(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A, 66(1)(c) & 30, CI.118-D(1), Second Sched., Part I---Power of Inspecting Additional Commissioner to revise Deputy Commissioner's order ---Assessee, a public limited company, incorporated to manage and run a cement manufacturing plant, borrowed money for construction and installation of the project---Certain amount out of total funds so borrowed was deposited with Financial Institution which earned interest---Interest income received having been set off against the financial expenses under the unallocated expenses was not justified as no income for tax had been offered from the industrial unit---Assessee could have capitalized total financial expenses and income from interest was taxable under S.30. Income Tax Ordinance, 1979---Inspecting Additional Commissioner revised the order and taxed the interest income--- Appeal---Held, Revising Authority could assess the interest income by modification of the assessment in circumstances.

(b) Income Tax Ordinance (XXXI of 1979)---

---Ss.6 & 66-A---Exercise of jurisdiction by successor---Proceedings initiated under S.66-A, Income Tax Ordinance, 1979---Order passed by Inspecting Additional Commissioner was set aside by Appellate Tribunal-- Transfer of jurisdiction---Successor authority was not required to initiate the proceedings afresh, in absence of an objection to transfer of jurisdiction order.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.65 & 66-A---Change of opinion---Principle---Application---Principle of change of opinion is relevant to proceedings under S.65, Income Tax Ordinance, 1979 and not to those initiated under S.66-A of the Ordinance, 1979.

(d) Income-tax---

----Change of opinion---Principle---When attracted---Principle of change of opinion is attracted only where one and the same Authority proceeds to pick up fault in its own order without laying hand upon any additional material to hold the earlier order as incorrect.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Revision---Scope---Revising Authority may at times be involved to approve a part of an assessment order---Examination of the record and consideration of a result by Revising Authority was not based upon the personal consideration of the issue.

(f) Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Issuance of demand notice by Revising Authority ---Effect-- Issuance of demand notice was primarily a ministerial act and to absence of any specific prejudice, the vires

of the revisional jurisdiction was not. in any manner, affected by issuance of demand notice alone.

(g) Income Tax Ordinance (XXXI of 1979)---

----S.15-F---Heads of income---Assessment---Income from other sources------ Determination---Principle---If income falls properly under one head it could not be assessed by the Assessing Officer under another head---Where an assessee keeps his money intended to be used as a capital of his particular business or part of such money or his other money in the Banks and derives income by way of interest, it would not be his income from business but from "other sources"---Difference between the objects and the power of activities of an assessee-company in carrying out that object into effect exists.

PLD 1962 SC 128 and PLD 1961 Dacca 108 ref.

(h) Income Tax Ordinance (XXXI of 1979)---

----Ss.134 & 135(9)---Ratio settled by the Appellate Tribunal is binding upon a Bench of equal strength.

1997 PTD (Trib.) 879 ref.

(i) Income-tax---

----Income---Commercial _expediency---General phrase=--Commercial expediency not to affect the classification of income as made by law or to change their nature and nomenclature.

(j) Income Tax Ordinance (XXXI of 1979---

----S.15---Head of income---Charge of tax and computation of total income-- Commercial expediency---Charge of tax and computation of total income being most vital parts of the assessment proceedings could not be allowed to be changed, modified or manipulated on the basis of commercial expediency.

(k) Income-tax---

----Commercial expediency---Term "commercial expediency" is personal to a trader, businessman or an assessee---Change of situation---Act of commercial expediency of one businessman may be taken as blunder by another of equal prudence.

(1) Income-tax---

----Transaction---Nature---Intention behind a transaction---Mode of judgment---Intention behind a transaction will many a time change its nature but such an intention cannot be said to have changed the law---Legal provisions stand fast while intentions of persons keep on changing; these differ not only from person to person but at times even in respect of same aspect an individual may change his earlier view in order to keep pace with ever changing commercial scenario---Intention, thus, has to be judged on the PID touchstone of legal provisions and not the legal provision on the mercurial human wishes and desires.

(m) Income Tax Ordinance (XXXI of 1979)---

----Ss.15 & 30---Head of income---Interest income---Any income not falling in the first five sub-heads (a) to (e) of S.15, Income Tax Ordinance, 1979 will fall in the residuary category of sub-cl. (f) read with S.30 of the Ordinance, irrespective of intention of the depositor or the nature, source and colour of the transaction which yielded same.

(n) Income Tax Ordinance (XXXI of 1979)--

----S.31---Deduction---Interest income---" Money belonging to the assessee"- "Borrowed capital"---Distinction---If the money on which the interest had accrued belonged to the assessee, he will not qualify for certain deductions as given in S.31, Income Tax Ordinance, 1979---If, however, the money was borrowed, it may qualify for such deductions after fulfilling the requirements and considerations stated therein.

