsection10(20A)of

theAct.Sincewehaveheldtheassesseenoteligibleforexemption

underSectionsection10(20A)oftheActastheassesseehasnotbeen

constitutedbyorunderanySectionCentralAct,thus,wearenot

adjudicatingontheargumentsofthepartiesastowhetherthe
65

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
assesseeisanauthorityornotassamearerenderedonly

academic.

15.18Inviewoftheabove,thegroundNo.1raisedinallthe

respectiveappealsisdismissed.

16.Inothergroundsraisedinappealsbeforeus,theissuesof

assessinginterestincomefromfixeddepositswithbankbythe

AssessingOfficer,non-allowanceofexpenditureincluding

professionalandconsultancyexpensesclaimedintheprofitand

lossaccount,non-allowanceofdeductionunderSectionsection35Dof

theActetc.havebeenraised.Inassessmentyear2002-03,the

assesseehasalsoraisedtheissueofquantumofexpenditure

allowedagainstinterestincomeassessedunder"Incomefrom

othersources".Intheadditionalgroundsraisedinallthe

respectiveappeals,theassesseehasrequestedforadjustmentof

interestearnedonfixeddepositagainstthecostoftheprojectand

inalternativeclaimedforcapitalizationoftheentireexpenditure

claimedintheprofitandlossaccountforaddingtothecostofthe

project.Intheseissues,themainissueofcontentioniswhether

thebusinessoftheassesseewassetupornot.

16.1TheLd.SeniorCounseloftheassesseecontendedthatthe

respectivelowerauthoritieshavedeniedtheclaimofadjustment

ofinterestincomeearnedonfixeddepositagainstthecostofthe

project,allowanceofexpensesclaimedinprofitandlossaccount

includingconsultancyandprofessionalexpenses,claimof

deductionunderSectionsection35DoftheActinappealsofrespective

assessmentyears,onthegroundthatbusinessoftheassessee

hasbeencommencedonlyon25/12/2002,whentheDelhiMetro

66

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
trainwasruncommercially.TheLd.Seniorcounselsubmitted

thatitissettledlawthat,whenabusinessisestablishedandis

readytocommencethenitcanbesaidthatbusinessissetup;

buthowever,beforeitisreadytocommencebusiness,itisnotset

up.Itwassubmittedthatitisonlytheexpenditurethatare

incurredafterthesettingupofthebusinessareliabletobe

allowedadeductionandnottheexpenditureincurredpriortothe

settingupofthebusiness;andtherewillbesometimegap

betweenthesettingupandthecommencementofbusiness.

Reliancewasplacedonthefollowingjudgments:

a)SectionWesternIndiaVegetableProductsv.CIT26ITR151,158-9(Bom)

b)SectionSarabhaiManagementCorp.Ltd.v.CIT102ITR25(Guj)affirmed

byApexCourtinthecaseofSectionCITv.SarabhaiManagementCorp.
Ltd.192ITR151
16.2TheassesseespecificallyreliedonthejudgmentofHon'ble

DelhiHighCourtinthecaseofSectionCITv.JubilantOffshoreDrilling

(P)Ltd.ITANo.694/2014dated24.11.2014whereintheHon'ble

Courthasheldasunder:

"8.Noticeably,therespondentassesseehadthemselvesaddedbacktheRegistrar

ofCompanies'filingfeeofRs.20,80,000/-andhadapplied/claimedthesaid

expenseunderSection35DoftheAct.ThedepreciationofRs.26,65,819/-had

alsobeenaddedbackbytherespondentassessee.Thisfactualpositionwas

ignoredintheassessmentorder,withoutanyexplanation.Otherexpenditurewas

notdirectlyrelatableandhavingnexuswiththeoilexplorationcosts.Thisisnot

thefindingoftheassessingofficeroranissueraisedbeforeus.Theyareclearly

businessexpense.

9.TheAssessingOfficerhadalsodisallowedRs.2,90,854/-underSection35Dof

theActbeingexpensesrelatingtoincreaseintheauthorisedcapital.Oncewe

holdthatthebusinesshadbeensetuporratherthebusinesshadcommenced,the

saidadditionmadebytheAssessingOfficerdisallowingtheclaimunderSection

35DoftheActhastoberejected."

67
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
16.3Itwassubmittedthattheassesseeisengaged,inplanning,

designing,construction,etc.,oftheMassRapidTransitSystemin

thecityofDelhi.Itwassubmittedthatasperitsmemorandum

themainobjectivestobepursuedbytheassesseeincludes,inter

alia,planning,designing,development,construction,

maintenance,operation,andfinancingoftheMassTransitand

otherUrbanTransportandPeopleMoverSystemsofalltypesand

description,intheNationalCapitalTerritoryofDelhiandother

areasoftheNationalCapitalRegion.AcopyoftheMemorandum

ofAssociationisplacedonrecord.Itwassubmittedthatduring

theassessmentyear1997-98,theassesseehadundertaken,inter

alia,planning,designingandfinancingactivitiesinrespectofits

MassRapidTransitSystemProject.Themajorstepstaken

duringtheyearasapartofimplementingtheprojectincludes:

(a)SigningoftheLoanAgreementbyGOIwithOEC(Japan)on25th

February1997;

(b)FinalisationoftheworkforappointmentofGeneralConsultants

i.e.invitingexpressionsofinterestfromreputedGeneral

ConsultancyFirms,PreparationofBidDocuments,etc;

(c)PurchaseofOfficebuildingatNBCCplaceonBhishmaPitamaha

MargatacostofRs.16.73croresfromtheMinistryofUrban

AffairsandEmployment,GovernmentofIndia,NewDelhi;

(d)Variousstepsundertakenaspartofplanninganddesigningof

theproject;

16.4Theassesseesubmittedthatthebusinessactivitiesofitcan

beclassifiedunderthefollowingthreebroadstages:

Stage1Planning,DesigningandFinancingoftheMass

RapidTransitSystem(MRTS)Project;

68
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Stage2ConstructionandDevelopmentoftheMassRapid

TransitSystem(MRTS)Project;

Stage3OperationandmaintenanceoftheMassRapid

TransitSystem(MRTS)Project.

16.5Itwassubmittedthattheabovebroadstagesoftheproject

areinterrelatedandonemustnecessarilyprecedetheother.

Stage-1oftheprojectbeingPlanning,Designingandfinancingof

theprojectneedstobecompletedbeforeStage-2being

constructionanddevelopmentoftheprojectistakenup.

SimilarlyStage-3beingoperationandmaintenanceoftheproject

cancommenceonlyafterStage-2oftheprojectiscompleted.It

wasfurthersubmittedthatduringthepreviousyearrelevantfor

theassessmentyear1997-98firststageoftheprojectcomprising

ofplanning,designingandfinancingactivitiesoftheprojectwere

initiatedbytheassessee,henceitcouldcertainlybeconcluded

thatthebusinessactivityoftheassesseehadcommencedin

assessmentyear1997-98.Referencewasmadetothejudgmentof

Hon'bleGujaratHighCourtinthecaseofSectionCITV.Saurashtra

CementandChemicalIndustriesLimited(1973)91ITR170

(Guj).Inthesaidcasethecompanywasformedforthe

manufactureandsaleofcement.Theactivities,whichconstitute

businessoftheassessee,couldbedividedintothreecategories,

firstcategorybeingextractionofLimestone,secondcategory

beingmanufactureofcementandthirdcategorybeingsaleof

cement.TheHon'bleHighCourtinthesaidcasehasheldthat,

businessconnotesacontinuouscourseofactivities.Allthe

69

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
activities,whichgotomakeupthebusiness,neednotbestarted

simultaneouslyinorderthatthebusinessmaybesaidtohave

commenced.Thebusinesswouldcommencewhentheactivity

whichisfirstinpointoftimeandwhichmustnecessarilyprecede

allotheractivitiesisstarted.Applyingthesame,itwassubmitted

thatinthecaseofassesse,businesshastobeconsideredtohave

commencedwhentheactivity,whichisfirstinpointoftimeand

whichnecessarilyprecedesallotheractivitiesisstartedor

commenced.Itwassubmittedthatduringtheassessmentyear

1997-98,theassesseehadcommencedtheplanning,designing

andfinancingactivitiesinrespectofitsMassRapidTransit

SystemProject,activities,whichmustnecessarilyprecedeall

otheractivitiesandhence,businessactivityoftheassesseeisto

beconsideredascommenced.Ontheadversefindingbythelower

authoritiestotheeffectthatthestage-1hasnotcommenced,the

assesseesubmittedthatonsettingupofofficeandappointment

ofkeyexecutivesandconsultants,theDMRCi.e.assessee

startedtheworkofplanninganddesigningoftheMRTSproject.

TheDMRCappointedM/s.RailIndiaTechnicalEconomic

ServicesLtd.(RITES)asconsultants,whodidsubstantial

planningworkfortheMetroandwhowerepaidonprogressive

completionoftheirwork.Itwassubmittedthatanamountof

Rs.3,42,00,000/-waspaid/payablefortheworkdoneduringthe

assessmentyear1998-99.Itwassubmittedthatdetailsof

consultancyfeepaidduringthevariousassessmentyearsareon

record.Copiesofletterofappointmentof"RITES"asStanding

TechnicalConsultantswerealsoplacedonrecord.Itwas

70

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
submittedthatinsucceedingassessmentyears,theassessee

companyevenreceivedconsultancyincome,detailsofwhichare

alsoplacedonrecord.Itwassubmittedthatinpara4.5forthe

AssessmentYear1999-2000,theDCIThasobservedasunder:

"Businesscanbeconsideredtohavecommencedonlywhenactual

planninganddesigningofMetrosystemstarts,leadingto

constructionactivities.Thiswouldindicatecompletionoffirststage

ofactivityasperMemorandumofAssociation."

16.6ItwassubmittedthatthelearnedDCIThasadmittedthat,

businesscanbesaidtohavecommenced,whenactualplanning

and,designingofMetroSystemstarts,whichleadsto

constructionactivities.Itwassubmittedthatintheinstantcase,

thus,planningand,designingofMRTSinFinancialYear1996-97

itselfledtocommencementofbusinessand,evenifitisheldthe

samewasonlyleadingtoconstructionactivities,thebusinesscan

besaidtohavecommenced,thoughthesubmissionofassesseeis

that,assesseewasindependentlyengagedisbusinessofactual

planninganddesigningofMetrosystems.Itwassubmittedthat,

themoment,theassesseestartedincurringofexpenseson

planninganddesigning,whichwasF.Y.1996-97itself,business

hadcommenced.Theaforesaidconclusionfurthershowthat,the

learnedAOadmitsthat,planningand,designingisthebusiness

oftheappellantbuthoweverunlesssuchplanningand,designing

isofMetroSystem,thebusinesscannotbesaidtohave

commenced.Itwassubmittedthat,perusaloftheconsultancy

servicesobtainedbytheassesseewouldshowthat,suchreports

from"RITES"wereinrespectofonlyplanningand,designingof

MetroSystemsand,accordinglyithastobeheldthat,assessee

71

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
hascommencedbusinessinassessmentyear1997-98which

subsequentlyundisputedlyledtoconstructionactivities.

16.7Inviewoftheabovearguments,wecansummariesthat

accordingtotheLd.Sr.Counseloftheassessee,businessofthe

assesseewassetupinassessmentyear1997-98corresponding

tothefinancialyear1996-97withinitiationofplanning,

designingandfinancingoftheMRTSproject.

17.TheLd.DR,ontheotherhand,submittedthatbusinessof

theassesseewascommencedonlyfrom24/12/2002andpriorto

thatitwasintheprocessofsettingupthemetronetworkin

nationalcapitalregion.AccordingtotheLd.DRthetotalrevenue

shownintheprofitandlossaccountfortheassessmentyear

1997-98toAY2001-02wasconsistmainlyoftheinterestincome

earnedonthefixeddepositandtherewasnorevenuefromthe

operationalactivity.Regardingtheconsultancyexpensesclaimed

tohavebeenincurredbytheassessee,theLd.DRsubmittedthat

thoseconsultancychargeswerepaidmainlyforsettingupthe

businessofMetrorailnetworkandnotforearningincomefrom

consultancy.Accordingtohim,noincomefromconsultancyhas

beenshownbytheassesseeuptoassessmentyear2001-02.He

submittedthatprovidingconsultancyisnottheobjectiveofthe

companyandanysmallamountofincomeofapprox.Rs3.00

lakhsshowntohaveearnedbywayconsultancy,cannotleadto

resultthatbusinessoftheassesswassetup.

18.Wehaveheardtherivalsubmissionofthepartiesand

relevantjudicialdecisionsontheissueaswhenthebusinessof

72

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
anassesseecouldbecalledassetup.Todecidethepresent

controversy,weneedtorefertoSectionsection3oftheIncome-taxAct,

whichstatesthatthe"financialyear"immediatelyprecedingthe

"assessmentyear",wouldbethepreviousyear,butfornewlyset

upbusinessorprofession,orsourceofincomenewlycoming

intoexistence,thepreviousyearwouldbeginswiththesetting

upofbusinessorprofessionorthedateonwhichthesourceof

incomenewlycomingintoexistence.

18.1Further,aspertheprovisionsofSectionsection4oftheAct,which

ischargingsection,Income-taxischargedinrespectofthetotal

incomeofthepreviousyearofeveryperson.Thusinotherwords

wemaysaythatincomeunderthehead"ProfitandGainsofthe

BusinessorProfession"canarisestoanassesseefromthedateof

settingupthebusiness,whichischargeabletotaxdependingon

whetheritisinnatureofcapitalorrevenue.TheSectionsection28isthe

chargingsectionfor"profitandgainsofbusinessandprofession"

whichprescribesthatprofitandgainsofbusinessandprofession

whichwascarriedonbytheassesseeanytimeduringthe

previousyear,ischargeabletotax.Foranyincometobe

classifiedasincomeunderthehead"profitandgainsofthe

businessofprofession"itmustbeanactivitywhichisconnected

insomemannerorformwiththebusinessoftheassessee.The

term"business"hasbeendefinedinSectionsection2(13)asincluding

anytrade,commerceormanufactureoranyadventureorconcern

inthenatureofthetrade,commerceormanufacture..

18.2WefindthatInthecaseofCITVsHughesEscorts

Communication[2009]311ITR253,ithasbeenheldthat"the

73

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
expensesincurredinthepreviousyear,priortothecommencement

ofthebusinessbutafterthesettingupofitsbusiness,whichtwo

datesneednotbethesame,wouldbedeductibleasrevenue

expenses".Inthesaidcase,whilemakingdistinctionbetween

thesettingupandcommencementofabusinesstheHon'ble

CourthasreliedupontheBombayHighCourtinWesternIndia

VegetablesProductsLtd.(supra)Inthiscase,theBombayHigh

Court,whichwasinthiscasedealingwiththecorresponding

provisionoftheSectionIndianIncome-taxAct,1922,thenexplainedthe

distinctionbetweentheconceptsof'commencement'and'setting

up'ofabusiness:

"......Itseemstous,thattheexpression'settingup'means,as

isdefinedintheOxfordEnglishDictionary,'toplaceonfoot'or

'toestablish',andincontradistinctionto'commence'.The

distinctionisthatwhenabusinessisestablishedandisready

tocommencebusinessthenitcanbesaidofthatbusinessthat

itissetup.Butbeforeitisreadytocommencebusinessitisnot

setup.Buttheremaybeaninterregnum,theremaybean

intervalbetweenabusinesswhichissetupanda

businesswhichiscommencedandallexpensesincurred

afterthesettingupofthebusinessandbeforethe

commencementofthebusiness,allexpensesduringthe

interregnumwouldbepermissibledeductionsunder

Sectionsection10(2)...."

18.3InthecaseofSarabhaiManagementCorpn.Ltd.[1976]

102ITR25(Guj.),theHon'bleGujaratHighCourthasheldthat

thebusinesscommenceswiththefirstactivityforacquiringby

purchaseorotherwiseimmovableproperty.Theremaybean

intervalbetweenthesettingupofthebusinessandthe

commencementofthebusiness.Allexpensesincurredduring

thatintervalarealsopermissiblefordeduction.

74
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
18.4ThedecisionofHon'bleGujaratHighCourtinthecaseof

SarabhaiManagementCorpn.Ltd.(supra)hasbeenaffirmedby

theHon'bleSupremeCourtinthecaseofSectionCITv.Sarabhai

ManagementCorpn.Ltd.[1991]192ITR151,wherethe

Hon'bleSupremeCourtwentastepaheadthateventheactivities

atapreparatorystagearealsoadmissible.Itiswellsettledthat

alltheexpensesincurredafterthebusinesshadbeensetupare

allowableasbusinessdeductionunderSectionsection37oftheAct.

Theremaybeintervalbetweenthesettingupofthebusinessand

theactualcommencementofthebusinessbutalltheexpenses

incurredduringtheintervalofsettingupofthebusinessandthe

commencementofthebusinessarealsopermissiblefordeduction

assoheldintheabovereferreddecisions.

18.5TheLd.CIT(A)inassessmentyear1998-99alsoreferredto

variousdecisionsontheissueofsettingupofthebusiness.

ThosedecisionshavebeenfollowedbytheLd.CIT(A)sinother

yearsbeforeus.Therelevantdecisionsarealsoreproducedas

under:

"6.InappealitwassubmittedthattheAssessingofficerhaderred

inholdingthattheappellanthadnotcommenceditsbusiness.Ihave

consideredthefactsofthecaseincludingtheobjectsofthecompany

andthedirectorsreportextractofwhichhasbeenreproducedabove.

