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Judgments of Supreme Court of India and High Courts

Delhi Metro Rail Corporation … vs Jcit, New Delhi on 28 June, 2019

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:[email protected]%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

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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
109
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

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
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

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
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

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

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

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

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

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
115
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

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

116
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

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
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

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

118
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

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

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

5,20,70,154/-.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

120
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1144/Del/2002;3356/Del/2002;

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

5095/Del/2004;20812082/Del/2003
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
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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
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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
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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
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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

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