(o) Income-tax---

----Interest income---Use of such income---No change in the nature of income accrued or earned consequent upon its actual use---Use of interest income as a factor to reduce the capital cost has no nexus with its accrual-- After an income has accrued or has been earned by an assessee, its actual use thereafter could not change the nature of income accrued or earned.

(p) Income Tax Ordinance (XXXI of 1979)--

----S.31(l)(b)---Interest income on borrowed money---Interest paid on such borrowed money---Deduction---Admissibility---Word "purpose" referred to in S.31(1)(b), Income Tax Ordinance, 1979 was relatable more to the actual use of the money involved rather than the intention or expectation behind the borrowing or the deposit or investment---Borrowed capital having been employed in earning interest income, proportionate interest paid on such borrowing was clearly an admissible expenditure irrespective of the intention or purpose for which the money was borrowed.

Shahbaz Butt and Naveed Andrabi for Appellant.

Rana ' Munir Hussain, L.A. and Ahmad Kamal, D.R. for Respondent.

Date of hearing: 21st November, 1997.

ORDER

NASIM SIKANDAR (JUDICIAL MEMBER). ---Section 66-A of the Income Tax Ordinance, 1979 provides for the powers of the Inspecting additional Commissioner to revise Deputy Commissioner's orders. It says that the revising authority namely the I.A.C. may call for and examine the record of any proceedings and if it considers that any order passed therein is erroneous in so far as it is prejudicial to the interest of the Revenue it may, after an opportunity to the assessee and making such inquiry as it deems necessary, pass order thereon as the circumstances of the case justify. Then section 134 provides for first appeal to the Tribunal where an assessee objects to an order made by the Revising Authority/I.A.C. under section 66-A.

2. The assessee a public limited company incorporated to manage and run a Cement Manufacturing Plant returned nil income in the three years involved, i.e. assessment years 1991-92 to 1993-94. During this period the company received various sums as loans from a Consortium of Bankers which included Asian Development Bank. Out of total funds available as loans at Rs.18,43,00,211. Rs.1,22,02,74,298 and Rs.15,38,81.99,623 amounts of Rs.7,41,00,000, Rs.1,07,00,05,248 and Rs,38,33,58,401. were deposited with the members of consortium and other financial institutions. The sums deposited with them were allegedly not immediately required for construction and installation of the project which remained in progress during this period. The submission that no business activity was carried out ;n the three years was accepted by the assessing officer and he proceeded to accept the disclosed "nil income" version while framing assessments under section 62 of the Ordinance. The assessment for the year 1991-92 was framed on 27-2-1992 and for the years 1992-93 and 1993-94 by a common order on 10-2-1994.

3. On 23-1-1996 the revising authority I.A.C. Companies Zone-I Lahore issued a notice expressing an intention to exercise its jurisdiction under section 66-A of the Ordinance, 1979. In the notice it was inter alia stated that the assessee was in receipt of various sums accrued as interest income which was not exempt under clause 118-D(1) of the Second Schedule to the Income Tax Ordinance. Finding that the assessee was entitled to the exemption contemplated in the said clause only or its profit and gains to be declared after completion of the project it was opined that the interest received during this period was taxable. The assessee failed to make a response and therefore the revising authority proceeded to hold the three assessments already framed as erroneous and prejudicial to the interest of the revenue. The operative part of the

consolidated order dated 11-2-1996 reads:

"During the years under reference assessee company has not started its commercial production and the Industry was under process of setting up. The interest income received under various heads has been set off against the financial expenses and the balance amount capitalized. Setting off the interest income against expenses is not justified as no income for tax has been offered by the assessee from the industrial unit. Even otherwise, as discussed in the notice under section 66-A under clause 118(D) of the Second Schedule to the Income Tax Ordinance, 1979, only profits and gains derived from the industrial undertaking are exempt and any income derived as interest is taxable. The assessee could have capitalized total financial expenses and the income from interest should have been offered for tax under section 30 of the Income Tax Ordinance, 1979. Assessee is allowed to capitalize total financial expenses and the interest income is held to be taxable under section 30 of the Income Tax Ordinance." '

4. The order so recorded was challenged before us through I.T.As. Nos.1446 to 1448/LB/1996 (assessment years 1991-92 to 1993-94). For the assessee it was pleaded that cancellation of the three assessments was unjustified as in an identical situation this Tribunal in PTD 1988 (Trio.) 369 declared that deduction of interest earned from interest payable was permissible. It was further argued that the assessing authority exercised his jurisdiction illegally and by ignoring the ratio settled in the above reported decision. The assessee however succeeded only partly. By way of an order dated 2-6-1996 a Division Bench of this Tribunal in which one of us the Judicial Member participated it was found that since the assessee failed to join the proceedings before the revising authority the facts alleged before us, namely the nature of interest income and its exact extent could not be taken to have been established on record. Further, considering the fact that the assessee was a company in which public interest was involved and that the heavy demand before commencement of its business might endanger its very existence the matter was remanded to I.A.C. revising authority as an exceptional case even after holding that its conduct in not participating the original proceedings was contumacious.