Onthefactsandinthecircumstancesofthecase,theconclusionis

inescapablethattill31.3.1998thebusinessoftheappellanthad

notbeensetup.Inthisconnection,thefollowingdecisionsare

relevant:-

Themerepurchaseanderectionofmachinerywillnotamountto

startingofthebusiness,thoughtheymaybeessentialpreliminary

stepsforstartingthebusiness.Theassesseecanbetakentohave

startedthebusinessonlywhenhisplantand

machinerygointoproducts.

75
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/SectionDel/2003

DelhiMetroRailCorporationLtd.,NewDelhi
K.SampathKisserV.CIT,(1986)158ITR25(Mad.)
Amanufacturingconcerncannotbesoldtohavesetupitsbusiness

simplybyinstallingthemachineryandgivingitatrialwithahire

generatorset.

CITVs.ForgingStamping(P.)Ltd.(1979)119ITR616

(Bomb.)
Abusinessissetuponlywhenitisreadytocommencesmere

obtainingalandonleaseandplacingofordersofrawmaterialsand

machinerywillnotmeanthatbusinesshasbeensetup.

SectionCITV.SarabhaiSons(P)Ltd.(1973)90ITR318(Guj.)
Whereduringtherelevantpreviousyearassesseehadprocured

ordersbutneitheritsplantormachineryhadbeeninstallednorany

manufacturingactivitycommencedinpreviousyear,itcouldnotbe

saidthatassessee'sbusinesshadbeensetupinthepreviousyear.

SectionCITV.LTMcnellLtd.(1993)202ITR662(Bom.)
Whereworksrelatingtoconstructionofplantandinstallationof

machineryforestablishingfactoryforspongeiron,wereinprogress

duringrelevantyearsandmachinerywasawaitedandproduction

workhadnotcommenced.Itcouldnotbesaidthatbusinessof

assessee
CITVs.SpongeIronIndiaLtd.(1993)201ITR770(AP)
Wherehotelbuildingofassesseswasnotcomplete,merelybecause

banquethallisincompletehotelbuildingwasletoutbyassessee,it

wouldnotfollowthathotelbusinessassuchwassetupby

assessesbythedateoflettingoutbanquethall.

SectionCITV.PlemHotel(P)Ltd.(1994)209ITR616(Bom.)
(Emphasissuppliedexternally)
18.6Inviewoftheabovejudicialpronouncement,wecan

concludethatwhenabusinessisreadytocommence,thatmeans

76

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
businesshasbeensetupthoughitmaynothavebeenactually

commenced.Thebusinessesmentionedintheabovejudicial

pronouncementareoforengagedeitherinthetradingor

manufacturingorserviceoftheproducts,Incaseoftrading

concern,whenanassesseeisreadywithhissetupofshopsetc

andthemomenthebuysorpurchasesgoodsofstock-in-trade,he

isreadytocommencehisbusinessoftradingandhisbusiness

canbecalledassetup.Incaseofmanufacturing,whenan

assesseesetuphismanufacturingapparatuslikefactoryetc

alongwithplantandmachineryandallpowerorwaterconnection

requiredandthereaftermomenthebuysrawmaterialforthe

manufacturingofproducts,heisreadytocommencethe

businessofmanufacturing,thoughfinishedgoodsmightbe

producedorsoldafteraintervaloftheperiod,andbusinessof

manufacturingwouldbecalledassetup.Wherever,the

manufacturinginvolvesmultiplesteps,wherethefinishedgoods

ofonestepmaybeusedasrawmaterialforotherstep,insuch

cases,setupoffirststepofmanufacturingwillsufficetohold

thatthebusinessofmanufacturingissetup.Incaseofservice

industries,whentheapparatusorinstrumentforproviding

serviceisready,thenbusinesscanbecalledassetup.Inthe

caseofPlemHotelPrivateLimited(supra),theHon'bleBombay

HighCourthasheldthatbymerelylettingoutofbanquetHall

withoutcompletingthehotelbuilding,itcannotbesaidthathotel

businesswassetupbytheassesseebythedateoflettingout

banquetHall.Intheinstantcasebeforeus,alsotheassesseeis
77

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
engagedinprovidingservicesofrailtransportbywayof

constructionofMetrorailwaynetworkinDelhiNCRregion.

18.7Theclaimoftheassesseethatbusinessoftheassessee

consistof3stagesi.e.stageI:planning,designingandfinancing

oftheMRTSprojectstageII;constructionanddevelopmentofthe

MRTSprojectandstageIII;operationandmaintenanceofthe

MRTSproject.Accordingtotheassessee,abovebroaderstagesof

theprojectareinterrelatedandcommencementoftheonemust

necessarilyprecedethatoftheother.Stageoneoftheproject

beingplanning,designingandfinancingoftheprojectneedstobe

commencedbeforeastage-2,beingconstructionand

developmentoftheprojectistakenup.Similarly,stageIII,being

operationandmaintenanceoftheprojectcancommencedonly

afterStageIIoftheproject.

18.8WeareoftheopinionthatprojectoftheassesseeofMetro

railwaynetworkforNCRregion,mustbeseenasprojectasa

wholeofprovidingservicesofMetroRailfacilitytopeopleand

cannotbeseeninstagescreatedbytheassesseeforthepurpose

ofcommencementofthebusiness.Theultimaterevenue

generatingactivityisfromoperationandmaintenanceofthe

projectandnorevenuecouldbeearnedatthestageof

planning/designingandconstructionoftheMetrorailnetwork.In

suchcircumstances,thebusinessoftheassesseecouldbecalled

assetuponlywhentheentireconstructionworkrelatedto

infrastructureincludingconstructionofMetroStationwas

completedandtheassesseecompanywasreadytooperatethe

Metrorail.Since,theassesseewasnotreadytocommenceor

78

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
operatetherailwaynetworktillassessmentyear2002-03,which

wasthesourceofrevenuegenerationoftheassessee,,business

oftheassesseewasnotsetuptillthatperiod.Inthecaseofthe

SaurashtraCementandChemicalIndustriesLimited(supra)

relieduponbytheassessee,companywasengagedin

manufacturingandsaleofcementandthusinthatcase

extractionoflimestonewasoneofthestepofmanufacturing

activity,whichwasreadytocommenceandhencethebusinessof

manufacturingofassesseewasheldtobesetup.Thelimestone

itselfwasasaleablecommodity,thoughmightnothavebeen

sold.Butintheinstantcasetheassesseeisnotengagedin

manufacturinganditisengagedinprovidingservicesofrail

transportandthesaidservicecannotbeprovideduntiland

unlesstheentireinfrastructureforrunningMetrorail,is

established.Theclaimoftheassesseethatitwasalsoengagedin

providingconsultancyservicesduringtheperiodisnotsupported

bytheevidences.Duringtheperiodinvolvedinappealbeforefor

us,theassesseehasavailedconsultancyservicesinrelationto

establishmentofMetrorailwaynetworkandotherrelated

infrastructure.Thus,inouropinion,therewasnoseparate

businessofprovidingconsultancybytheassessee,atleastinthe

periodinvolvedinappealsbeforeusexceptsmallamountof

consultancyincomeshowninAY2002-03.Theproviding

consultancyisnotthemainobjectoftheassesseecompanyand

byearningsmallamountofconsultancy,thebusinessofassessee

ofprovidingmetrorailtransportfacilitycannotbecalledasset

up.

79
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
18.9Intheinstantcasebeforeus,duringassessmentyear1996-

97,thecompanyhadnopersonunderitsemploymentwhichis

evidentfrompage-4oftheAnnualReportasunder:

"EMPLOYEES:

IntheFinancialYear1995-96,therewasnoemployeeinthe

Companyandtheworkrelatingtothecompanywasmainly

performedbytheemployeesofMinistryofUrbanAffairsand

Employment.TheBoardPlacesonrecorditsappreciationofthe

servicesrenderedbytheemployeesofMinistryofUrbanAffairsand

Employment."

18.10Theassesseedidnotincuranyexpensesoncapitalwork-

in-progressfortheprojectofMetrorailwaynetwork.Onpage2of

theAnnualReportundertheheading"PresentActivities",itis

reportedthatduringtheperiodunderAY1996-97,thecompany

wasregisteredthoughitcouldnotbemadefunctional

immediatelyandeffectivestepsweretakentosetthefinal

investmentapprovalfromthecabinetfortheimplementationof

DelhiMRTSproject.Inviewofthecircumstances,weholdthat

thebusinessoftheassesseecannotbetreatedassetupasfaras

assessmentyear1996-97isconcerned.

18.11Intheremainingassessmentyearsbeforeus,i.e.,

assessmentyears1997-98to2002-03,theassesseehasincurred

capitalwork-in-progressandtheassesseehasclaimedthatits

businesswassetupinassessmentyear1997-98.IntheAnnual

Reportforthefinancial1996-97,correspondingtoassessment

year1997-98,theDirector'sreportmentionedonthestatusofthe

projectasunder:

80
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
"I.STATUSOFTHEPROJECT
TheUnionCabinetaccordedinvestmentapprovaltotheDelhiMetro

RailProjectatacostofRs.4860crores(atApril,1996prices)on

17thSeptember,1996.PhaseIoftheDelhiMRTSProjectas

approvedbythecabinetwouldconsistofa55.3K.M.railway

network,ofwhich11K.M.willbeanundergroundMetroCorridor

(CentralSecretariat-ConnaughtCircus-NewDelhiRailwayStation-

ChawriBazar-DelhiJunction-ISBT-OldSecretariat-DelhiUniversity)

and44.3K.M.willbe"atgrade''/"elevated"railcorridors

(Shahdara-ISBT-NangloiandPulBangash-HolambiKalan).The

formalcommencementdatefortheprojecthasbeendecidedas1st

April,1997andthestipulatedcompletionperiodasagreedtowith

theOECF(Japan)willbeeightyears.

PendingappointmentoftheGeneralConsultant,RITEShavebeen

providinginterimconsultancytoDMRCw.e.f.LI.97.Thefollowing

majorstepshavebeentakentowardsimplementationoftheproject

duringtheoftheyear:

(i)SigningofloanagreementbyGOIwithOECF(Japan)on25th

February,1997;

(ii)NationofpreliminaryworkforappointmentofGeneralConsultant

i.e.invitingexpressionsofinterestfromreputedgeneralconsultancy

firms,preparationofbiddocuments,etc.
(iii)PurchaseofofficebuildingatNBCCplaceonBhishmaPitamaha

Marg(Opp.LodhiRoad)atacostofRs.16.73croresfromthethe

MinistryofUrbanAffairsEmployment,GovernmentofIndia,New

Delhion31stMarch,1997
II.FINANCIALRESULTS

(Rs.inlakhs)

1995-961996-97

(i)Sales(IncomefromOperations)NilNil

(ii)OtherIncome2.3938.12

TotakIncome2.3938.12

(i)ExpenditureNil66.07

(ii)Preliminaryexpenditurewrittenoff8.078.07

TotalExpenditure

(iii)GrossProfit/Lossafterinterest,(-)5.68(-)36.02

depreciationtaxinterest

(iv)Grossprofit/lossafterinterestbut(-)5.68(-)36.02

beforedepreciationtax

(v)DepreciationNilNil

81

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
(vi)ProvisionoftaxationNilNil

(vii)Netprofit/loss(-)5.68(-)36.02

(i)Paidupequitysharecapital161.04161.05

(ii)Shareapplicationmoney119.525794.99

pendingallotment

Toal280.525956.04

ReservesNilNil

Dividend(Proposed)NilNil
Duringthefinancialyear,totalreceiptsofthecompany,mainly

fromthecontributiontowardsequityfromGovt.ofIndiaandGNCTD

wereRs.56,75,20,000/-,thebreak-upofwhichisasunder:

GOI-Rs.52,00,00,000/-

GNCTD-Rs.4,75,52,000/-

ThetotalexpenditureduringtheyearwasRs.17,39,30,992/-,the

break-upofwhichisasunder:

RevenueExpenditure-Rs.66,07,592/-

CapitalExpenditure-Rs.16,73,23,400/-

Thecapitalexpenditureduringtheyearwasmainlyduetothe

purchaseofbuildingandrevenueexpenditurewasmainlyduetothe

paymentofconsultancyfeestoRITES.

III.EMPLOYEES
Duringtheyearunderreview,stepshavebeeninitiatedtoemploy

keyfunctionariesinthecompany.However,noregularemployee

wasontherollsofthecompanyduringtheyear.Theworkofthe

companyduringtheyearwas,therefore,carriedoutmainlybythe

employeesoftheMinistryofUrbanAffairsEmploymentandthe

servicesofRITESwereutilizedfortechnicalconsultancyandother

work.TheBoardplacesonrecorditsappreciationoftheservices

renderedbyRITESandtheemployeesoftheMinistryofUrban

AffairsEmployment.

Therewasnoemployeeintheemploymentofthecompanywho

wasdrawingsalaryofmorethanRs.25,000/-p.m.,ifemployedfor

thepartoftheyearandRs.3,00,000/-perannumifemployedfor

thefullyear,inwhoserespectinformationunderSection217(2A)of

theCompaniesAct,1956,readwithCompanies(Particularsof

Employees)Rules,1975isrequiredtobegiven.

82
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
IV.ENERGYCONSERVATION,TECHNOLOGYABSORPTIONAND

FOREIGNEXCHANGEEARNINGSANDOUTGO(PURSUANT

TOSECTION217(1)(E)OFTHECOMPANIESACT,1956)
Sincetheimplementationoftheprojectonthegroundhasnot

yetbeenstarted,nostepshavebeentakenforconservationof

energyandtechnologyabsorption.

Thecompanyhasbadnoforeignexchangeearningsand

outgoesduringtheyear.

V.ACKNOWLEDGEMENTS
YourDirectorsplaceonrecordtheirappreciationfortheCo-

operationassistancereceivedfromtheMOUAE,OECF,RITES,

NBCCandRailwayBoard.

ForonbehalfofBoardofDirectors

Sd/-

(N.P.Singh)

Chairman."

18.12Itisevidentfromtheadmissionofthedirectorsthatthere

werenoregularemployeesontherollsoftheassesseecompany

duringtheyearandnoworkforimplementationoftheprojectof

DelhiMRTSconsistingof55.3kms.railwaynetwork.Thus,

businessoftheassesseecannotbecalledassetup.

18.13AccordingtotheLd.CIT(A)alsoinassessmentyear1997-

98,thebusinessoftheassesseewasnotsetup.Therelevant

findingoftheLd.CIT(A)isreproducedasunder:

"6.2ThesubmissionsoftheARweresenttotheAOvidereport

dated04.12.2000,theAOhasstatedthatthisissuewasexamined

indetailinAY1998-99.Inpara2.2ofherreporttheAOhasstated:

"Ananalysisoftheactivitiesearnedoutduringtheyearindicate

thattheseactivitieswereaimedtowardsoperationalsingthe

organizationandnottowardscommencementofbusiness.These

activitiesareobviouslypre-operativebeforecommencementof

business".Inthisregardtotherelianceplacedbytheappellanton

thedecisionofSaurashtraCementandChemicals(supra)theAO

hasstated:"Butthefactsofthecaseoftheassesseecompanyfor

thisyeararedifferent.Detailsfiledduringthecourseofassessment

proceedingsandasdiscussedinpara2.2aboveshowthatafew

83

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1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
stepsweretakenduringtheyearbythecompanytosetinmotion

theprocessofcommencementofbusiness.ArelianceonGujarat

HighCourtdecisionisnotcorrectforinthesaiddecisiontheHigh

Courtmadeadistinctionbetweencommencementofbusinessand

settingupofbusiness.Settingupofbusinesshasbeenconsidered

atthestageofcommercialoperationwhereascommencementof

businesshasbeenconsideredatthestagewhenpreparationsfor

settingupbusinesswereunderway.InSaurashtraChemicalsthe

HighCourtheldthatlimestoneextractionpriortomanufactureof

cementcanbeconsideredascommencementofbusinessandthis

leadtosettingupofproductionofcement.Goingbythesamelogic

themomentassesseeundertakesplanning,designing,development,

financingactivitiesasapre-requisitetoconsiderationandrunningof

Metroi.e.State-1activitiesasperMemorandumofAssociationitcan

besaidtohavecommencedbusiness.Goingbythisyardstickfor

thisyearitisseenthattheassesseehassoldlenderdocuments

only.Otheractivitiesincludepaymentsforfinancing,interior

designingofoffices,acquisitionoflandforproject,appointmentof

keyfunctionaries,appointmentofconsultantsetc.i.e.basically

activitiesthroughwhichassesseewasgettingreadytocommence

business.Itcannotbesaidtohavecommencedbusinessinthis

year.

6.3...........................................................................................

6.4IaminagreementwiththeAOthattheaboveactivitiescan

innowayamounttocommencementofbusinessbytheappellant

andaccordinglytheAO'sactionindenyingtheappellant'sclaimof

expenditureincurredonprofessionalandconsultancycharges

amountingtoRs.65.40Lakhsisheldtobejustifiedandis

confirmed."

18.14InviewoftheaboveobservationoftheLd.CIT(A),aswell

asourfindinginaboveParas,weholdthatbusinessofthe

assesseewasnotsetupinassessmentyear1997-98.