5. After remand the things do not appear to have undergone any substantial change as far the treatment of the interest income was concerned. The revising authority to which the jurisdiction of the case was transferred after remand issued a notice on 2-5-1997 which was duly replied on 27-6-1997 in the following words'(1) The interest income earned for the above years has been taken to be the accumulated for the reason that the pre-production expenses are 'Joy Tto be capitalized at the time of going into production. This fact is borne out from the plain reading of the audited/printed accounts, already on record. We enclose herewith list of Interest received for all the years along with evidence of the same in shape of tax deduction certificates.

(2) The interest received has been earned by re-investing the borrowed capital with local and foreign institutions. A complete break- up/reconciliation of interest earning is enclosed for your perusal.

(3) It will not be out of place to mention that the interest income earned does not attract taxability under any provisions of the Ordinance, as the company had no such intention to do so. This was done to reduce the financial cost on borrowed capital. This view has been upheld by Appellate Authorities, in a case reported PTD 1988 (Trio.) 369.

(4) Without prejudice to the above even if your goodself, would reject our contention and the view of the higher Appellate Authorities yet expenses incurred to earn the said income are to be allowed. We enclose a complete working of financial expenses on proportionate basis which we have incurred. A complete supporting evidence is already on record with the concerned Assessing Officer."

6. The revising authority, however, proceeded to treat the interest income at Rs.11,46,685, Rs.2,42,51,851 and Rs.4,27,83,108 in the three years involved taxable as income from other sources under section 30(1)(b) of the Ordinance. Also the alternate prayer as made in para. 4 of the above reply for allowing proportionate expenses incurred on earning of the interest income was refused. The revising authority attempted to distinguish the case of the assessee from the facts considered by the Tribunal in the said reported judgment earlier relied upon by the assessee and cited as PTD 1988 (Trio.) 369 on the sole ground that unlike the assessee in the reported judgment the present one had an intention to earn income from interest. This order recorded under section 66-A on 30-6-1997 has again brought the assessee before us.

7. Mr. Navid Andrabi and Shehbaz Butt, Advocates have represented the assessee while the Revenue is being represented by Mr. Munir Hussain Advocate/Standing Counsel assisted by Ahmed Kamal I.A.C./DR. The parties have addressed their arguments on various legal as well as factual issues involved.

8. For the assessee it is inter alia submitted that after remand the jurisdiction of the case was transferred to another authority, which served the assessee with a notice under section 66-A on 2-5-1997. This notice according to the learned counsel for the assessee was not based upon the personal consideration or examination of the record and the proceedings of the case as required by section 66-A; that the three assessments were framed under section 62 of the Ordinance after inquiry and consideration of the facts relating to the interest income, and therefore, being in accordance with law were not revisable; that after remand change of jurisdiction necessitated fresh proceedings while the revising authority proceeded as if it was a case of succession; that the revision in the circumstances was case of change of opinion only than being on account of any error or a prejudice resulting from that error to the interest of revenue; that neither of the two requirements of section 66-A namely error in the assessment order and prejudice to the revenue were ever brought home by the revising authority; that notice issued after remand being silent on the

reasons responsible for its issuance all subsequent proceedings were of no legal authority: that the revising authority after rejecting the contention proceeded to frame assessment as aforesaid and also issued demand notice which was not in accordance with law inasmuch as, in the view of the learned counsel, in the scheme of Income Tax Ordinance only the assessing officer could frame assessment or could issue a demand notice; that the revising authority disallowed interest income as income from other sources against the aforesaid declared view of the Tribunal which was earlier accepted by the assessing officer and that the impugned consolidated order to the extent of the assessment year 1991-92 is clearly barred by limitation as provided in section 66-A(2) of the Ordinance. On facts it is further alleged that the Revenue having accepted the nature of deposit with the banks and the accrued interest it could not deny the application of the ratio settled in the aforesaid judgment of the Tribunal. According to the learned counsel the facts in hands are totally identical to those considered by the Tribunal in the aforesaid judgment which was followed in another reported decision of the Tribunal cited as (1990) 61 Tax 69. Reference is also made to an unreported judgment of the Tribunal recorded in I.T.A. No.5493/LB of 1991-92 re: D.G. Cement Factory, decided on 19-12-1995. Learned counsel further states that the element of "commercial expediency" which persuaded the Tribunal to hold for the assessee in the reported judgment was available in the present case to the same extent and force. It is also explained that the interest claimed was received anti netted off against financial expenses under the head unallocated expenditure, which was accumulated total in all the years till the assessee company was to go in production.