18.15InAY1998-99toAY2002-03therespectivetheLd.CIT(A)

hasfollowedthesamefindingandheldthatbusinessofthe

assesseewasnotsetup.TherelevantfindingoftheLd.CIT(A)in

AY1998-99isreproducedasunder:

"5.Thenextgroundofappealrelatestoadditionof

consultancychargesamountingtoto,Rs.3,44,23,404/-.Theclaim

representedtoRs.48,000/-,internalauditfeepaidtoM/sJain

KapilaAssociates,CharteredAccountantsandthebalanceamount

84

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
duefortechnicalconsultancyandotherwork-relatingDelhiMetro

RailProjectpaid/payabletoRailIndiaTechnicalEconomic

ServicesLtd.(RITES).TheAssessingOfficerheldthattheappellant

hadnotcommencedbusinessthisyearand,therefore,the

aforementionedexpenseswereinthenaturepre-operatives

expenses.InarrivingatthisconclusiontheAssessingOfficerstarted

inpara4,2oftheassessmentorderasunder:-

"Thedirectors'reportforthefinancialyearending31.3.1998

whilereviewingthestatusoftheprojectstatusthatduringthe

yeareffortsweremadetobuildupandstrengthenthe

organization.Towardsthisend,keyfunctionariesincluding

ManagingDirectorwasappointedcorporateofficeofthe

companybecamefunctional,generalconsultantswere

appointedwhostartedmobilizationandstartedreviewof

technicalparametersoftheproject.Actionrelatingtoacquisition

oflandandrehabilitationofprojectaffectedpersonshavebeen

undertaken.Fourtenderpackagesforcivilworkwere

consideredandcontractforthefirsttwopackageswereunder

finalizationduringtheyear.Thereportfurtherstatesunderthe

headconservationofenergythatthecompanydidnot

commenceany-groundoperation.Ananalysisoftheactivities

carriedoutduringtheyearindicatethatthese"Activitieswere

preponderantlyaimedtowardsoperationalisingthe

organizationandnottowardscommencementofbusiness.

Theseactivitiesareobviouslypre-operativebefore

commencementofbusiness.

6.InappealitwassubmittedthattheAssessingOfficerhad

erredinholdingthattheappellanthadnotcommenceditsbusiness.

Ihaveconsideredthefactsofthecaseincludingtheobjectsofthe

companyendthedirectors'reportextractofwhichhasbeen

reproducedabove.Onthefactsandinthecircumstancesofthecase,

theconclusionisinescapablethattill31.3.1998thebusinessofthe

appellanthadnotbeensetup.Inthisconnection,thefollowing

decisionsarerelevant:-

.............................................

Consideringthefactsofthecaseandinthelightofthedecisioncited

above,itisclearthattheappellantcompanywasengagedduring

theyearended31.3.1998intheprocessofsettingupthebusiness.

Therefore,theAssessingOfficerwasjustifiedinholdingthatthe

consultancychargespaidwerepre-operativeexpenseseligiblefor

amortisationunderSectionsection35D(2)(a)oftheIncome-taxAct,1961."

85
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
18.16TheAssessingOfficerforAY1998-99hasextensively

quotedthedirector'sreportwhichhasmentionedthatthe

assesseecompanyhadnotcommencedanygroundoperationfor

implementationoftheMRTSproject.Theonlyactivityrelatedto

acquisitionoflandandrehabilitationoftheaffectedpersonand

invitingtenderforcivilworkwasundertakenduringtheyear.In

theannexuretorevisedauditreport,whichispartofAnnual

Report,theAuditorinclause-3hasalsomentionedthatthe

companyhasnotstartedconstructionactivityduringtheyear.In

viewoftheabovefactualobservations,weareoftheviewthat

businessoftheassesseewasnotsetup.Weconcurwiththe

findingoftheLd.CIT(A)inAY1998-99andaccordinglyuphold

thesame.

18.17InAY1999-2000,wefindthattheassesseestarted

constructionactivityforimplementationofprojectthrough

outsourcingofwork.Theassesseeshowncapitalwork-in-

progressofRs.57,59,14,052/-attheendofthefinancialyear

relevanttoAY1999-2000.Thecapitalwork-in-progressinclude

projectplanreport(Rs.46,95,000/-),Gradelevelwork

(Rs.91,34,595/-),earthworkforrailcorridor(Rs.74,388,119/-);

ElevatedPortionRailCorridor(Rs.3,415,495/-),YamunaBridge

Works(Rs.71,471,264/-)etc.Fromthecapitalwork-in-progress

shownbytheassessee,itisevidentthatconstructionworkof

DelhiMRTSwasnotcompletedduringtheyear.Thisfacthas

beenadmittedbytheAuditorinannexuretotheAuditReport,

whichispartoftheAnnualReport.Inviewoftheabove

86

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
observation,weareopinionthatbusinessoftheassesseewasnot

readyforcommencementandthus,itwasnotsetupduringthe

assessmentyear1999-2000.

18.18Inassessmentyear2000-01alsoasevidentfromdetailsof

capitalwork-in-progress(Schedule-5ofAnnualReport),the

workofMRTSprojectwhichincludedEarthWorkforRail

Corridor,ElevatedportionofRailCorridor,YamunaBridge

Words,StationBuildingetc.continuedduringtheyear.Again

inthisyearalsotheAuditor,inclause-3ofannexuretotheAudit

Reporthasreportedthatworkoftheprojectwasnotcompleted.

Inviewoftheconstructionworkoftheprojectnotcompleted,the

businessoftheassesseecannotbesaidasreadyfor

commencement.

18.19Factscircumstancesinassessmentyear2001-02

2002-03aresimilar.TheAuditorinannexuretotheAuditReport

forassessmentyear2001-02hasmentionedthatworkofthe

projectwasnotcompleted.

18.20Inviewofourobservationabove,weholdthatbusinessof

theassesseewassetuponlyintheperiodimmediatelybeforethe

datewhentheassesseecarriedoncommercialrunoftheMetro

rail.TheLd.AssessingOfficerhasreportedthisdateofrunning

theMetrotrainas25/12/2002onpage8oftheassessmentorder

forassessmentyear2002-3.Thisfactualinformationhasnot

beendisputedbytheassesseebeforeus.Thedateofsettingupof

businesscanonlybeinperiodimmediatelypriorto

commencementofbusiness.Thatdatemaybethedateof

announcementofinaugurationoftheMetroRailnetworkormay

87

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
beanydaysslightlybeforethat.Sincethebusinesswas

commencedin25.12.2002,thebusinesscanbetreatedassetup

inanydateinFY2002-03correspondingtoAY2003-04andnot

inAY2002-03oranyassessmentyearpriortothat.Accordingly,

weholdthatthebusinessoftheassesseewasnotsetupinanyof

theassessmentyearsofappealsbeforeus.ThegroundNo.2of

ITANo.4553forassessmentyear2001-02andgroundNo.2of

ITANo.5095/del/2004forassessmentyear2002-03raises

specificallyonthisissueareaccordinglydismissed.

19.Now,theremainingissuesraisedintheappealsbeforeus

arebeingadjudicatedinviewofthedateofsetupofthebusiness

heldbyusabove.

20.Ontheissueoftaxabilityofinterestincomeunderthehead

"Incomefromothersources"ornot,theLd.counselofthe

assesseecontendedthatintheassessmentyear1996-97,the

assesseedeclaredinterestincomeofRs.2,39,452/-.Itwas

submittedthatthisinterestincomewasfixeddepositsplaced

withbanksonfundsraisedbywayofsharecapital/share

applicationmoneyfromtheUnionGovernmentandGovernment

ofNCTofDelhiforthepurposeoftheproject.Itwascontended

thattheaforesaidincomeismerelyincidentalandthereforesuch

interestincomeisnoteligibletotax.Reliancewasplacedonthe

judgmentofHon'bleJurisdictionalHighCourtinthecaseof

IndianOilPanipatPowerConsortiumLtd.v.ITO315ITR

255.Itwascontendedthattheaforesaidjudgmenthasfurther
88

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
beenfollowedbytheHon'bleHighCourtofDelhiinthefollowing

cases:

a)SectionCITvs.PanemCoalMinesLtdITANo639/2008dated

17.09.2009;

b)SectionCITvs.PetronetLNGLtdITANo.290/2011292/2011

dated17.02.2011;

c)SectionCITvs.JaypeeDSCVenturesLtd.ITA357/2010dated

11.03.2011;
d)PetronetLNGLtd.v.CITITANo.4191/D/2003and

4371/D/2009dated17.2.2011
20.1Theassesseealsoplacedrelianceonthejudgmentof

SupremeCourtinthecaseofSectionCITv.ShreeRamaMultiTech

Ltd.165DTR137tocontendthatinterestincomeisnot

assessabletotax.

20.2Similarly,interestwasearnedonfixeddepositswithbanks

inassessmentyear1997-98to2002-03.Itwassubmittedthatit

isundisputedthatinteresthasbeenearnedonthefixeddeposits

fromtheamountcontributedbytheshareholdersasisevident

fromthechartenclosedwithsubmissionsaswasinthecaseof

SectionCITvs.PetronetLNGLtd(supra),whereintheirlordshipshas

heldthatiftheinterestisearnedonthefundswhicharetobe

utilizedforpurchaseofcapitalasset/settingupofthebusiness

andthatisinextricablylinkedwiththesettingupofthebusiness,

saidinterestwillnotbetreatedasincomeunderthehead

"incomefromothersources"andthereforesubmittedthatsuch

anamountofinterestcannotbeincludedintheincomeofthe

assessee,andsameshouldbecapitalizedtowardsthecostofthe

project.Reliancewasalsoplacedonthefollowingjudgments:

89
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
a)CITv.BokaroSteelLtd.236ITR315(SC)

b)CITv.U.P.StateIndustrialDevelopmentCorporatiion225ITR703

(SC)

c)karnalCooperativeSugarMillsLtd.v.CIT233ITD531(PH)

d)CITv.KarnatakaPowerCorporatioin247ITR268(SC)

e)BongaigonRefineryPetrochemicalsLtd.v.CIT251ITR329(SC)

f)SectionCITv.VidyutSteelLtd.82Taxman94(AP)
20.3Itwasfurthersubmittedonbehalfoftheassesseethat

assesseecompanyhadcommencedbusinessfromA.Y.1997-98

onwardsand,assuchconsequentiallyitbeheldthat,interest

incomeisbusinessincome,asthelearnedAOhasmerelyheldin

theorderofassessmentthat,businesshasnotcommencedinthe

yearsunderconsideration.Theassesseesubmittedthat,sincethe

businessoftheassesseehascommenced,itoughttohavebeen

heldthat,interestincomeisbusinessincome.Infact,theHon'ble

DelhiHighCourtinthecaseofSnamProgettiS.P.A.V.Addl.

CIT132ITR70hasalsoheldthatinterestearnedonsurplus

fundsbyabusinessmanistobeassessedasincomefrom

business.Itwassubmittedthattheassesseecompanyhadnot

comeintoexistencetoearnincomeonlyfrominterestandas

suchalltheactivitiescarriedinthecourseofbusinessoughtto

havebeenheldasrelatabletobusinessactivities.Hence,the

interestincomedeclaredbytheassesseehastobeassessedas

businessincome,andiseligibleforsetoffagainstthebusiness

expensesincurredandclaimedbytheappellantoralternatively

adjustedagainstthecostoftheproject.

21.TheLd.DR,ontheotherhand,submittedthatfromthe

chartoftotalreceiptaswellasreceiptearnedfrominterest

duringtheassessmentyear1996-97to2001-02,asfollows,it

90

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
appearsthattherewashardlyanybusinessreceiptapartfrom

theinterestandthusbusinesshadneitherbeensetupnor

commenced:

AY.TotalReceiptsReceiptsfromExpenses

InterestEarned
1997-9838,16,68438,02,92174,19,134

1998-9915,44,65,45215,26,70,2095,95,61,700

1999-200036,58,38,68236,58,38,1839,18,25,170

2000-200159,67,94,42659,67,94,42614,67,87,754

2001-0288,11,43,80588,11,43,80521,47,87,281
21.1TheLd.DRsubmittedthatbusinessoftheassessee

commencedon24/12/2002andpriortothatitwasinthe

processofsettinguptheMetronetworkinNationalCapital

Region.TheLd.DRsubmittedthatduringthoseyears,the

assesseehadclaimedexpensesonaccountofconsultancy

chargespaidforsettingupthebusinessandtheassessee

investedinFDRoutofitsownfunds.AccordingtotheLd.DRthe

interestincomeearnedonfixeddepositischargeableas"income

fromothersources"andagainstwhichtheassesseecanclaim

onlyexpensesincurredforearningthatincome.Insupportofhis

claimthatinterestincomeearnedonFDRischargeableunderthe

head"Incomefromothersources",theLd.DRreliedonthe

followingdecisions:

1.TuticorinAlkaliChemicalsFertilizersLtd.VsCITT1997193Taxman502

(SC)/[1997]227ITR172(SC)/[1997]141CTR387(SC)
91

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
whereHon'bleSupremeCourtheldthatinterestincomeearnedonshort-term

depositoffundsbeforecommencementofbusinessduringsetting-upoffactory

couldnotbesetoffagainstlossofthecompany

2.CITVsCoromandalCementsLtd[998]234ITR412(SC)/[1999]153CTR

209(SC)
whereHon'bleSupremeCourtheldasfollows:

Thepointindisputehasnowbeenconcludedbyadecisionofthiscourtin

SectionTuticorinAlkaliChemicalsandFertilizersLtd.v.CIT[1997]227ITR172.In

viewofthattheappealisallowed.Thejudgmentunderappealissetaside.

3.CITVsIndianVaccinesCorporationLtd[2014]44taxmann.com130

(Delhi)/[2014]222Taxman207(Delhi)(MAG)/[2014]363ITR295(Delhi)
WhereDelhiHighCourtheldthatWheretherewasnoinextricablelinkbetween

investmentandproject,interestincomeonsaidinvestmentcouldnotbepermitted

tobeadjustedagainstpre-operativeexpensesinrespectofsaidproject.

4.BharatOmanRefineriesLtd.Vs[2013]35taxmann.com187(Madhya

Pradesh)/[2013]218Taxman282(MadhyaPradesh)/[2013]356ITR399

(MadhyaPradesh)
Itwasheldthatwhereacompanyhadintroducedinassesseecompanyasumof

Rs.900croresinformofzerocouponconvertibledebenturetobeconvertedinto

equityshareswithinaspanof36monthsandoutofwhichasumofRs.500crores

wasinvestedbyassesseeinshort-termdepositswithbanks,interestearnedon

thesedepositswasanincomechargeableunderhead'incomefromothersources.

5.GITVsBhawalSynthetics(India),Udaipur[2017]81taxmann.com478

(Rajasthany)[2017]248Taxman127(Rajasthan)/[2017]297CTR104

(Rajasthan)
whereHon'bleRajasthanHighCourtheldthatInterestearnedonFDRkeptwith

bankasmarginmoneyforobtainingletterofcredittopurchasemachinerywas

taxableasincomefromothersources
6.ThermalPowertechCorporationIndiaLtd.VsDCIT[2017]81taxmann.com

168(Hyderabad-Trib.)/[2017]164ITD449(Hyderabad-Trib.)(CopyEnclosed)

whereHon'bleITATheldthatwhereassessee-companyformedtobuild,ownand

operateapowerplant,depositedunutilizedborrowedfundsinshorttermfixed

depositsduringconstructionofpowerplant,interestearnedonthosedepositswas

tobetaxedasincomefromothersources
7.ShreeMaheshwarHydelPowerCorporationLtd.VsCIT12018196

taxmann.com167(Bombay)(CopyEnclosed)
92

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
whereHon'bleBombayHighCourtheldthatwhereassesseeraisedamountsfrom

Debenturesanddepositedsamewithbankand,interestearnedbyassesseefrom

saiddeppsits,wasnotinextricablylinkedwithsettingupofcapitalassets,said

interesttficomecouldnotbecapitalized
8.KakinadaSEZ(P.)Ltd.T2013131taxmann.com165(Hyderabad-

Trib.)/[2013]141ITD635(Hyderabad-Trib.)(CopyEnclosed)
whereHon'bleITATHyderabadheldthatwhereloanstakenforbusiness

purposeswasinvestedinfixeddeposits,interestpaidorborrowedfundscannotbe

deductedwhilecomputinginterestincomefromthosefixeddepositsundersection

57.
9.HotelQueenRoad(P.)Ltd.VSITOT2012125taxmann.com425(Delhi-

Trib.)/[2012]14ITR(T)124(Delhi-Trib.)(CopyEnclosed)
whereHon'bleITATDelhiheldthatinabsenceofanymaterialtoshowthat

amountinvestedinfixeddepositwasactuallyoutofamountborrowedbyassessee

foracquiringcapitalasset,interestearnedonfixeddepositwouldbeassessedas

incomefromothersources.

10.MKRFrozenFoodExportsLtd.VSITOr20101126ITD1(Delhi)(Copy

Enclosed)
Assesseewasengagedinbusinessofexportoffrozenfoodsandmeals-Forthis

purpose,overdraftfacilitiesweretakenfrombanktomeetliquidityrequirements-

Subsequently,whenassesseeearnedprofit,moneysogeneratedwasplacedin

fixeddepositswithabank-Assesseecontendedthatdepositswereplacedwitha

viewtoreduceinterestliability,and,therefore,interestincomewouldpartake

characterofprofitsandgainsofbusinessandbecameeligiblefordeductionunder

Sectionsection10B-Whethersinceinterestearnedfrombankdepositsdidnothavedirect

orproximateconnectionwithbusinessofexportofEOU,samewouldbetaxable

underresiduaryhead,i.e.,'Incomefromothersources'andwasnoteligiblefor

deductionunderSectionsection10B-Held,yes.