9. Besides relying upon the aforesaid reported judgments of the Tribunal learned counsel has also cited a number of them from Indian jurisdiction. In the first case re: Security Printers of India (AP) Limited v. CIT U.P. cited as (1970) 78 ITR 766 the assessee company was established in collaboration with a foreign company to print documents like cheques, drafts, fixed deposit receipts and other similar papers for Indian Banks. Two Directors, one representing Indian shareholders and the other representing English shareholders traveled across the Sea, for the purpose of business of the company. Their traveling, expenses were refused by the department. It was found that both having traveled before incorporation of the assessee company their traveling expenses could not be taken as revenue expenses. These were rather held to be of capital nature. The Tribunal found in favour of the assessee on the ground that receipts resulting from such transactions, which took place before incorporation had been included in the first assessment framed in respect of the assessee. On reference at the instance of the company as the Tribunal had disallowed part of the traveling expenses the Allahabad High Court allowed whole of them as revenue expense. The facts in the next case re: Kewal Chand Mem Chand Mehta v. CIT Bombay (1968) 67 ITR 804 were that father borrowed money for making a gift to his minor son. The money borrowed was deposited in son's account. The interest income earned from such account was included in the income of the assessee-father. The Revenue refused to allow the claim of the father to set off the interest paid by him on the amount borrowed and gifted to the son. On reference the Bombay High Court held for the assessee father and opined that the claim deduction was permissible under section 12(2) of the late Income-tax Act of 1922. The third case (1978) 113 ITR 173 re: CIT Gujarat v. Motilal Herabhai Spinning and Weaving Company Limited is relied upon to contend that income from interest could, in a similar situation be taken as business income. The assessee in that case was running a Textile Mills. Subsequent, it was closed and the assessee earned interest on advanced to certain parties. On finding that the activity so conducted was in line with memorandum and article of association of the company the Court agreed that interest earned from advances was business income of the assessee.

10. The next case relied upon at the Bar for the assessee is a judgment of the Supreme Court of India in re: Raja Bahadur Visheshwara Singh and others v. CIT Bihar & Orissa reported as (1961) 41 ITR 685. This judgment is known for the principle laid down regarding inapplicability of resjudicata of Income Tax proceedings. The assessee, however, is citing it to support the contention that one transaction may in certain cases take the shape of another. The assessee in that case was an agriculturist who held shares of various companies. Subsequently he borrowed amounts to increase their numbers. Considering the magnitude and frequency of transactions ratio of sales to purchases and total holding the Tribunal held that the assessee appellant must be regarded as a dealer in shares and securities and his profits assessable to Income Tax. Their Lordships affirmed the judgment of Patna High Court which had earlier maintained the order of the Tribunal. The principle settled by the Court being "when an owner of an ordinary investment chooses to realize it and obtains a higher price for it than he originally acquired it at the enhanced price is not a profit assessable to Income Tax but where what is done is not merely realization or a change of investment but an act done in what is truly the carrying on of a business the amount recovered as appreciation will be assessable".

11. The judgment of the Supreme Court of Pakistan reported as PLD 1992 SC 562 = 1992 PTD 954 re: CIT v. Pakistan Industrial Engineering Agencies has been cited for its famous finding that "an assessee is entitled to manage his own affairs to the best of his benefit even by adopting legal modes which may result in reduction of tax and the same if covered by the provisions of law cannot be challenged on the ground of prudence, advisability or business practice. In business deficit financing, borrowing loans of huge amounts while keeping reserve funds or deposits for fixed period and running business on such loans and borrowed capital are not uncommon. An assessee is entitled to the allowance if the borrowing is not a colourable device for taking benefits under the said provision. It should be a real borrowing of capital utilized in the business on which interest has been paid." Another case of the apex Court relied upon is cited as 1993 SC MR 1224 = 1993 PTD 578 re: Packages Limited v. CIT. In that case the assessee borrowed money for import of machinery and claimed the interest paid on borrowed amount as deduction. The Revenue authorities refused and the Tribunal maintained the disallowance on the ground that loan pertained to acquisition of capital asset and also was related to pre-production stage. The Supreme Court did not agree with the inferences of facts drawn by the department and the Tribunal. The assessee was held to be in business at the time of borrowing of loans, and therefore, the facts in issue were held covered by the judgment of the Court in Re: CIT v. Khanpur Textile Mills cited as =1989 SCMR 61=1989 PTD 500.