11.ConventionalFastnersVsCIT2018-TIQL-202-SC-IT(CopyEnclosed)
SLPdismissed.Sinceinterestincomeearnedfromfixeddepositsreserveskeptas

securityandasabusinesspre-requisitehadnothingtodowithcarryingon

assessee'sbusinessofmanufactureandsaleofelectricmeters,samewouldnotbe

entitledtobenefitofdeductionundersection80-IC
12.CITVsJyotiApparels[2008]166Taxman343(Delhi)/[2007]209CTR288

(Delhi)(Copyenclosed)
93

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
whereHon'bleDelhiHighCourtheldthatinterestearnedbyanexporteronfixed

depositskeptbyitwithbankasmarginmoneyorsecurityforbankguaranteein

ordertoavailofcreditfacilityforitsexportbusinesshastobetreatedas'income

fromothersources'andnotas'businessincome',inasmuchasitdoesnothavean

immediatenexuswithexportbusiness.Therefore,suchinterestincomecannotbe

consideredforcomputingdeductionunderSectionsection80HHC.

13.SectionCITv.MereenaCreations[2010][2010]189Taxman71(Delhi)/[2011]330

ITR199(Delhi).

whereHon'bleDelhiHighCourtheldthattheinterestearnedbyanexporteron

fixeddepositskeptbyitwithbankasmarginmoneyorsecurityforbank

guaranteeinordertoavailofcreditfacilityforitsexportbusinesshastobetreated

as'incomefromothersources.

14.CITVsRassiCementLtdH9981100Taxman568(Andhra

Pradesh)/f1998l232ITR554(AndhraPradesh)/[1999]153CTR140

(AndhraPradesh)(copyenclosed)
whereHon'bleAPHighCourtheldthatinterestearnedbyassesseeonsurplus

fundsdepositedinbanksduringinstallationofassessee-companyhadtobetaken

asincomefromothersourcesandcouldnotbetreatedasapartofcapital

structure"

22.Wehaveheardtherivalsubmissionsandperusedthe

relevantmentalonrecordincludingthecaselawsrelieduponby

boththeparties.Theassesseehasmadealternativeclaimson

thisissue.Thefirstclaimisthattheinterestincomeearnedon

fixeddepositwithbanksshouldnotbetaxableunderthehead

"incomefromothersources"anditshouldbetreatedaspartof

"businessincome"andadjustedagainstbusinessexpenditure.

Thesecondclaimisthattheinterestincomeshouldbeadjusted

againstthecostofprojectorcapitalworkinprogress.Infew

assessmentyears,theAssessingOfficerhasallowedexpenditure

againstearningtheinterestincomeunderthehead"Incomefrom

othersources".Inthoseassessmentyears,theassesseehas
94

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
disputedthequantumofexpensesallowedagainsttheinterest

incomeunderthehead"Incomefromothersources".

22.1TheLd.counselhassubmittedthatfundsdepositedinthe

bankswereinextricablyconnectedtothesettingupofthe

businessoftheassesseeandthereforeinterestincomeearnedon

thefixeddepositswithbankiseligibleforsettingoffagainst

projectexpenses.AccordingtotheRevenueAuthorities,the

businessoftheassesseewasnotsetupduringtheperiodunder

considerationi.e.AY1996-97toAY2002-03andnoincomewas

shownduringtheperiodunderthehead"profitandgainsofthe

business"andthustheinterestincomeearnedshouldbetaxed

underthehead"Incomefromothersources"andtheexpenditure

claimedunderSectionsection35Dshouldalsobeallowedintheyearof

settingupthebusiness.

22.2Inouropinion,foranyincometobeclassifiedasincome

underthehead"profitandgainsofthebusinessofprofession"it

mustbeanactivitywhichisconnectedinsomemannerorform

withthebusinessoftheassessee.

22.3Intheinstantcase,fundsweregatheredbywayofshare

capitalfromboththeUnionGovernmentofIndiaandthe

GovernmentofDelhiandotherloanfunds,whichwerelyingideal

inthehandsofthecompanyduringtheprocessofsettingupof

infrastructureforMetroRailNetworkandinvestedinfixed

depositssolelyforthepurposeofearninginterest.Duringthe

yearpriortoassessmentyear1996-97,theMinistryofurban

developmentincurredthepreliminaryexpensesofRs.80,72,272/-

onbehalfoftheassessee,whichconsistoffeepaidoff

95

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Rs.80,00,400/-;courtfeeofRs.1,872;preparationof

memorandumofAssociationandarticleofAssociation

Rs.50,000/-andprintingofMemorandumofAssociationand

ArticleofAssociationRs.20,000/-.IntheyearAY1996-97,the

assesseeclaimed1/10thofthepreliminaryexpensesof

Rs.80,00,272/-asdeductionunderSectionsection35DoftheAct

22.4Inforthcomingparas,wehavealreadyheldthatbusinessof

theassesseewascommencedonlyon25/12/2002andthusprior

tothatbusinessoftheassesseewasnotsetup.Ontheissueas

howtheinterestincomepriortocommencementofthebusiness

hastobetaxed,theHon'bleSupremeCourtinthecaseof

TuticorinAlkaliChemicalsandFertilizersLtd(supra)hasheld

"interestincomeearnedonfixeddeposits,beforecommencementof

thebusinessistaxableasincomeunderthehead"incomefrom

othersources".Inthatcasetheassesseecompanyduring

constructionandestablishmentofitsfactory,before

commencementofthemanufacturingactivities,investedfunds

borrowedforthepurposeofsettingupfactoriesinshort-term

depositswithbanksandearnedinterestthereon.Initsreturn,it

disclosedtheinterestearnedasincomefromothersourcesand

aftersettingoffsameagainstbusinesslossclaimedcarryforward

ofremainingloss.Lateron,itfiledrevisedreturnclaimingthat

interestandfinancechargesalongwiththeotherproduction

expenseswillhavetobecapitalizedandtherefore,theinterest

incomeshouldgotoreducethepreproductionexpenses,which

wouldultimatelybecapitalizedandassuch,theinterestincome

wasnotaccessibletotax.TheAssessingOfficeraswellasthe

96

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Tribunalrejectedtheclaimoftheassessee.Inviewofthe

conflictingdecisionofthevariousHighCourtsontheissuein

dispute,theTribunalmadereferencetotheHon'bleSupreme

CourtunderSectionsection257oftheAct.TheHon'bleSupremeCourt

observedinpara12that"ifacompanyhasnotcommenced

business,therecannotbeanyquestionofassessmentofitsprofit

andgainofthebusiness".Ontheissueasunderwhichheadthe

incomeearnedbythecompanywouldbetaxedbeforeit

commencesabusiness,theHon'bleSupremeCourtdescribed

withthreeexamplesthat(a)ifcompanyinveststhesurplus

fundinitshandforpurchaseoflandorhousepropertyandlater

sale,thentheprofitorgainsmadebythecompany,wouldbe

assessableunderthehead"capitalgains"(b)ifacompany

purchasesarentedhouseandgetsrent,whichwillbeassessable

totaxunderSectionsection22oftheActasIncomefromHouseProperty

and(c)ifacompany(alsoasinthecasebeforetheLordship),

keepthesurplusfundinshort-termdepositinordertoearnthe

interest,thensuchinterestwouldbechargeableunderthehead

"Incomefromothersources".TheHon'bleSupremeCourtfurther

heldthattheinterestearnedwouldbeinthenatureofrevenue,

observingasunder:

"13.Thecompanyhaschosennottokeepitssurpluscapitalidle,but

hasdecidedtoinvestitfruitfully.Thefruitsofsuchinvestmentwill

clearlybeofrevenuenature.Thispositioninlawwasexplainedby

SirGeorgeLowndesintheoft-quotedpassageinthecaseofSectionCATv.

ShawWallaceACo.[1932][59LA.206]:

"Income,theirLordshipsthink,inthisActconnotesaperiodical

monetaryreturn'corningin'withsomesortofregularityor

expectedregularityfromdefinitesources.Thesourceisnot

necessarilyonewhichisexpectedtobecontinuously

97

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
productive,butitmustbeonewhoseobjectistheproductionof

adefinitereturn,excludinganythinginthenatureofamere

windfall.Thisincomehasbeenlinkedpictoriallytothefruitofa

tree,orthecropofafield.Itisessentiallytheproduceof

something,whichisoftenlooselyspokenofas'capital'."

14.Inotherwords,ifthecapitalofacompanyisfruitfullyutilized

insteadofkeepingitidle,theincome,thus,generatedwillbeofthe

revenuenatureandnotaccretionofcapital.Whetherthecompany

raisedthecapitalbyissueofsharesordebenturesorbyborrowing

willnotmakeanydifferencetothisprinciple.Ifborrowedcapitalis

usedforthepurposeofearningincomethatincomewillhavetobe

taxedinaccordancewithlaw.Incomeissomethingwhichflowsfrom

theproperty.Somethingreceivedinplaceofthepropertywillbe

capitalreceipt.Theamountofinterestreceivedbythecompany

flowsfromitsinvestmentsandisitsincomeandisclearlytaxable

eventhoughtheinterestamountisearnedbyutilizingborrowed

capital."

22.5Thus,Hon'bleSupremeCourthaslaiddowntheprincipal

thatirrespectivewhetherthefundsusedforthepurposeof

earninginterestincomeisownedorborrowed,ifitislyingideal

andinvested,thentheinterestincomewhichflowsfromthose

investmentswouldbeclearlyrevenueinnatureandtaxable.But,

ifsomethingisreceivedinplaceoftheproperty(investment)that

willbeinthenatureofcapitalreceipt.

22.6Thefactsoftheinstantcaseareexactlyidenticaltothe

caseofTuticorinAalkaliChemicalsandFertilizersLtd.(supra).

22.7InthecaseofIndianOilPanipatPowerConsortium

Limited(supra)relieduponbytheLd.Counseloftheassessee,

thetitleofthelandwhichwastobepurchasedwasinquestion

andunderlitigation.TheLd.firstappellateauthorityobserved

thatthefundswereplacedinfixeddepositsothatliquiditywas

insuredandmoneywouldremainavailablewhenrequiredfor

98

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
purchaseoflandandinfrastructuredevelopment.TheLd.first

apellateauthorityobservedthattheinterestearnedwas

"inextricably"linkedwiththesettingupofthepowerplant.Based

onthereasoning,thefirstappellateauthorityappliedthe

judgmentoftheHon'bleSupremeCourtin"BokaroSteelLtd."

(supra)andallowedtheclaimoftheassesseedirectingthe

AssessingOfficertoconsidertheinterestincomeforcapitalization

andadjustingagainstthepreoperativeexpenses.Inviewofthe

findingofthefactbythefirstappellateauthority,theHon'ble

DelhiHighCourtconcludedthattheassessee'sincomewasan

incomeconnectedwithbusinessandthusitcannotbeheldthat

incomederivedfromparkingthefundstemporarilywithbank

wouldresultinthecharacterofthefundsbeingchangedand

broughttotaxunderthehead"Incomefromothersources".The

Hon'bleHighCourtinpara5.2hasobservedasunder:

"5.2Itisclearuponaperusalofthefactsasfoundbytheauthorities

belowthatthefundsintheformofsharecapitalwereinfusedfora

specificpurposeofacquiringlandandthedevelopmentof

infrastructure.Therefore,theinterestearnedonfundsprimarily

broughtforinfusioninthebusinesscouldnothavebeenclassified

asincomefromothersources.Sincetheincomewasearnedina

periodpriortocommencementofbusinessitwasinthenatureof

capitalreceiptandhencewasrequiredtobesetoffagainstpre-

operativeexpenses.InthecaseofTuticorinAlkaliChemicals(supra)

itwasfoundbytheauthoritiesthatthefundsavailablewiththe

assesseeinthatcasewere'surplus'and,therefore,theSupreme

Courtheldthattheinterestearnedonsurplusfundswouldhaveto

betreatedas'incomefromothersources'.Ontheotherhandin

BokaroSteelLtd(supra)wheretheassesseehadearnedintereston

advancepaidtocontractorsduringpre-commencementperiodwas

foundtobe'inextricablylinked'tothesettingupoftheplantofthe

assesseeandhencewasheldtobeacapitalreceiptwhichwas

permittedtobesetoffagainstpre-operativeexpenses."

99
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
22.8Intheabovecasewefindthatfundswhichweredeposited

inbankswereinfusedbywayofsharecapitalforaspecific

purposeofacquiringlandandthedevelopmentofthe

infrastructurebutduetolitigationonthetitleoftheproperties,

samewereparkedwiththebankforreadyaccessofthefunds

andthereforetheHon'bleHighCourtheldthattheinterest

earnedonsuchfundwascapitalreceipt.Thusintheabovecase

primepurposeofinvestingfundinbankswaseasyaccessfor

purchaseofland,butintheinstantcasebeforeus,the

constructionworkoftheinfrastructureforMetrorailnetworkwas

inprogressandtherewasnolitigationastothetitleoftheland

andtheidealfundsavailablewiththeassesseeweredeposited

withbankswiththeobjectiveofearninginterest.Beforeus,the

Ld.seniorcounseloftheassesseehasfiledacopyofvarious

guidelinesissuedforinvestmentofsurplusfundsbyCentral

publicsectorenterprises.Incompliancetotheguidance,the

assesseehasmadeinvestmentinfixeddepositsfromtimetotime.

TheLd.Councilhasalsofiledcopiesofminutsofthemeetingof

variousdatesontheinvestmentmadebytheassessee.On

perusalofthoseminutesofmeeting,itisevidentthatthe

assesseeismadeinvestmentofthesurplusfundavailablewith

theobjectiveofearninghighestinterest.Theassesseehas

exploredrelativeschemesofinterestofthevariousbanksand

thereafteronlyinvestmenthasbeenmadeafterselectionofthe

appropriatebank.Minutesofoneofsuchmeetings,availableon

page46ofthepaperbookfiled,combinedforalltheyearsofthe

appealisreproducedasunder:

100
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Minutesofthemeetingsoninvestmentheldon12.10.99.

Present:-

ShriC.B.K.Rao-Director(PP)

ShriSatishKumar-Director(RSE)

Smt.SarojRajware-FACAO"

AnamountofRs.44croresarematuringinthefollowingmanner:-

1.Rs.22croresincludinginterestofapproximatelyRs.2croreswith

CanaraBankon14.10.99.

2.Rs.22croresincludinginterestofapproximatelyRs.2croreswith

OrientalBankofCommerceon13.10.99.

Accordinglyquotationswereinvitedfromthe15bankson

ourpanel.9BankshaverespondedinwritingwhereasSBIhave

telephonicallyconveyedtheirratesforaperiodofoneyearfor

depositsinexcessofRs.10croresat10%p.a.Thebestrateshave

beenquotedbyOrientalBankofCommerceat11.1p.a.Onan

earlieroccasionon7.9.99,theCommitteehaddecidedtoplaceRs.

60croreswithSBIandRs.30croreswithOrientalBankof

Commerceforaperiodofoneyeareachseeingthesubstantialpre

maturewithdrawalsfromtheLTDRswithSB!despiteinterestrate

differential.Atthatpointoftimetheapproximateoutgooffundstill

31.3.00wasestimatedtobenearlyRs.90crores.Inasubsequent

decisionssumofRs.58croreswereplacedwithOrientalBankof

Commerceforaperiodofoneyearon15.9.99increasingthetotal

exposureofDMRConOrientalBankofCommercetoRs.183

crores.

Seeingthatthetrendofexpenditureentailsfurtherdrawing

downofalmostRs.75crorestill31stMarchandallofitislikelyto

bemetbywithdrawalsfromLTDRswithSBIduetothebenefitof

waiverofpenaltyof1%onprematurewithdrawals,theCommittee

recommends:-

1.ToreinvestRs.22croresmaturingwithOrientalBankof

Commerceon13.10.99at11.1%p.a.
2.ToinvestRs.22croresmaturingwithCanaraBankin

LTDRswithSBIat10%p.a.foraperiodofoneyear.

101
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
ThebalanceproceedsofaboutRs.22lakhsfromboththe

maturitiesbetakenintothecurrentaccountwithSBI,Nirman

Bhawanforroutineexpenditure.

Minutesofthemeetingsoninvestmentheldon27.10.99.

Present:-

ShriC.B.K.Rao-Director(PP)

ShriSatishKumar-Director(RSE)

Smt.SarojRajware-FACAO
AnamountofRs.67CroreshasbeenreceivedfromGNCTD

towardsequity.Quotationswereinvitedfromthebanksonour

paneland14bankshaveresponded.Thehighestratesreceivedfor

differentperiodsaretabulated.Bestratesforoneyearhavebeen

quotedbyVijayaBankat11.15%followedbyOriental

BankofCommerceat11.05%StateBankofIndiahas

quoted10.25%.
Keepinginviewthenextmaturitycomingupendof

December,1999.ItisproposedtoinvestRs.67croreswithVijaya

Bankforoneyearandonedayattherateof11.15%.

22.9Inviewofthefactsthatinvestmentinfixeddeposithas

beenmadewiththepurposeofearninginterest,theratioofthe

decisioninthecaseofIndianoilPanipatPowerconstruction

Ltd(supra)cannotbeappliedoverthefactsoftheinstantcase.