12. Learned counsel for the assessee also cites PLD 1988 Kar. 588 re: Shahab-ud-Din v. I.A.C. to support his contention that after remand the revising authority could not issue a notice under section 66-A inasmuch as it had not considered the record itself nor it had recorded its satisfaction with respect to the alleged error as well as the prejudice to the Revenue. Further relies upon 1990 PTD (Trib.) 914 wherein a Single Bench of the Tribunal explained the connotation of the word "considered", as used in section 66-A of the Ordinance. The submissions with regard to the interpretation of word "considered" are also sought to be supported by the ratio settled in 1968 SCMR 867 re: Abdul Majid Baig v. Karim-ud-Din and others. Another case reported as United Traders v. CIT Government of Azad Jammu and Kashmir, Muzaffarabad cited as 1984 PTD 137 is relied upon to say that mere disagreement between the officers on the result of an assessment is not a genuine reason to resort to the revisional jurisdiction. Also two recent judgments of the Tribunal are cited. In the first case reported as 1996 PTD (Trib.) 11 the observations of a Division Bench at Karachi as contained in para 8 are highlighted wherein the aforesaid judgment of the Indian Supreme Court re: Securities Printers v. CIT was favourably quoted. The last cited judgment namely 1997 PTD (Trib.) 879 is relied upon in support of the contention that a Bench of equal strength is bound by the ratio settled in a case decided by an earlier Bench of the same strength. The obvious pointer being the ratio settled in 1988 PTD (Trib.) 369 and followed in the later Single Bench judgment cited as 1989 PTD (Trib.) 1199.

13. Rana Munf Hussain learned Legal Advisor, however, supports the impugned order. It is contended that the proceedings under section 66-A with regard to the first assessment year 1991-92 are well within time as prescribed in subsection (2) of section 66-A of the Ordinance. It is stated that assessment for this year was framed on 27-2-1994 while it was revised by way of the consolidated order on 11-2-1996. Further that on remand from the Tribunal the provisions of section 66(1)(c) were attracted and the revising authority had one year to complete the proceedings which period was duly observed. Also claims that issuance of demand notice as a consequence of the second revising order was of no significance at all and that even if it is ignored the vires of the action taken under section 66-A could not be said to have been affected in any manner. The contentions of the assessee with regard to fresh proceedings after remand are also controverted. According to the learned Legal Advisor the change of jurisdiction cannot be distinguished from succession inasmuch as the transferee authority had by way of a legal order succeeded the earlier authority. Therefore, learned legal Advisor contends the revising authority continued proceedings from the stage at which it was left by predecessor, as provided for in section 6 of the Ordinance. He is of the view that in absence of a challenge to the transfer of jurisdiction order subsequent proceedings conducted by the transferee authority cannot be objected to. Learned Legal Advisor by taking us through the original assessment order framed under section 62 in the three years attempts to bring home that neither the assessee had disclosed the factum of accrual of interest nor it was considered by the assessing officer in any manner while framing these assessments. Therefore, the submission that assessments were passed after considering the accrual of interest income or that it was a case of change of opinion is controverted. The scope of the powers of revisional authority are explained in the light of the decision made by this Tribunal cited as 1986 PTD (Trib.) 490. In that case the assessing officer accepted the plea of the assessee that entire amount in question was sent from abroad without any evidence or basis. The revising authority issued notice under section 66-A which was challenged before us. A Division Bench of this Tribunal upheld the exercise of jurisdiction on the ground that the order of the assessing officer was prejudicial to the interest of revenue, and therefore, provisions of section 66-A of the Ordinance were clearly attracted. Also relies upon the ratio settled by Lahore High Court in 1976 PTD 11 re: CIT Lahore Zone, Lahore v. M. Iqbal Saigol. In that case on the facts before them their Lordships explained the comparable provisions of section 34-A of the Late Act of 1922 with regard to revisional powers of the I.A.C. It was found that subject to the limitations contained in that section powers of revision conferred on the I.A.C. were very wide.

14. On merits learned Legal Advisor vehemently contends that the interest income in the facts and circumstances of the case was clearly taxable as income from other sources in terms of section 30(2)(b) of the Ordinance. Also supports the findings of the revising authority that the assessee was not entitled to any expenditure particularly the one claimed under the provision of section 31(1)(b) of the Ordinance. In support of his submission on the issue of taxability of the interest income as income from other sources learned Legal Advisor relies upon a number of judgments from local as well as foreign jurisdiction. The first judgment relied upon is 1990 PTD 178 re: CIT N.-W.F.P. v. N.-W.F.P. Forest Development Corporation. In that case the Peshawar High Court finally resolved that interest received by the corporation from investment of its income in the bank was not attributable to its operations of sale of timber. These findings came on the claim of exemption by the assessee corporation under clause (120-A) of the Second Schedule to the Ordinance read with Notification NO.S.R..O. 272(1)/84, dated 28-3-1984 whereby the income of any company wholly owned by a Provincial Government as was attributable to the sale of timber or from falling of trees in forest was allowed exemption. In the next case re: CIT v. Hindustan Electro-graphites Limited reported as 1991 PTD 252 a Division Bench of the Madhya Pradesh High Court answered in negative the question if the Tribunal was right in holding that certain amount of interest was not taxable as assessee's income. The assessee in that case was a public limited company, which had established a factory for production of Electro-graphites. During the relevant accounting period it received interest on fixed deposits and late payment on call money. The Commissioner (Appeals) held that interest income for four months before commencement of production was not taxable. The Revenue did not succeed before the Tribunal but on reference the Court held that the rules of accountancy required that where a particular item of miscellaneous income could be directly related to a particular item of expenditure then it should be set off against the expenditure. However, it was observed that the Tribunal had not found that the income earned by the assessee namely was interest on fixed deposits and on late payment of call money was related to any particular item of expenditure. In the next case re: Challapalli Sugars Limited v. CIT A.P. reported as (1975) 98 ITR 167 the Supreme Court of India remarked that accepted rule for determining cost of fixed asset was to include all expenditure necessary to bring such assets into existence and to put them in working condition. Further that, in case of money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to cost of fixed assets created as a result of such expenditure. Their Lordships were interpreting the expression "actual cost" of the asset to the assessee as used in section 10(5) of the Indian Income-tax Act of 1922.

15. The facts in the next case re: CIT v. Bihar Alloy Steels Limited cited as (1994) 206 ITR 351 = 1995 PTD 1189 were that the assessee company was over subscribed. The amount so received was deposited with bank and the interest received thereupon was deducted from expenditure on capital work in progress. The assessing officer treated the interest earned as income from other sources. The assessee succeeded before the first appellate authority and the Tribunal also found in its favour. However, on reference their Lordships of the Patna High Court disapproved the finding of the Tribunal. By relying upon the view earlier declared by the Court in the case of Bokaro Steel Limited v. CIT (1988) 170 ITR 545 it was held that interest received was taxable as income from other sources and that it could not be subject to deduction towards cost of the factory. While repelling the contention of the assessee based upon the view adopted by Institute of Chartered Accountants that interest income earned during the construction period may be set off against expenses incurred during the period their Lordships remarked "the principles of commercial accounting cannot determine or affect the range of taxable income or ambit of taxation because the tax liability under the Act is to be governed by the provisions of the Act and not by the principles laid down for maintaining the accounts even by an expert body or the actual method of maintaining the accounts". In the next case 1997 PTD 846 re: Rainbow Dyes Stuff v. CIT the Gujarat High Court was considering the nature of expenditure. The assessee set up a factory for manufacturing of dyes at a place different from the place at which it was dealing in dyes. For the installation of assets certain borrowing was made on which interest was also paid. The assessing officer estimated the interest attributable to the borrowing for the installation of the assets and disallowed the same treating the payment as of capital nature. The Revenue succeeded before the Tribunal and the view so adopted was maintained by the Gujarat High Court. In re: CIT Bombay City II v. United Wire Ropes Limited cited as (1980) 121 ITR 762 the assessee received certain amount by way of interest from amounts kept as short term deposit with various banks. It was assessed as income from other sources. The assessee had also paid interest in respect of a foreign exchange loan. Before the Tribunal it was urged for the assessee that it had raised the share capital and wanted to make payment for installation of a Steel Rope Plant and Machinery and other equipments. That due to restrictions imposed by the Government of India on remittances of capital outside the country the assessee had to borrow large amount and to pay interest thereon. Therefore, the capital raised by the assessee was kept with bank, which earned interest. The Tribunal accepted the contention of the assessee that it was entitled to set off the interest earned against interest paid as the assessee would have utilized the share capital raised for the payment of plant and machinery etc. but for restriction on remittances of capital outside India. Their Lordships of the Bombay High Court however, disagreed. Finding that the amounts kept by the assessee with banks with their full control on these amounts for certain period were not sufficient to regard the transactions to be so integrated as to be regarded as a single composite transaction. Therefore, the interest earned was not allowed to be set off against interest paid The facts in Additional Commissioner of Income Tax Madras v. Madras Fertilisers Limited cited as 1980 122 ITR 139 were that in order to meet the cost of construction of its plant the assessee entered into a loan agreement with a bank in America. The agreement, inter alia, required the company to deposit the proceeds of the loan in a special account to be maintained with the bank until all the funds deposited therein had been applied by the company in connection with the project. The claim of the assessee for deduction of the amount of interest paid by it on its borrowings was negated by the Assessing Officer. The assessee did not succeed before the Commissioner in revision proceedings. However, the Tribunal held that the interest paid by the assessee to the lending bank proportionate to the amount on which it earned interest should be allowed under section 57(iii) of the Income Tax Act. On reference the interest amount received by the assessee on its deposits in the special account was held as income assessable to tax. Their Lordships of the Madras High Court also found that setting up of factory could not amount to carrying on of the business itself and that the borrowing itself was not for the purpose of depositing the money and earning interest. Therefore the interest paid could not have any direct connection with the receipts of interest. It was accordingly directed that the assessee was not entitled to any deduction of interest paid on its borrowings from the interest. received on the deposits under section 57(iii) of the Indian Income Tax Act, 1961. In the next case Madhya Pradesh State Industries Corporation Limited v. CIT M.P. cited as 1968 69 ITR 824 the corporation set up by the state did not carry on any business in the assessment year 1962-63. The share money received by the company not being immediately required was deposited in call deposits in certain banks. During the year the assessee received interest on the deposits which was assessed as "income from other sources". It was maintained by the first appellate authority as well as the Tribunal. On reference Madhya Pradesh High Court held that deposit of share capital in a bank could not be said to be an act of money lending and hence' the interest income was properly assessable as "income from other sources" and not business income". The assessee before the Kerala High Court in re: Traco Cable Company Limited v. CIT was a public Limited company incorporated to manufacture wire cable etc. The company had deposited in Bank the share capital collected. During the period relevant to the assessment year under consideration the company earned interest on deposits and also received a paltry. sum of Rs.100 on account of share transfer and splitting fee. During the same period the assessee company incurred some expenditure by way of salaries and wages to its employees, printing and stationary and other expenses. The memorandum of association of the company allowed it to invest and deal with the funds of the company not immediately required. The assessee company claimed that deposit of the share capital in bank was a business carried on by the company was empowered by the said clause of the memorandum of association and that the interest earned thereby was income from business. Also that being so the aforesaid expenditure was an allowable deduction. The assessing officer rejected the contention and the treatment meted out was maintained by the first appellate authority as well as the Tribunal. The Kerala High Court approved the position taken by the Revenue authorities and as upheld by the Tribunal. The conclusion drawn by the Court being that deposit of share capital by the company was not a business carried on by the company and that the expenditure incurred was not for the purpose of making or earning the interest received by the company on the deposit of share capital. The interest on short term deposits before commencement of business was also held not deductible from the interest received in re: CIT v. Manglam Cement Limited (1996) 217 ITR 369. The assessee in that case was also a limited company which obtained loans for purchase of capital equipment and for setting up the business of the company namely manufacturing cement. The company paid interest on its borrowing. Besides the loan it received application money for issue of share certificates and the application money so received was deposited with bank of short-term basis. On such deposit interest was earned. The assessing officer held that interest income earned by the assessee on the amount deposited with the bank had nothing to do with the construction activity and as such it was taxable under the head "income from other sources". Finding that since borrowing of the company was for the purpose of construction and had no relation with the earning of interest on the deposit the assessing officer held the view that the interest paid could not be deducted from the interest received under section 57 of the Act. The assessee succeeded before the Tribunal while on reference the Rajisthan High Court held that interest received on short term deposits was taxable as income from other sources and that the interest received on short term deposits could not be reduced from the interest payment while capitalizing the various expenses on the capital account. To the same effect were the finding of Patna High Court in Bokaro Steel Limited v. CIT (supra).