22.10InthecaseofJaypeeDSCventuresLtd(supra),the

assesseefurnishedperformanceguaranteeinfavouroftheNHAI

togetthecontractawardedinitsfavourandtoprocurethesaid

bankguarantee,theassesseekepttheamountinthefixed

depositinthebank.TheHon'bleDelhiHighCourtinthesaid

caseobservedthatinvestmentinfixeddeposithadan

inexplicablenexuswiththesecuringthecontractandthereforeit

couldnotbetaxedunderthehead"Incomefromothersources".

102
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Thefactsoftheabovecasebeingdifferentfromtheinstantcase

wherefundshavebeeninvestedinfixeddepositforearning

interestasagainstthefixeddepositmadeforthebusiness

purposeinsaidcase,theratiooftheabovedecisioncannotbe

appliedoverthefactsoftheinstantcase.Inothercasesrelied

uponbytheLd.Counseloftheassessee,thedecisioninthecase

ofIndianoilPanipatPowerConsortiumLimited(supra),hasbeen

followed,whichwehavealreadydistinguished.

22.11Inviewoftheabovediscussion,respectfullyfollowingthe

ratiointhecaseofTuticorinAlkaliChemicalandFertilizers

Ltd(supra),werejectthecontentionsmadewhilearguingthe

groundsaswellasadditionalgroundsrelatedtotheissuein

disputeclaimingtheinterestincomeaspartofbusinessincome

andalsothatadjustmentofinterestonfixeddepositsagainstthe

capitalworkinprogressandupholdthefindingoftheLd.CIT(A)

ontheissueindisputeforassessingtheinterestincomefrom

fundsinvestedinbankdepositsduringtheassessmentyears

fromAY1996-97to2002-03asincometaxableunderthehead

"Incomefromothersources".ThegroundNo.2ofITANo.

1346/del/2018forassessmentyear1996-97andadditional

ground(a),raisedinalltherespectiveappealsaredismissed.

23.Inassessmentyears2000-2001;2001-02and2002-03,the

assesseehasalsoraisedtheissueofallowingexpensesfor

earninginterestincomeonfixeddepositswithbanks,taxed

underthehead"Incomefromothersources".Inassessmentyear

2000-01,theclaimoftheassesseeforallowingexpensesof

Rs.56,21,803/-againsttheinterestincomewasrejectedbythe

103

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
AssessingOfficeronthegroundthattheassesseemaybeentitled

tocapitalizetheinterestpayablebyit.TheAssessingOfficerheld

thattheassesseecannotclaimadjustmentofthisexpenditure

againstinterestassessableunderSectionsection56oftheAct,because

Sectionsection57oftheActhassetoutinitsclause(i)to(iii)the

expenditurewhichareallowableanddeductiblefromincome

assessableunderSectionsection56oftheAct.Accordingtothe

AssessingOfficertherewasnoexpenditurebeingincurredfor

earningtheinterestincomeonfixeddepositsandthusclaimof

theexpenditurewasdeniedbytheAssessingOfficer.TheLd.

CIT(A),however,followingthefindingoftheCITinorderpassed

underSectionsection263oftheActforassessmentyear1998-1999and

1999-2000,allowedRs.37,94,354/-.Therelevantfindingofthe

Ld.CIT(A)isreproducedasunder:

"GroundNo.3relatestothenon-allowanceofdeductionof

Rs.56,21,803/-claimedasdeductioninthereturnforearningof

interestincome.AsperformulaofCIT,Delh-IV,NowDelhiduring

thecourseofproceedingsunderSectionsection263oftheincome-taxAct,

1961fortheassessmentyears98-99and9900.TheAssessing

Officerliasnotallowedtheexpensesonthegroundthatthe

appellantcompanyhasnotfiledthedetailsofexpensesincurredfor

earningtheinterestbeforetier.Theexpensesclaimedbythe

appellantcompanyatRs.14,67,67,754/-forearninginterestincome

werenotallowedbytireAssessingOfficerinviewofthedecisionof

theHon'bleS.CinthecaseofM/sTuticorinAlkaliChemicalsA.

FertilizersLtd.Vs.CIT227ITRPage172Interest,earnedon

depositsmadebyanyassesseepriortocommencementofits

businessischargeabletotax.

Theauthorizedrepresentativeoftheappellantcompanylias

submittedthatCommissionerofIncome-tax,Delhi-IV,NowDelhihas

allowedtheexpensesintheorderunderSectionsection263asunder:

Asstt.YearInterestIncomeDeductionofexpenses

allow3dinorderu/s263

byCIT,Delhi-IV,New

104

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Delhi

1998-99Rs.15,44,65,452/-Rs.31,35,830/-

1999-2000Rs.36,58,38,183/-Rs.34,49,413/-

Thesubmissionsoftheappellantcompanyfiledonwereforwarded

totheAssessingOfficerforhercomments.ThereplyoftheAssessing

Officerwasreceivedvideletterdated10.2.2004whereinitis

specificallymentionedthatsincetheassesseehasnotfurnishedany

detailsofexpensestheclaimoftheassesseeremainedunverifiable

whethertheexpenseswereincurredwhollyandexclusivelyfor

earningtheinterestincome.Therefore,noexpenseswereallowedin

thisyear.ItisfurtherstatedthattheonlyFDRmadeinthebankfor

thesurplusfundslyinginthebank,therewouldactuallybeno

expensesthatassesseewouldneedtoincurforearningthisincome.

Theauthorizedrepresentativeoftheappellantcompanyhasfiled

rejoinderon20.4.2004whereitisstatedthat:-

"ThemaincontentionoftheAssessingOfficeristhatnoseparate

accountsaremaintainedforincurringofexpensesorearningof

interestincomeandthereforenoexpenseswereallowedbythe

AssessingOfficerforearningofinterest.TheLd.A.O.hasfailedto

appreciatethatearningofinterestincomeisnotoneofthemain

objectsoftheassesseecompanyandthereforenoseparateaccount

forexpensesincurredismaintained.Interestincomeisearnedfor

financingtheprojectbyplacingsurplusavailablefundsinF.Dswith

bankinsuchawaythatfundsareavailableasandwhenrequired

fortheprojectandinsteadofallowingthefundstolayidle,bestuse

ismadebyputtingthesurplusfundsinF.Dswithbank.Inthisway

notonlytheoptimumuseofsurplusfundsisensuredbutitisalso

ensuredthatfinancetotheextentpossibleisgenerateforfinancing

theproject.ThissituationwasexaminedinDetailbytheLd.CIT,

DelhiIV,NewDelhiintheproceedingsu/s263oftheSectionI.T.Actfor

A.Ys1998-99and1999-2000.Ithasalreadybeenmentionedinour

letterdated20.11.2003thataftergoingthroughtherelevantrecords

andexaminingthematteringreaterdetailintheproceedingsu/s

2.63theid.CIT,Delhi-IV,alloweddeductionofexpensesforearning

ofinterestincomeasfollows:-

Asstt.YearInterestIncomeDeductionofexpenses

allowedinorderu/s

263byCIT,Delhi-IV,

NewDelhi

1998-99Rs.15,44,65,452/-Rs.31,35,830/-

1999-2000Rs.36,58,38,183/-Rs.34,49,413/-

105
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Ithasbeenfurtherstatedthat
"inparaIVonpageoftheorderu/s263forA.Y.1999-2000tireLd.

CITDelhi-IV,NewDelhihasobservedasunder:-

Theassesseewasallowedspecificopportunitiestoprovideseparate

breakupofexpensesrelatingforinterestincomeotherexpenses

relatedtobusinesswhichhadnotasyetcommenced.However,

assesseehasexpresseditsinabilitytoprovidesuchbreak-up.Under

suchcircumstancesbykeepinginviewthereasonsgivenunder

orderu/s263ofevendateforasstt.year1998-99anexpenditureof

Rs.34,49,413/-isheldasIncurredwhollyandexclusivelyfor

earningInterestIncomeandthebalanceamountofRs.

5,20,70,154/-(Rs.5,55,19k,567/--Rs.34,49,413/-)isnotrelatable

tointerestIncomeandis,therefore,beingdisallowed.

IhavegonethroughthefindingsoftheAssessingOfficerandthe

submissionsmadebytheappellantcompany.Iheargumenttaken

bytheappellantcompanyhassubstantialforcebecausetheHon'ble

CommissionerofIncome-tax.Delhi-IV,NewDelhihasallowedthe

expensesrelatabletointerestintheassessmentyears1998-99and

1999-2000intheorderpassedunderSectionsection203oftheIncome-tax

Act,1961.Therelevantparaisreproducedasunder:-

"thatafractionofthoseexpensesincurredwasrelatabletoearning

interestincome.InorderunderSectionsection263oftheIncometaxAct.

1961fortheassessmentyear98-99ithasbeenheldthat"expenses

ofRs.31,35,830/-wererelatabletointerestincome.Itisobserved

thattheinterestincomehasincreasedfromRs.15,44,65,452inthe

assessmentyear1998-99toRs.36,58,38,183/-inassessmentyear

1999-2000,sincenotmuchextraexpenseswererequiredtoearnthe

additionalinterestincomeinasstt.year99-2000,itwillbefair,ifwe

increasetheexpensesheldtobeincurredtoearninterestincomein

asstt.year1998-99by10%.ThefigurescomestoRs.34.49.413/-

(Rs.31,35,830+Rs.3,13,583/-).Against"interestofRs.15.26

croresforasstt.year1998-99thetotaldeductionclaimedfor

expenseswasRs.67,75,852/-whereasagainstinterestincomeof

Rs.36.58croresforasstt.year1999-2000deductiononaccountof

expensesallowedisofRs.5,55,10,567.Thedetailsareenclosedas

Annexure'A'AsisclearfromAnnualReportforF.Y.1998-99(asstt.

year1999-2000,thecompanyhadincurredmajorexpenseson

appointmentofconsultantsforMetroRailProject,paymentof

consultancyfeesaridsalary,invitingfortendersforcivilworks,

acquiringthelandandrehabilitationofabout500juggidwellers

fallingwithintheprojectalign/pent.Thusalmostentireincrease

overexpensesinclinedduringprecedingyearisnotrelatedto
106

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
earningofinterestincomee.g.consultancyfees,salariestostaff

otherthanthatengagedforearninginterestincome,foreigntours

travelsofconsultantsengineers,wageelectricityexpensesetc".

Itisfurtherstatedthat:-

"Theassesseewasallowedspecificopportunitiestoprovide

separatebreakupofexpensesrelatingforinterestincomeother

expensesrelatedtobusinesswhichhadnotasyetcommenced.

Howevertheassesseehasexpresseditsinabilitytoprovidesuch

breakup.UndersuchcircumstancesbykeepinginC..'lewthe

reasonsgivenunderorderu/s263ofevendateforasstt.year

1998-99,anexpenditureofRs.34,49.413/-isheldasincurred

whollyandexclusivelyforearninginterestincomeandthebalance

amountofRs.5,20,70,154(Rs5,55,19,567-Rs.34,49,413/-i'snot

relatabletointerestincomeandis,therefore,beingdisallowed."

TheappellantcompanyhasshowninterestincomeofRs.

59,67,94,426/-againstwhichclaimedexpensesofRs.56,21,803/-

intheyearunderconsiderationonproportionatebasisasallowedby

theCIT,Delhi-IV,NewDelhiintheorderpassedunderSectionsection263of

theIncome-taxAct,1961fortheassessmentyear1999-00.The

interestincomewasearnedatRs.15.47croresintheasstt.year98-

99andRs.36.58croresintheasstt.year99-00.Againstthese

interestincometherelatableexpenseswereallowedatRs.

31,35,830/-andRs.34,49,413/-respectively.Itmeansthatthe

relatableexpensesallowedintheasstt.year99-00comesRs.

34,49,413/-i.e.10%morethantheexpensesclaimedintheasstt.

year98-99ofRs.31,35,830/-Inspiteofthisfactthatinterest

incomehadbeenincreasedfromRs.15.44to36.59croresin(-

.comparisontoasstt.year98-99.TheHon'bleCIT,Delhi-IV,New

Delhihascategoricallygiventhefindingthatsincenomuchextra

expenseswererequiredtoearnadditionalinterestincomeforasstt.

year99-00,itwillbefairthatifweincreasetherelatableexpenses

heldtobeinclinedtoearninterestincomefortheasstt.year98-99

by10%only.

IdonotintendtothedifferwiththefindingsoftheCIT,Delhi-IV,

NewDelhiandaccordinglyIherebydirecttheAssessingOfficerto

allowtherelatableexpensesamountingtoRs.37,94,354

(Rs.34,49,413/-+10%Rs.3,44,941)i.e10%morethanofexpenses

allowedintheasstt.year1999-00forearningtheinterestincome.

Thebalanceamountisdisallowed."

107
ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi

24.Similarlyinassessmentyear2001-02and2002-03,the

assesseeclaimedexpensesofRs.7,76,600/-and

Rs.28,80,19,287/-.TheAssessingOfficerdisallowedtheentire

claimofRs.7,76,600/-inassessmentyear2001-2002,whereasin

theassessmentyear2002-03,theAssessingOfficerestimatedfive

employeesasengagedintheworkrelatingtomaintenanceofthe

fixeddepositandallowedtheexpensesonsalary,conveyance,

telephoneetcwhichwasestimatedbyhimatRs.9,12,000/-.The

Ld.CIT(A)allowedexpensesofRs.7,76,600/-andRs.41,73,789/-

inassessmentyear2001-02and2002-03respectively,following

hisfindinginassessmentyear2000-01.

25.Wehaveconsideredrivalsubmissionofthepartiesonthe

issueindisputeandperusedthematerialonrecord.

25.1Weareoftheconsideredviewthatundertheprovisionsof

Sectionsection57(iii)oftheAct,anyexpenditure(notbeinginthenature

ofcapitalexpenditure)laidoutorexpendedwhollyand

exclusivelyforthepurposeofmakingorearningsuchincomeis

deductibleagainstthesaidincomeassessedunderSectionsection56of

theActi.eunderthehead"Incomefromothersources".The

AssessingOfficerestimatedtheexpenditureincurredonthebasis

ofnumberofemployees.TheLd.CIT(A)howeverhasfollowedthe

estimationmadebytheLd.CITwhilepassingorderunderSectionsection

263forassessmentyear1998-99and99-2000.Theassesseeis

claimingthattheentireexpendituredebitedinprofitandloss

accountmightbeallowedagainsttheinterestincomeearnedfrom

fixeddeposit,whichaccordingtotheassesseeisinthenatureof

thebusinessincome.Wedonotagreewiththecontentionofthe

108

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
assessee.Itisfortheassesseetodemonstrateashowthe

expenditureincurrediswhollyandexclusivelyforthepurposeof

earninginterestincomeonfixeddeposit.BeforetheLd.CIT

duringproceedingunderSectionsection263oftheActforassessment

year1998-99and99-2000alsotheassesseeexpressedits

inabilitytoprovidebreak-upoftheexpensesrelatingtothe

interestincomeandunderthosecircumstancestheLd.CIT

estimatedexpenditureofRs.34,49,413/-forassessmentyear

1998-99.TheLd.CIT(A)hasfurtherprogressivelyincreasedthe

expenseswhichcouldbeallowable,by10%fortheyear2000-01,

2001-02and2002-03.Intheassessmentyear2001-02,the

claimoftheassesseewasonlyofRs.7,76,600/-andthereforehe

restrictedtheclaimofexpensestothatextent.Inabsenceofa

specificdemonstrationbytheassesseethatparticularexpenses

relatestotheinterestincomeandinabsenceofanydocumentary

evidenceinsupportofsuchaclaim,wemaynotliketodisturb

theexpensesalreadyallowedbytheLd.CIT(A),inviewofthefact

thatthereisnoappealoftheRevenuebeforeusinwhichthe

quantumofexpensesallowedunderthehead"Incomefromother

sources"hasbeencontestedbytheRevenue.Inviewoftheabove

discussion,therelevantgroundnumber5(a)and5(b)ofITANo.

1874/del/2004forassessmentyear2000-01,groundNo.5and6

ofITANo.4553/del/2003forassessmentyear2001-02and

groundsNo.5and6ofITANo.5095/del/2004forassessment

year2002-03areaccordinglydismissed.

25.2ThenextissueraisedinthegroundsforAY1996-97to

1999-2000isregardingnotallowingclaimofdeductionof1/10th

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1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
ofpreliminaryexpensesunderSectionsection35DoftheAct.Referringto

theissueofdeductibilityofpreliminaryexpenseswrittenoff

underSectionsection35DoftheActintheAY1996-97,thelearned

counseloftheassesseecontendedthattheassesseehadearned

anincomeofRs.2,39,452/-whichwassetoffagainstpreliminary

expenditurewrittenoffRs.8,07,227/-soastodeclaredalossof

Rs.5,67,775/-.Itwasfurthersubmittedthataggregate

preliminaryexpenditureincurredwasRs.80,72,227/-andoutof

which1/10thofRs.8,07,227/-waswrittenoffintheinstantyear.

Itwasthuscontendedthatentireexpenditureincurredon

accountofpreliminaryexpensesiseligiblefordeductionu/s35D

oftheAct.Inotherassessmentyearsalsotheclaimofdeduction

wascontendedasjustified.

26.ThelearnedDR,ontheotherhand,submittedthatthe

businessoftheassesseewasnotsetupandthereforeclaimof

deductionunderSectionsection35DoftheActcouldbeentertainedonly

aftercommencementofthebusiness.

27.Wehaveheardtheargumentsoftheboththepartiesonthis

issueindisputeandperusedtherelevantmaterialonrecord.The

issueofdeductionunderSectionsection35DoftheActisalsoconnected

withthesettingupofthebusiness,becausepreviousyearincase

ofnewlysetupbusinessstartsfromthesettingupofthebusiness

andbusinessincomeundertheheadprofitingainsofthe

businessiscomputedthereonaspertheprovisionsofSectionsection28

toSection44oftheAct.Aswehavealreadyheldthatbusinessofthe

assesseewasnotsetupduringtheperiodassessmentyears

1996-97to2002-03andthustheassesseewasnotentitledto

110

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1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
claimthedeductionunderSectionsection35DoftheActinthethese

relevantassessmentyears,howevertheassesseeiseligibleto

claimsuchdeductionunderSectionsection35DoftheActaftersetting

upofthebusiness.

27.1TheLd.CIT(A)inassessmentyear1998-99hasconfirmed

thedisallowanceonsimilargrounds.Accordingly,weupholdthe

findingoftheLd.CIT(A)ontheissueindisputeandtheground

No.3ofITANo.1346/del/2018forassessmentyear1996-97,

groundNo.3ofITANo.2398/del/2001forassessmentyear

1997-98,groundNo.3ofITANo.1144/del/2002forassessment

year1998-99andgroundNo.3ofITANo.3356/del/2002forAY

1999-2000raisedonthisissueareaccordinglydismissed.

28.Thenextissueraisedvariousappealsbeforeusisrelatedto

notallowingdeductioninrespectofexpensesclaimedintheprofit

andlossaccountincludingprofessionalandconsultancycharges

incurredbytheassessee.TheLd.CIT(A)inrelevantyearshas

heldthatcompanywasintheprocessofsettingupthebusiness

andthereforetheAssessingOfficerwerejustifiedinholdingthat

professionalorconsultancychargespaidwerepreoperative

expenseseligibleforamortisationunderSectionsection35D(2)(a)ofthe

Act.Itisnowwellsettledlawthat,oncebusinessissetup,then

onlyexpenditureisallowableasbusinessexpenditure,ashas

alsobeenheldthejudgmentofJurisdictionalHighCourtinthe

caseofSectionCITvs.DhoomketuBuildersDevelopmentPvt.Ltd.

216Taxmann76.Aswehavealreadyheldthatbusinessofthe

assesseewasnotsetupduringtheperiodfromassessmentyear

1996-97toassessmentyear2002-03,theassesseeisnoteligible

111

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1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
forclaiminganybusinessexpenditureaspreviousyearhasnot

began.Intheadditionalground(b),theassesseehasrequested

thatincasetheexpenditureincurredintheprofitandloss

accountincludingprofessionalandconsultancyexpenses,ifnot

allowedintherespectiveyearofincurring,thenmightbeallowed

tobecapitalizedandaddedtothecostoftheproject.Wefindthat

inassessmentyear1998-99,theLd.CIT(A)heldthatconsultancy

chargespaidareeligibleforamortizationunderSectionsection35Dofthe

Act.Weareoftheviewthatifthoseconsultancyandprofessional

expensesfallsundertheprovisionsofSectionsection35DoftheAct,

thentheAOmayconsiderallowabilityofthesameinaccordance

tolawintheyearofsettingupofthebusiness.Further,weareof

theviewthattheotherexpenseswhichhavebeendebitedinthe

profitandlossaccountandarerelateddirectlyorindirectlytothe

plantandmachineryorothercapitalassetsconstructedorbuilt

orpurchasedbytheassessee,thenthoseexpensesareeligiblefor

capitalizationandeligibleforinclusioninwrittendownvalueof

thosefixedasset.Weholdaccordingly.ThegroundNo.2ofITA

No.2398/del/2001forassessmentyear1997-98,groundNo.2of

ITANo.1144/del/2002forassessmentyear1998-99,groundNo.

2ofITANo.3356/del/2002forassessmentyear1999-2000,

groundNo.2,3and4ofITANo.1874/del/2004forassessment

years2000-01,groundNo.3ofITANo.4553/del/2003for

assessmentyear2001-02andgroundNo.3ofITANo.

5095/del/2004forassessmentyear2002-03areaccordingly

dismissed.TheadditionalgroundNo.(b)raisedinallthe

respectiveappealsbeforeusisallowedpartly.

112
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1874/Del/2004;4553/Del/2003;

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DelhiMetroRailCorporationLtd.,NewDelhi
29.Thenextissueisregardingthedeductionofdepreciation

claimedonofficeequipmentsetc.DuringAY1997-98toAY2002-

03.Inassessmentyear1998-99,theLd.CIT(A)deniedtheclaim

ofthedepreciationobservingasunder:

"8.Thelastgroundofappealrelatestonon-allowanceof

depreciationofRs.1,75,49,49,218/-.DepreciationunderSectionsection32

oftheIncome-taxAct,1961isadmissibleonlyinacasewherethe

assetsinquestion"areusedforthepurposesofthebusiness."The

provisionsofSectionsection32areapplicableonlyincaseswherethe

businessiscarriedon.Wherethebusinesshasnotyetbeensetup

thereisnoquestionofallowingdepreciation.

TheprimaryconditionforapplicationofPartDofChapter-IVofthe

IncomeAct.......tocomputationofprofitsandgainsofbusinessor

professionisthatthebusinessiscarriedon.Whenanassesseedoes

notcarryonbusinessatallthesecomputationprovisionshaveno

applicationandtheincomethathereceivescannotbearthe

characterofprofitsofbusiness.

NewSavanSugarGurRefiningCo.Ltd.Vs.CIT(1969)74ITR

7(SC).

SenairamDoongarmallVs.CIT(1961)42ITR392(SC)."

30.TheLd.Sr.Counseloftheassesseereliedonthedecisionof

Hon'bleDelhihighCourtinthecaseofCITVsOswalAgroMill

Ltd.reportedin341ITR467(Delhi)anddecisioninthecaseof

NationalThermalPowerCorporationVs.CIT,reportedin357ITR

253.TheLd.DR,ontheotherhand,reliedonthefindingofthe

lowerauthorities.

31.Wehaveheardboththepartiesontheissueondispute.In

thecaseofOswalAgroMillsLtd(supra),issueindisputewasin

respectofdepreciationonpassiveuseoftheassets.The

AssessingOfficerdenieddepreciationinrespectoftheBhopal

unitofassesseeonassetsformingpartofablockofassetsonthe

groundthattheunitwasclosedthroughouttheyears.The

113

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5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Hon'bleDelhiHighCourtheldthatdepreciationhadtobeallowed

anentireblockoftheassetsirrespectiveoftheindividualasset

wasinuseornot.Intheinstantcasebeforeus,issueinvolves

different,andthereforeissueofthesaiddecisioncannotbe

appliedoutthefactsoftheinstantcase.InthecaseofNational

ThermalpowerCorporation(supra)issueinvolvedwhetherasan

assetthoughreadytousebutnotputtouse,candepreciationbe

allowedonsuchasset.TheHon'bleHighCourtheldthatthe

expression"usedforthepurposesofthebusiness"inSectionsection32

oftheActhasbeenjudiciallyinterpretedtoincludeacasewhere

theassetiskeptreadyforuse,butisnotactuallyputtouse.

31.1Butintheinstantcasebeforeusaswehavealreadyheld

thatbusinessoftheassesseewasnotsetupinAY1996-97toAY

2002-03,thequestionofcarryingofthebusinessdoesnotarise

andinsuchcircumstancestheassesseeisnoteligiblefor

deductionofdepreciationunderSectionsection32oftheAct.Weconcur

withthefindingoftheLd.CIT(A)ontheissueindisputeand

accordinglydepreciationclaimedfromAY1997-98to2002-03is

denied.ThegroundNo.4ofITANo.1144/del/2002forassessment

year1998-99,groundNo.4ofITANo.3356/Del/2002for

assessmentyear1999-2000,groundNo.4ofITANo.

4553/del/2003forassessmentyear2001-02,raisedontheissue

ofclaimofdepreciationareaccordinglydismissed.

32.Now,wetakeuptheappealoftheassesseeinITANo.

2081/del/2003andITANo.2082/del/2003forassessmentyears
114

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
1998-99and1999-2000respectivelyagainsttheorder(s)under

Sectionsection263oftheActpassedbytheLd.Commissionerofincome

tax,Delhi.Thegroundsraisedintheappealsarereproducedas

under:

Groundsofappealforassessmentyear1998-99

1.TheAssessingOfficerhavingadjudicateduponthequestionof

allowabilityofexpensesagainstearningofinterestincome,inthe

factsandcircumstancesofthecase,theCTT,Delhi-IV,haserredin

lawandonfactsinsittingoverthejudgmentofthequestionof

allowabilityofexpensesforearningofinterestincomeandholding

thatoutofexpensesofRs.67,75,851allowedbytheAssessing

Officerforearningofinterestincome,expensesamountingto

Rs.20,90,552didnotrelatetoearningofinterestincome.The

exerciseofjurisdictionu/s263beingnotinaccordancewiththe

provisionsoflaw,theorderdated18.3.2003u/s263passedbythe

CIT,Delhi-IVdeservestobecancelled.

2.TheAssessingOfficerhavingcometotheconclusionthatexpensesof

Rs.67,75,851wereallowableasdeductionunderSectionsection57ofthe

Income-taxActforearningofinterestincome,inthefactsand

circumstancesofthecasetheCIT,Delhi-IVhaserredinlawandon

factsinholdingthatexpensesofFes.20,90,552outofexpensesof

Rs.67,75,851allowedasdeductionbytheAssessingOfficerwere

disallowablebeingnotrelatabletointerestincome.Suchchangeof

opinionbeingnotpermissibleundertheprovisionsofSectionsection263of

theIncome-taxAct,1961,theorderoftheC.I.T.,Delhi-IVbeingillegal

deservestobecancelled.

3.OnthefactsandinthecircumstancesofthecasetheCommissioner

ofIncome-tax,Delhi-IVhaserredinlawinexercisingjurisdiction

underSectionsection263oftheIncome-taxAct,1996andholdingthatoutof

expensesofRs.67,75,851allowedbytheAssessingOfficer

expensesofRs.20,90,552weredisallowablebeingnotrelatableto

interestincome.Theassessmentorderdated30.11.2000ofthe

Addl.CITSpl.Range-24,NewDelhibeingnoterroneousinsofaras

itwasnotprejudicialtotheinterestofrevenue,theorderu/s263

dated18.3.2003passedbytheCIT,Delhi-IVbeingillegaldeserves

tobecancelled.

4.TheAssessingOfficerhavingheldthatinterestincomeofthe

appellantwastobetaxedunderthehead"Incomefromother

sources"andthatexpensesofRs.67,75,851wereallowableas

deductionagainstinterest;incomeofRs.15,26,70,209underSectionsection

57oftheIncome-taxAct,1961,theCIT,Delhi-IVinthefactsand

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1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
circumstancesofthecasehaserredinlawininvokingtheprovisions

ofSectionsection263toholdthatexpensesofRs.20,90,552were

disallowablebeingnotrelatabletointerestincome.Theorderofthe

AssessingOfficerbeingnoterroneousinsofarasitwasnot

prejudicialtotheinterestsofrevenue,theorderpassedbytheCIT,

Delhi-IV,NewDelhideservestobecancelledbeingnotinaccordance

withtheprovisionsoflaw.

5.TheAssessingOfficerhavingalloweddeductionofexpenses

amountingtoRs.67,75,851againstinterestincomeofRs.

15,26.70,209inthefactsandcircumstancesofthecasetheCIT,

Delhi-IVhaserredinlawandonfactsininvokingjurisdictionu/s

263oftheSectionIncome-taxAct,1961toholdthatoutofexpensesofRs.

67,75,851allowedbytheAssessingOfficer,theexpenses

amountingtoRs.20,90,552weredisallowablebeingnotrelatableto

interestincome.TheorderoftheAssessingOfficerbeingnot

erroneousinsofarasitwasnotprejudicialtotheinterestof

revenue,theorderpassedbytheCIT,Delhi-IVunderSectionsection263of

theIncome-taxAct,1961beingillegaldeservestobecancelled.

6.InthefactsandcircumstancesofthecasetheCIT,Delhi-IVhas

erredinlawandonfactsininvokingjurisdictionunderSectionsection263

oftheIncome-taxAct,1961.TheAssessingOfficerafterhaving

disallowedthebusinessexpensesamountingtoRs.3,70,82,442and

havingallowedexpensesofRs.67,75,85asexpensesagainst

earningofinterestincomeofRs.15,26,70,209theorderoftheCIT,

Delhi-IVholdingthatexpensesofRs.20,90,552weredisallowable

beingnotrelatabletointerestincome,beingillegaldeservestobe

cancelled.

7.OnthefactsandinthecircumstancesofthecasetheCIT,Delhi-IV

haserredinlawandonfactsinholdingthatexpensesamountingto

Rs.20,90,552didnotrelatetoearningofinterestincome.Thefigure

ofexpensesofRs.20,90,552beingbasedonestimateandnoton

anymaterialonrecord,theorderoftheCIT,Delhi-IVisbadeinlaw.

Suchestimationbeingnotpermissibleundertheproceedingsunder

Sectionsection263,theorderoftheCIT,Delhi-IVisbadinlawandtherefore

thesamedeservestobecancelled.

8.OnthefactsandinthecircumstancesofthecasetheCIT,Delhi-IV

erredincallingupontheappellantforproductionofbooksand

otherrecordstocometoaconclusionthatoutofexpensesofRs.

67,75,851alreadyallowedbytheAssessingOfficerforearningof

interestincome,someexpensesweredisallowable.TheCITbeing

requiredtohavesuchdetailsreadybeforehimbeforeissueofnotice

underSectionsection263,theorderpassedisbadinlawand,therefore,the

samedeservestobecancelled.

9.OnthefactsandinthecircumstancesofthecasetheCIT,Delhi-IV

haserredinlawinnotjustifyingthedisallowanceofexpenseson
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DelhiMetroRailCorporationLtd.,NewDelhi
facts.Thetotalexpenseshavingbeenincurredforthepurposeof

businessareliabletobefullyallowed.

10.InthefactsandcircumstancesofthecasetheCIT,Delhi-IVhas

erredinlawininvokingtheprovisionsofSectionsection263oftheIncome-

taxAct,1961.Theassessmentorderdated30.11.2000passedby

theAssessingOfficerhavingbeenthesubjectmatterofappeal

beforetheCIT(Appeals)-XIII,NewDelhi,theorderpassedbytheCIT,

Delhi-IViswithoutjurisdictionand,therefore,thesameisliabletobe

cancelled.

11.ThelearnedCTT,Delhi-IVhasillegallyinvokedSectionsection263ofthe

Income-taxAct,1961.Assuch,theproceedingsu/s263ofthe

SectionIncome-taxActdeservetobecancelled.

12.Theappellantcravesleavetoadd,alterormodifyanygroundof

appealeitherbeforeoratthetimeofhearingoftheappeal.

Groundsofappealforassessmentyear1999-2000.

1.TheAssessingOfficerhavingadjudicateduponthequestionof

allowabilityofexpensesagainstearningofinterestincome,in

thefactsandcircumstancesofthecase,theCIT,Delhi-IV,has

erredinlawandonfactsinsittingoverthejudgementofthe

questionofallowabilityofexpensesforearningofinterest

incomeandholdingthatoutofexpensesofRs.5,55,19,567/-

allowedbytheAssessingOfficerforearningofinterestincome,

expensesamountingtoRs.5,20,70,154/-didnotrelateto

earningofinterestincome.Theexerciseofjurisdictionu/s263

beingnotinaccordancewiththeprovisionsoflaw,theorder

dated18.3.2003u/s263passedbytheCIT,Delhi-IVdeserves

tobecancelled.

2.TheAssessingOfficerhavingcometotheconclusionthat

expensesofRs.5,55,19,567./-wereallowableasdeduction

underSectionsection57oftheIncome-taxActforearningofinterest

income,inthefactsandcircumstancesofthecasetheCIT,

Delhi-IVhaserredinlawandonfactsinholdingthatexpenses

ofRs.5,20,70,154/-outofexpensesofRs.5,55,19,567/-

allowedasdeductionbytheAssessingOfficerwere

disallowablebeingnotrelatabletointerestincome.Suchchange

ofopinionbeingnotpermissibleundertheprovisionsofSectionsection

263oftheIncome-taxAct,1961,theorderoftheC.I.T.,Delhi-IV

beingillegaldeservestobecancelled.

3.Onthefactsandinthecircumstancesofthecasethe

CommissionerofIncome-tax,Delhi-IVhaserredinlawin

exercisingjurisdictionunderSectionsection263oftheIncome-tax

Act,1961andholdingthatoutofexpensesofRs.5,55,19,567/-

allowedbyexpensesofbytheDOT,Circle-10(1),NewDelhi

expensesofRs.5,20,70,154/-weredisallowablebeingnot

relatabletointerestincome.Theassessmentorderdated

117

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1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
26.2,2002oftheDOT,Circle10(1),NewDelhibeingnot

erroneousinsofarasitwasnotprejudicialtotheinterestof

revenue,theorderu/s263dated18.3.2003passedbytheCIT,

Delhi-IVbeingillegaldeservestobecancelled.