16. Lastly the learned Legal Advisor places reliance upon the judgment of the Supreme Court of Pakistan re: CIT East Pakistan Dacca v. Liquidator Khulna Bagerhat Railway Company Limited cited as PLD 1962 SC 128. By way of this order the judgment of the Dacca High Court cited as PLD 1961 Dacca 108 with the same title was confirmed. Their Lordships of the Dacca High Court had considered the following question referred at the instance of the CIT.

"Whether in the facts and circumstances of the case income from interest from money kept in bank earned by the company within the year ended on 31st March, 1917 would be classed as income from business?"

The assessee company M/s Khulna Bagerhat Railway Company Limited was incorporated in tile year 1916. According to the agreement, dated 14th April, 1916 between the company and the Secretary of State for Indian Counsel the Government was entitled to acquire the railway on giving requisite notice. It was accordingly done, and theGovernment of Pakistan took over the management on 31st of March, 1948. According to the assessing officer the company was in existence during the year ending on 31st March, 1917. However, according to him the railway line from Khulna to Bagerhat was under construction for some time and was completed by the middle of 1918 as it was made open to public from 10th of June, 1918. The examination of memorandum of association of the company showed that primary purpose of the company was to construct complete and make ready a railway from Khulna to Bagerhat and also to provide fund for and to construct or caused to be constructed a railway from Khulna to Bagerhat. The memorandum and article of association also provided that the company could lend, invest or otherwise employ moneys belonging to or entrust to the company upon securities or shares as may be thought proper and from time to time vary the same as the company thought fit. Since whole of the share income was not immediately required for expenditure on the construction of the line some amounts were in fact invested and kept deposited in the bank and the company received income by way of interest of such deposits. The assessing officer rejected the claim of the company in which the interest received from banks and transfer fee etc. was set off against expenses of Director's fees, Auditors fees, stationery, printing etc. The assessing officer held that the interest received by the company from the unexpended portion of the money of the company was an income of the company as the aforesaid memorandum of association enabled the company to "invest or employ money". This was done in order to reject the claim of the assessee company for an exemption allegedly available to it under section 25 of the late Income-tax Act of 1922. It was not disputed that the company which was charged to Income Tax on its. income under the Income Tax Act 1918 had been discontinued on and from the 31st March, 1948 and succeeded by the Government of Pakistan. Therefore, it was entitled to the exemption claimed. Their Lordships of the Dacca High Court addressed themselves to a question framed by them "If a businessman keeps his money intended to be used as capital of his particular business or part of such money or his other money in banks and derives income by way of interest, would it be his income from business?" Their Lordships then proceeded to reply that it would be his income derived from other sources but would not certainly be his income from business. After mentioning section 6 of the Income Tax Act in which different sources of taxable income were enumerated it was found that income from business, profession and vocation was one and separate from income from other sources and each one of the separate sources of income was dealt with separately and under different sections from sections 7 to 12. It was accordingly held that income from interest from the money kept in bank deposits was not intended to be treated as income from business but it might come under "income from other sources". In the view of their Lordships If an income properly falls under one head it cannot be assessed by the I.T.O. under another. As regards objections of the assessing officer that investment of money in banks etc was included in the objects of the company their Lordships quoted with favour the observations of Chagla, C.J. in re: Seksaria Biswan Sugar Factory Limited v. CIT Central Bombay in (1950) 18 ITR 139. In that case the celebrated Judge held that every act which was intra vires of a company was not necessarily done in the course of its business, that whether