4.TheAssessingOfficerhavingheldthatinterestincomeofthe

appellantwastobetaxedunderthehead"Incomefromother

sources"andthatexpensesofRs.5,55,19,567/-wereallowable

asdeductionagainstinte/estincomeofRs.36,58,38,183/-

underSectionsection57oftheIncome-taxAct,1961,theCIT,Delhi-IVin

thefactsandcircumstancesofthecasehaserredinlawin

invokingtheprovisionsofSectionsection263toholdthatexpensesof

Rs.5,20,70,154,/-weredisallowablebeingnotrelatableto

interestincome.TheorderoftheAssessingOfficerbeingnot

erroneousinsofarasitwasnotprejudicialtotheinterestsof

revenue,theorderpassedbytheCIT,Delhi-IV,NewDelhi

deservestobecancelledbeingnotinaccordancewiththe

provisionsoflaw.

5.TheAssessingOfficerhavingalloweddeductionofexpenses

amountingtoRs.5,55,19,567/-againstinterestincomeof

Rs.36,58.38.1837-.inthefactsandcircumstancesofthecase

theCIT,Delhi-IVhaserredinlawandonfactsininvoking

jurisdictionu/s263oftheSectionIncome-taxAct,1961toholdthatout

ofexpensesofRs.5,55,19,567,/-allowedbytheAssessing

Officer,theexpensesamountingtoRs.5,20,70,154/-were

disallowablebeingnotrelatabletointerestincome.Theorderof

theAssessingOfficerbeingnoterroneousinsofarasitwasnot

prejudicialtotheinterestofrevenue,theorderpassedbythe

CIT,Delhi-IVunderSectionsection263oftheIncome-taxAct,1961

beingillegaldeservestobecancelled.

6.InthefactsandcircumstancesofthecasetheCIT,Delhi-IVhas

erredinlawandonfactsininvokingjurisdictionunderSectionsection

263oftheIncome-taxAct,1961.TheAssessingOfficerafter

havingdisallowedthebusinessexpensesamountingto

Rs.3,23,89,007/-andhavingallowedexpensesof

Rs.5,55,19,567./-asexpensesagainstearningofinterest

incomeofRs.36,58,38183/-theorderoftheCIT,Delhi-IV

holdingthatexpensesofRS.5,20,70,154/-weredisallowable

beingnotrelatabletointerestincome,beingillegaldeservesto

becancelled.

7.OnthefactsandinthecircumstancesofthecasetheCIT,Delhi-

IVhaserredinlawandonfactsinholdingthatexpenses

amountingtoRs.5,20,70,154/-didnotrelatetoearningof

interestincome.ThefigureofexpensesofRs.5,20,70,154/-

beingbasedonestimateandnotonanymaterialonrecord,the

orderoftheCIT,Delhi-IVisbadeinlaw.Suchestimationbeing

notpermissibleundertheproceedingsunderSectionsection263,the
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5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
orderoftheCIT,Delhi-IVisbadinlawandthereforethesame

deservestobecancelled.

8.OnthefactsandinthecircumstancesofthecasetheCIT,Delhi-

IVerredincallingupontheappellantforproductionofbooks

andotherrecordstocometoaconclusionthatoutofexpenses

ofRs.5,55,567,/-alreadyallowedbytheAssessingOfficerfor

earningofinterestincome,someexpensesweredisallowable.

TheCITbeingrequiredtohavesuchdetailsreadybeforehim

beforeissueofnoticeunderSectionsection263,theorderpassedis

badinlawand,therefore,thesamedeservestobecancelled.

9.OnthefactsandinthecircumstancesofthecasetheCIT,Delhi-

IVhaserredinlawinnotjustifyingthedisallowanceof

expensesonfacts.Thetotalexpenseshavingbeenincurredfor

thepurposeofbusinessareliabletobefullyallowed.

10.InthefactsandcircumstancesofthecasetheCIT,Delhi-IVhas

erredinlawininvokingtheprovisionsofSectionsection263ofthe

Income-taxAct,1961.Theassessmentorderdated26.2.2002

passedbytheAssessingOfficerhavingbeenthesubjectmatter

ofappealbeforetheCIT(Appea!s)-XIlI,NewDelhi,theorder

passedbytheCIT,Delhi-IViswithoutjurisdictionand,

therefore,thesameisliabletobecancelled.

11.ThelearnedCIT,Delhi-IVhasillegallyinvokedSectionsection263ofthe

Income-taxAct,1961.Assuch,theproceedingsu/s263ofthe

SectionIncome-taxActdeservetobecancelled.

12.Theappellantcravesleavetoadd,alterormodifyanygroundof

appealeitherbeforeoratthetimeofhearingoftheappeal

33.Sofarasordersu/s263oftheActareconcernedforA.Y.

1998-99andA.Y.1999-2000,itwassubmittedbytheLd.Senior

counselthat,thesamearefirstlywithoutjurisdictionand,even

otherwise,theconclusionofthelearnedCITtorestrictthe

expenditureallowableand,dulyallowedbyAOiswhollyarbitrary

and,untenable.ThelearnedCIThasrestrictedtheexpenditure

allowedbyAOofRs.67,75,851/-inA.Y.1998-99toRs.

46,85,299/-and,disallowedRs.20,90,552/-;whereasinA.Y.

1999-2000,shehasrestrictedtheexpenditureallowedofRs.

5,55,19,567/-toRs.34,49,412/-and,disallowedRs.

119
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1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
5,20,70,154/-.ThebasisofdisallowanceforA.Y.1998-99isas

under:

A.TotalExpenditureAllowedbyAORs.67,75,851/-

B.Outoftheaforesaid,expenditurepertaining

IncomefromsaleoftendersRs.15,49,470/-

C.Balance(A-B)Rs.52,26,381/-

D.Outoftheaforesaidonly60%isallowableRs.31,35,829/-

E.Balanceisnotallowable(C-D)Rs.20,90,552/-

F.Expenditureallowable(A-E)Rs.46,85,299/-

34.SofarasA.Y.1999-2000isconcerned,thelearnedCIT,

enhancedthefigureofexpenditureallowedinA.Y.1998-99ofRs.

31,35,829/-by10%and,heldthat,expenditureallowableisRs.

34,49,413/-and,balanceisRs.5,20,70,154/-isdisallowed.

35.Theassesseesubmittedthat,whilemakingtheaforesaid

disallowance,thelearnedCommissionerofIncomeTaxhas

exceededinhisjurisdictionindisregardofthefactthat,itisnota

casewhereconditionsforexerciseofpowerstoactunderSectionsection

263oftheActexisted.Inordertoassumejurisdictionunder

Sectionsection263,thepre-requisitesarethattheorderpassedbythe

AssessingOfficershouldbeerroneousanditshouldbe

prejudicialtotheinterestsofRevenue.TheCommissionerhasto

satisfythetwinconditions,namely,(i)theorderoftheAssessing

Officersoughttoberevisedshouldbeerroneous(ii)itshouldbe

prejudicialtotheinterestsoftherevenue.Boththeconditions

mustbesatisfied.Itwassubmittedthatifeitherofthetwo

conditionsdoesnotexistorarefoundnotsatisfied,thelearned
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DelhiMetroRailCorporationLtd.,NewDelhi
CITcannotinitiateproceedingstosetasideotherwisean

unfavourableorder,ashasbeenheldbytheHon'bleMadrasHigh

CourtinthecaseofSectionVenkatKrishnaRiceCompanyv.CIT163ITR

129and,notedbytheirLordshipsofApexCourtinthecaseof

SectionMalabarIndustrialCo.Ltd.v.CIT243ITR83.

36.Itwassubmittedthat,thelearnedCIThaserredinassuming

jurisdictionbymakinganorderbyinvokingtheprovisionof

Sectionsection263oftheincomeSectionTaxActasindoingsothelearnedCIT

failedtoappreciatethattheordersofassessmentforboth

assessmentyear1998-99and,1999-00,wereneithererroneous

norwasprejudicialtotheinterestofrevenue.Infact,theperusal

oftheorderofassessmentforAY1998-99wouldshowthat,the

learnedAOhaddulyconsideredtheclaimofexpensesand,held

asunder:

"Theremainingexpensesexceptdepreciationareallowedas

expensesagainstincomefromothersourcesu/s57"

36.Infact,beforecomingtotheaforesaidconclusion,the

learnedAOhadcalledforallthenecessarydetails,

35Itwasthereforesubmittedthat,theconclusionoflearned

CITtoholdthatthelearnedA.Ohasnotappliedhismindto

theclaimofdeductionisfactuallymisplaced.Itwas

submittedthattheldAOpassedtheassessmentorderafter

thoroughlyinvestigatingthematterandnotonlyaftertaking

intoaccountallthenecessaryrecordsandinformation,

copiesofwhichareplacedinthePBfor1998-99.Itwasalso
121

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
submittedthatlikewisedetailshadbeencalledforand,the

sameweredulyfurnishedforA.Y.1999-2000.

36ItwassubmittedthattheCITfailedtoappreciatethatthere

couldbenovalidjustificationtoholdthattheamountofRs

20,90,552/-and,Rs.5,20,70,154/-claimedasdeduction

werenotallowable.Itwassubmittedthatthereisnobasis

toadoptthepercentagesof40%and,10%.Theestimateis

purelyarbitrary.Reliancewasplacedonthejudgementof

SCinthecaseofMaharajaB.P.SinghDeovStateof

Orissa76ITR690.

37ItwassubmittedthatthelearnedCITfailedtoappreciate

thatsuchexpenditureallowedwasotherwiseanallowable

expenditureu/s57oftheAct.Itwassubmittedthat,that

theassumptionthattheexpenditureclaimedbythe

assesseeisanexpenditure,whichhasnotincurredwholly

andexclusivelyforthepurposeofearningincomeisalso

basedonnomaterialandevidence,andishighlyconjectural

and,theoretical.Itwassettledlawthat,ifanexpenditurein

heldallowableu/s37(1)oftheAct,therecanbenopartial

disallowancemadeofsuchexpenditure.Relianceisplaced

onthefollowingjudicialpronouncements:

a)CITvDhanrajgirjiRajaNarsingirji91ITR544(SC)

b)SassoonJDavidandCo.(P)LtdvCIT118ITR261

(SC)

c)CITvDalmiaCement(P)Ltd254ITR377(Del)

d)AbbasWazir(P)LtdvCIT265ITR77(All)

122

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
38ItwassubmittedthatthelearnedCITfailedtoappreciate

thesettledpositionoflawthatmerelybecausetheA.O

adoptedoneviewwhichwasnotinconsonancewiththe

commissioner'sview,theorderpassedbytheA.Ocannotbe

saidtobeerroneous.

39ItwassubmittedthatthelearnedCITalsofailedto

appreciatethesettledpositionoflawthattheCommissioner

cannotsubstitutehisopinioninplaceofthatofA.O.

particularlywhenviewstakenbytheA.Oisalsooneofthe

legallypossibleviews.Thescopeofthepowersvestedu/s

263oftheActisnotsowideastopassanyorderinthegarb

ofrevisinganorderofassessmentbutiscircumscribedwith

certainlimitationsashasbeenheldbytheHon'bleSupreme

CourtinthecaseofMalabarIndustrialCompanyLtd.vCIT

243ITR83.Reliancewasalsoplacedonthejudgmentof

theGujaratHighCourtinthecaseofArvindJewellers

reportedin259ITR502andNabhaInvestmentsLtd.VUOI

246ITR41(Del).Itwasalsosubmittedthatevenotherwise,

Sectionsection263cannotbeinvokedinviewofthejudgementof

theApexCourtinthecaseofCITvG.M.MittalStainless

SteelLtdreportedin263ITR255.

40Itwassubmittedthatsincetheordersofassessmentwere

neithererroneousand,norprejudicialtotheinterestof

revenue,thereforeintheabsenceofthesatisfactionofboth

thepreconditions,itwasrespectfullysubmittedthatthe
123

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
provisionsu/s263oftheActcouldnothavevalidlybeen

invoked.

41Theassesseealsosubmittedthat,thescopeofappellate

powersoftheHon'bleIncomeTaxAppellateTribunalare

confinedtosuchissuesand,grounds,whichhavebeen

statedbythelearnedCITinhisnoticeand,nomore.

Reliancewasplacedonthefollowingjudgments
i)JagadhriElectricandSupplyCo.vCIT140ITR490

(PH)
ii)SectionL.F.D.Silvav.CIT92ITR547(Kar)2:clearviewon

thewallandniceisinawillofawillnearlyand

easierusuallyavisitand11,hewilltotheMinistryof

Hilomaximally
iii)SectionCITV.Late.T.S.SrinivasaIyer192ITR50(Mad)
iv)JagjitIndustriesLtdvACIT60ITD295(Del)
v))SatishbhaiJayantilalShahv.Asstt.CIT61ITD307

(Ahd-)
37.TheLd.DR,ontheotherhand,submittedthatnoenquiries

weredonebytheAssessingOfficerontheissueofquantumof

expenditureallowableagainsttheinterestincomeasperthe

provisionsofSectionsection57oftheAct.Accordingtohiminviewofthe

lackofInquiry,theorderpassedbytheAssessingOfficerinboth

theassessmentyears,i.e.,assessmentyears1998-99and1999-

2000areerroneous.Hefurthersubmittedthatinviewofthe

revenuelossonaccountoftheactionoftheAssessingOfficer,the
124

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
ordersarealsoprejudicialtotheinterestoftheRevenue.Inview

ofthecontentions,hesubmittedthatorderspassedbythe

AssessingOfficerbeingerroneousinsofarasprejudicialtothe

interestoftheRevenue,theLd.CITwasjustifiedininvoking

provisionsofSectionsection263oftheAct.OnthecontentionoftheLd.

SeniorCounseloftheassesseethattheorderunderSectionsection263

oftheActarebasedonchangeofopinion,theLd.DRsubmitted

thatnoopinionwasframedbytheAssessingOfficerontheissue

andthereforetherecannotbeanychangeoftheopinionbythe

Ld.CIT.Insupportofthecontention,hereliedonthefollowing

judicialpronouncement:

"1.Hon'bleSupremeCourtinthecaseofSectionDenielMerchants

Pvt.Ltd.vs.IncomeTaxOfficer(AppealNo.2396/2017)dated

29.11.2017.(copyenclosed).

Inthisgroupofcases,Hon'bleSupremeCourthasdismissedSLPsin

caseswhereAOdidnotmakeanyproperinquirywhilemakingthe

assessmentandacceptingtheexplanationoftheassessee(s)insofar

asreceiptofshareapplicationmoneyisconcerned.Onthatbasisthe

CommissionerofIncomeTaxhad,aftersettingasidetheorderofthe

AssessingOfficer,simplydirectedtheAssessingOfficertocarry

thoroughanddetailedinquiry

TherelevantjudgementofHon'bleCalcuttaHighCourtinthiscaseis

alsoenclosed.

2.BSESRaidhaniPowerLtd.VsPCIT[2017]88taxmann.com

25(Delhi)/[2017]399ITR228(Delhi)(copyenclosed)

Hon'bleDelhiHighCourtheldthatnon-considerationoflargerclaim

forRs.298.93croresasdepreciationandconsiderationofonlya

partofitbeingRs.6.45crorebyAssessingOfficer,whodidnotgo

intoissuewithrespecttowholeamount,wasanerror,thatcouldbe

correctedunderSectionsection263.Commissionerhaspowertoconsiderall

aspectswhichweresubjectmatterofAssessingOfficer'sorder,ifin

hisopinion,theywereerroneous,despiteassessee'sappealonthat

orsomeotheraspect

3.MalabarIndustrialCo.Ltd.VsCITr20001109Taxman66

(SC)/[2000]243ITR83(SC)/[2000]159CTR1(SC)(Copy

Enclosed)
125

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
WhereHon'bleSupremeCourtheldthatwhereAssessingOfficerhad

acceptedentryinstatementofaccountfiledbyassessee,inabsence

ofanysupportingmaterialwithoutmakinganyenquiry,exerciseof

jurisdictionbyCommissionerunderSectionsection263(1)wasjustified

4.RaimandirEstates(P.)Ltd.VsPCIT[70taxmann.com124

(Calcutta)/[2016]240Taxman306(Calcutta)/[2016]386ITR

162(Calcutta)/[2016]287CTR512](Copyenclosed)

WhereHon'bleCalcuttaHighCourtheldthatwhereassesseewitha

smallamountofauthorisedsharecapital,raisedahugesumon

accountofpremiumandchosenottogoinforincreaseofauthorised

sharecapitalmerelytoavoidpaymentofstatutoryfeesand

AssessingOfficerpassedassessmentorderwithoutcarryingout

requisiteenquiryintoincreaseofsharecapitalincludingpremium

receivedbyassessee,Commissionerwasjustifiedintreating

assessmentorderaserroneousandprejudicialtointerestofrevenue

5.RaimandirEstates(P.)Ltd.VsPCIT[2017]77taxmann.com

285(SC)/[2017]245Taxman127(SC)

Hon'bleSupremeCourthasdismissedSLPagainstHighCourt's

rulingthatwhereassesseewithasmallamountofauthorisedshare

capital,raisedhugesumonaccountofpremium,exerciseof

revisionarypowersbyCommissioneropiningthatthiscouldbea

caseofmoneylaunderingwasjustified

6.SwarupVegetableProductsVsCITH991154Taxman

175(Allahabad)/[1991]187ITR412(Allahabad)/[1990]90CTR

113(Allahabad)(copyenclosed)

Assesseereceivedcertainamountbywayofrefundofexciseduty

andclaimedthathehadplacedthisamountinsuspenseaccountas

alargepartofthisamountwasclaimedbyoneGandasuitand

alsoawritpetitionfiledbyGinthisregardwerependingbefore

Courtsand,thus,thisamountdidnotconstitutehisincome.ITO

acceptedassessee'sclaimwithoutmakingproperenquiries.

CommissioneractingunderSectionsection263,setasideassessmentorder

ongroundthatitwasclearlyerroneousandalsoprejudicialto

revenueinasmuchasclaimofassesseewasacceptedwithoutproper

enquiriesanddirectedITOtomakefreshassessmentaftermaking

properenquiriesandrecordingafinding.Orderupheld

6.CITVsAmitabhBachhan(69taxmann.com170.240

Taxman221,384ITR200,286CTR113)(copyenclosed)

Hon'bleSupremeCourtheldthatSection263doesnotrequireany

specificshowcausenoticedetailingspecificgroundsonwhich

revisionofassessmentorderistentativelybeingproposedaffecting

initiationofexerciseinabsencethereofortorequirecommissionerto

confinehimselftotermsofnoticeandforeclosingconsiderationof

anyotherissueorquestionoffact;Commissionerisfreetoexercise

hisjurisdictiononconsiderationofallrelevantfacts,providedan
126

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
opportunityofhearingisaffordedtoassesseetocontestfactson

basisofwhichhehadexercisedrevisionaljurisdiction

7.ShreeManiunatheswarePackingProductsCamphor

WorksVsCIT[1998]96Taxman1(SO/[1998]231ITR53

(SO/[1997]143CTR406(SC)

Hon'bleSupremeCourtheldthatword'record'usedinSectionsection263(1)

wouldmeanrecordsasitstandsattimeofexaminationby

Commissionerbutnotasitstandsattimeoforderpassedby

AssessingOfficer.Materialwhichhadalreadycomeonrecord

thoughsubsequentlytomakingofassessmentcouldbetakeninto

considerationbyCommissioner.Commissionerwasjustifiedin

invokingSectionsection263onbasisofvaluationreportsubmittedbyDVO

subsequenttoassessmentorder.

8.CITVsBallarpurIndustriesLtd.[2017]85taxmann.com10

(Bombay)

Hon'bleBombayHighCourtheldthatwhereAssessingOfficer

allowedclaimofdeductionunderSectionsection80HHCwithoutexamining

saidclaimwithreferencetounabsorbeddepreciationandinvestment

allowanceasreferredtoinSectionsections32andSection32Arespectively,

CommissionerwasjustifiedininvokingrevisionunderSectionsection263."

38.Wehaveheardtherivalsubmissionsandperusedthe

relevantmaterialonrecord.Intheinstantcase,theAssessing

Officerinorderu/s143(3)oftheActforassessmentyear1998-

99,hadallowedtheexpenditureclaimedintheprofitandloss

account,otherthantheadditionsmade,astheexpenditure

againsttheinterestincomeaspertheprovisionsofSectionsection57of

theAct.ThedetailofexpenditureallowedbytheAssessingOfficer

againstinterestincomeinassessmentyear1998-99isasunder:

(FiguresinRupess)

1997-98

Expenditure

AdvertisementA/c1,401,669

AGM/BoardMeeting29,431

Expenses

AuditFees3,000

BankCharges3,621

127

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;
5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Booksand105,749

Periodicals

Brokerage6,000

BusinessPromotion171,3000

A/c

CarMaintenance30,907

Conveyance33,552

Expenses

ElectricityExpenses61,816

Entertainment7,754

Expenses

GroundRent1,575,000

Honorarium147,300

InsuranceA/c26,066

MembershipA/c14,673

Miscellaneous111,679

expenses

OfficeMaintenance41,787

Expenses

Postageand14,115

telegraph

Printingand149,737

Stationary

Processingcharges95,000

RentforConference25,900

Hall

Rent/LeaserentA/c119,500

Repairand5,874

MaintenanceA/c

SalaryA/c1,532,687

SecurityExpenses98,620

StaffWelfare40,088

Expenses

TelephoneExpenses363,326

TravellingExpenses173,414

Vehiclehiring315,641

expenses

VehicleRunning104,906

expenses

WaterCharges25,740

TotalExpenditure67,75,851
128

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
38.2TheLd.CITcalledforandexaminedtherecordandissued

noticethatexpenditureofRs.67,75,851(Rs.4,11,99,225-

Rs.3,44,23,404)wasallowederroneouslybytheAssessingOfficer

againsttheinterestincomecreditedintheprofitandloss

account.AccordingtotheLd.CIT,thebusinessoftheassessee

hadyetnotcommencedandsaidexpenditureofRs.67,75,851/-

wasnotentirelyrelatedtoearningofinterestincomeandthus,

cannotbeallowedentirelyagainstinterestincome.

38.3TheLd.CIT,afterconsideringthesubmissionofthe

assesseeheldthattheAssessingOfficerdidnotapplymindtothe

natureanddetailsoftheotherexpensesclaimedandallowedas

deductionagainsttheinterestincome.TheLd.CITobservedthat

alltheexpensesofRs.67,75,851,wereclearlynotrelatabletothe

earningoftheinterestincomeasthoseexpensesmainlyinclude

advertisement,businesspromotion,groundrentetc,vehicleand

salarytotechnicalstaffetc.TheLd.CITheldthatincomefrom

investmentinshort-termdepositwithbankswouldbechargeable

totaxunderthehead"Incomefromothersources"duringthe

pre-commencementperiodofthebusinessandagainstthesaid

interestincomeexpensesforearningofsuchinterestincomewas

onlyallowable.TheLd.CITaskedtheassesseetosegregatethe

expensesrelatabletotheinterestincome,howeverinviewofthe

failureonthepartoftheassessee,theLd.CITestimatedsuch

expenditureforassessmentyear1998-99asunder:

"iii)However,afractionortheseexpensesincurredwasreliableto

earninginterestincomeDuringthecourseofproceedingsu/s263,

thecounseloftheassesseewasaskedtosegregateexpenseswhich

129

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
wererelatabletointerestincomeandwhichwerenotrelatableto

interestincome.Theassessee'scounselsubmittedthatitwasnot

possibletosegregateexpensesorttheabovesaidlinesasnosuch

recordwasmaintained.However,shepointedoutthatbesides

interestincomeofRs.15,44,65,452/-therewasincomeofRs.

17,95,243fromsaleoftenderdocuments.Shefurtherpointedout

thatexpensesonadvertisementetc.amountingtoRs.15,49,470/-

(Rs.14,01,669+Rs.29,431+Rs.3000+Rs.3,621+Rs.1,05,749+

Rs.6,000)v/ererelatabletoincomefromsaleoftenderdocuments

andshouldtherefore,notbedisallowed.Thisargumentofthe

assessee'scounselisacceptable.Afterexcludingtheseexpenses

fromtheexpensesinquestionofRs.67,75,852/-,thebalancefigure

comestoRs.52,26,382(Rs.67,75,852-Rs.15,43,470)whichconsists

mainlyofsalary,businesspromotionelectricityandgroundrentand

outofwhichsegregationoftheabovesaidlinesisrequiredtobe

made."

38.4Similarly,inassessmentyear1999-2000,alsotheAssessing

Officerpassedtheassessmentorderinidenticalmanner,making

additionstotheincomefiledbytheassesseeinrevisedreturnof

income.Intheassessmentyear1999-2000theAssessingOfficer

alloweddeductionofRs.6,57,16,432/-againsttheinterest

incomewhichwasconsideredbytheassesseeasbusiness

income.TheLd.CITheldtheorderpassedbytheAssessing

Officeraserroneousinsofarasprejudicialtotheinterestofthe

RevenueinmanneridenticaltotheorderpassedunderSectionsection

263forassessmentyear1998-99.Fortheyearunder

consideration,theLd.CITestimatedtheamountofRs.34,49,413

asallowableagainsttheinterestincomeunderSectionsection57ofthe

ActanddisallowedthebalanceamountofRs.5,20,70,154(

Rs.5,55,19,167-Rs.34,49,413)asunder:

"iii)However,afractionoftheseexpensesincurredwasrelatableto

earninginterestincome.Inmyorderu/s263oftheIT.Actfor

Assessmentyear1998-99,ithasbeenheldthatexpensesof

130

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
Rs.31,35,830/-wererelatabletointerestincome,itisobservedthat

theinterestincomehasincreasedfromRs.15,44,65,452in

assessmentyear1998-99toRs.36,58,38,183/-inassessmentyear

1999-2000Sincenotmuchextraexpenseswererequiredtoearnthe

additionalinterestincomeinasstt.year99-2000,itwillbefair,ifwe

increasetheexpensesheldtobeincurredtoearnInterestincomeIn

asst*year1995-99by10%.ThisfigurescomestoRs.34,49,413/-

(Rs.31,35,830+Rs.3,13,583).AgainstinterestofRs.15.26Crores

forAsstt.Year1998-99,thetotaldeductionclaimedforexpenses

wasRs.67,75,852/-whereasagainstinterestincomeofRs.36.58

CroresforAsstt.year1999-2000,deductiononaccountofexpenses

allowedisofRs.5,55,19,567/-.Thedetailsareenclosedas

Annexure'A'.AsisclearfromAnnualReportforA.Y1998-99(Asst.

Yr.1993-2000),thecompanyhadincurredmajorexpensesor

appointmentofconsultantsforMetroRailProject,paymentof

consultancyfeesandsalary,invitingfortendersforcivilworks,

acquiringthelandandrehabilitationofabout500jhuggidwellers

fallingwithintheprojectalignment.ThusalmostentireIncreaseover

expensesIncurredduringprecedingyearisnotrelatedtoearningof

interestincome,e.g.,consultancyfees,salariestostaffotherthan

thatengagedrelearninginterestincome,foreigntourstravelsof

consultantsengineers,wageelectricityexpensesetc.

IV.Theassesseewasallowedspecificopportunitiestoprovide

separatebreakupofexpensesrelatingforinterestincomeother

expensesrelatedtobusinesswhichhadnotasyetcommenced.

Howevertheassesseehasexpresseditsinabilitytoprovidesuch

breakup.Undersuchcircumstancesbykeepinginviewthe

reasonsgivenunderorderu/s263ofevendateforasstt.year1998-

99,anexpenditureofRs.34,49,413/-isheldasIncurredwholly

exclusivelyforearningInterestincomeandthebalanceamountof

Rs.5,20,70,154(Rs.5,55,19,567-Rs.34,49,413)isnotrelatableto

interestincomeandis,therefore,beingdisallowed."

38.5AftergoingthroughtheorderunderSectionsection263andthe

recordsbeforeusparticularlythepaperbookfiledinITANo.

1144/Del/2002forassessmentyear1998-99whichcontains

queryletterissuedbytheAssessingOfficerandrepliesfiledby

theassesseeinthecourseoftheassessmentproceedings,wefind

thattheAssessingOfficerhasnotraisedasinglequeryonthe

issueoftheallowabilityofquantumofexpenditureagainst

earningofinterestincome.SimilarfactshavebeenobservedinAY

131

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
1999-2000.Thoughintheassessmentorder,theAssessing

Officerhadmentionedthatinrespectoftheremainingexpenses,

exceptdepreciation,samewereallowedasexpensesagainst

incomefromothersourcesunderSectionsection57oftheAct.Inour

opinion,theAssessingOfficerhasarrivedatthesaidfinding

withoutmakingeitheranenquiryorexaminationoftheexpenses

claimedbytheassessee.TheAssessingOfficerhasnotgivenany

reasoningforarrivingatthisconclusion.TheHon'bleDelhiHCin

thecaseofCITVs.ToyotaMotorCorporation(2008)174Taxman

395(Del.)heldthatwhentheAssessingOfficerdidnotgiveany

reasoningintheorderpassedbyhim,theorderofAssessing

Officerisliabletoactionu/s263oftheAct.InthecaseofBSES

RajdhaniPowerLtd.(supra),theHon'bleDelhiHighCourtupheld

theorderu/s263becauseofnon-considerationofclaimof

depreciationbytheAssessingOfficer.InthecaseofRajmandir

Estate(P)Ltd.(supra)alsotheHon'bleCalcuttaHighCourt

upheldthe263proceedingsfornotcarryingoutenquirybythe

AOintoincreaseofsharecapital.TheHon'bleDelhiHighCourtin

thecaseofGeeVeeEnterprisesVs.Add.CIT(1975)99ITR375

hasobservedthattheword'erroneous'inSectionsection263includes

thefailuretomakeanyinquirywhenthecircumstancescould

makesuchaninquiryprudent.Inviewoftheabove,weareofthe

viewthattheLd.CITisjustifiedinholdingtheorderofthe

AssessingOfficeraserroneousinsofarasprejudicialtothe

interestoftherevenue.

38.6Onbehalfoftheassesseeitwassubmittedbeforeusthat

thecommissionercannotsubstitutehisopinioninplaceofthe

132

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
AssessingOfficerparticularlywhenviewtakenbytheAssessing

Officerisoneofthelegallypossibleviews.Butintheinstantcase,

wefindthattheAssessingOfficerhasnotexaminedwhetherthe

expensesincurredwereinrelationtoearningoftheinterest

income.Atleastfromtherecord,itisapparentthattheAssessing

Officerhasnotcarriedoutanenquiryonthisissue.Theexpenses

claimedincludeallsortsofexpensesincludingbankcharges,

brokerage,Honorarium,groundrent,insurance,membership,

securityexpenses,vehiclehiringandrunningexpensesetc.From

aprima-facieperusaloftheseexpenses,onecaninferthatall

thoseexpensesarenotrelatedtoearningoftheinterestincome

onfixeddepositsmadewithbanks.Insuchcircumstances,it

cannotbesaidthatthecommissionerhassubstitutedhisopinion

inplaceofthatoftheAssessingOfficerbutthecommissionerhas

foundthatthoseexpensescannotbeallowedwithoutanenquiry.

38.7Further,theassesseehaschallengedtheestimatingof

quantumofexpensesallowabledeductionbytheLd.CIT.Butwe

findthat,theLd.CITaskedspecificallytotheassesseefor

submittingtheexpensesrelatedtotheinterestincome,however

nosuchdetailswerefurnishedbytheassesseebeforetheLd.CIT.

Evensuchdetailhasnotbeenfurnishedbeforeusalso.Insuch

circumstances,weareoftheopinionthattheLd.CITisjustified

inestimatingtheexpenditurerelatabletotheinterestincome,

whichcouldbeallowedunderSectionsection57oftheAct.TheHon'ble

SupremeCourtinthecaseofMaharajaBPSinghDeo(supra)

heldthatassessmentmustbebasedonsomerelevantmaterial

anditisnotapowerthatcanbeexercisedunderthesweetwill

133

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
andpleasureoftheconcernedauthorities.Wefindthatinthe

instantcasebeforeustheLd.CIThasidentifiedthe

advertisementexpensesasnotrelatedtotheearningofinterest

incomeandinrespectofthebalanceexpensesalso,heidentified

theemployeesengagedinlookingaftertheprojectworkofthe

assesseeandmadeestimateoftheexpensesallowableagainst

interestincomeonrationalbasis.Thustheratioofthesaid

decisionoftheHon'bleSupremeCourtcannotbeappliedoverthe

factsoftheinstantcase.

38.8AsfarasthedecisionsrelieduponbytheLd.counselofthe

assesseeontheissueofallowabilityoftheexpenditureunder

Sectionsection37(1)oftheActisconcerned,weareoftheopinionthat

theLd.CIThasconsideredtheexpensesrelatabletotheearning

oftheinterestincomeaspertheprovisionsofSectionsection57ofthe

Act,thus,thedecisionsrelieduponbytheassesseecannotbe

appliedintheinstantcase.

39.Inviewoftheabove,weupholdtheorderoftheLd.CIT

passedunderSectionsection263oftheActforAY1998-99and1999-

2000.Weorderaccordingly.Thegroundsoftheappealraisedby

theassesseeinITANo.2081/Del/2003forassessmentyear

1998-99andITANo.2082/del/2003forassessmentyear1999-

2000areaccordinglydismissed.

40.Intheresult,theappealsbearingITANo.1346/Del/2018

forassessmentyear1996-97isdismissed,andotherappeals

havingITANo.2398/del/2001forassessmentyear1997-98,ITA

No.1144/Del/2002forassessmentyear1998-99;ITANo.

3356/Del/2002forassessmentyear1999-2000;ITANo.

134

ITANos.1346/Del/2018;2398/Del/2001;

1144/Del/2002;3356/Del/2002;

1874/Del/2004;4553/Del/2003;

5095/Del/2004;20812082/Del/2003

DelhiMetroRailCorporationLtd.,NewDelhi
1874/Del/2004forassessmentyear2000-01;ITANo.

4553/Del/2003forassessmentyear2001-02andITANo.

5095/Del/2004forassessmentyear2002-03arepartlyallowed.

TheappealsbearingITANo.2081/Del/2003forassessmentyear

1998-99andITANo.2082/12/2003forassessmentyear99-2000

aredismissed.

Orderispronouncedintheopencourton28thJune,2019.

Sd/-Sd/-

[BHAVNESHSAINI][O.P.KANT]

JUDICIALMEMBERACCOUNTANTMEMBER

Dated:28thJune,2019.

RK/-[d.t.d.s]

Copyforwardedto:

1.Appellant

2.Respondent

3.CIT

4.CIT(A)

5.DR

Asst.Registrar,ITAT,NewDelhi
135