a particular act done was in the course of business or not was really a question of fact and that fact must be determined according to the evidence led and the circumstances of the case as to whether the act had any connection with normal business of the company and whether it was so related to the business of the company that it could be considered to be performed in the ordinary course of normal business of the company. On the basis of these findings their Lordships of the Dacca High Court maintained the order of the Tribunal that making income, profits and gains by investing money was not the normal business of the company. The judgment so recorded by the learned Division Bench of the Dacca High Court was maintained by a Larger Bench of the Supreme Court of Pakistan for exactly the same reasons. While maintaining the order it was held that normal business of the company was the construction and the running of railways and not investment of its moneys on interest. Also that "If the company instead of retaining its surplus money in idle condition invested them under the powers given to them by the Articles of Association it would not follow that the income so derived would be company's normal business income".

17. The submissions made by the parties have been considered in the light of the provisions of the Ordinance as well as the authoritative precedents cited at the Bar. Taking up the objections of the learned counsel for the assessee with regard to expiry of limitation. in the assessment year 1991-92 we will not hesitate in rejecting the same. It is not challenged that the first order recorded under section 66-A was rendered within the limitation of four years as provided in subsection (2) of section 66-A of the Ordinance. The objection simply means that remand of the case by the Tribunal did not affect the original limitation of four years and as the impugned order dated 11-2-1996 was recorded after the expiry of the four years of the framing of assessment in 'the year 1991-92 it was time-barred. Learned counsel for the assessee while supporting the submission has contended that section 66-A(1) does not prescribe any limitation as for the orders framed under section 66-A are concerned. According to him various limitations provided for in section 66 relate only to the assessment and particularly sub-clause (c) on which the Revenue relies upon also pertains to a case where an assessment has been set aside in full or in part under section 132 or section 135. The other facet of the objection is that no limitation has been prescribed with regard to orders recorded by the Tribunal in subsection (5) of section 135 whereby the Appellate Tribunal could interfere with an order." We will not, however, agree with the line of the contention made by the learned counsel for the assessee. Section 66-A expressly provides that the revising authority can modify the assessment. In the case before us in fact the revising authority did the same and modified the assessment on 11-2-1996 by assessing the interest income in the three years. After modification a new assessment order came into being. Therefore, the earlier round on proceedings before us, and the setting aside of the revisional order dated 11-2-1996 was fully covered by the provisions of section 66(1)(c) of the Ordinance. Since no further objection on expiry of limitation has been made against the limitation available to the revising authority after remand we will reject the contention.

18. We will also agree with the learned Legal Advisor that in absence of an objection to transfer of jurisdiction order the assessee could not be heard to say that the subsequent proceedings were not covered by the provisions of section 6 of the Ordinance, which provides for exercise of jurisdiction by a successor. These provisions also contained a reply to the next objection of the learned counsel that after transfer the revising authority ought to have initiated the proceedings afresh. The case-law relied upon on the phrase "consideration" clearly distinguishable from the case before us. Even otherwise these submissions assume that after remand the revising authority did not consider or examine the record or the proceedings. The notice issues on 2-5-1997 after remand, carried sufficient material to hold that the authority after remand had fulfilled the requirements of section 66-A. In the case relied upon by the assessee re: Shahab-ud-Din v. I.C.A. (supra) the Karachi High Court found that consideration of the authority did not necessarily restrict to the record of the case and that the process started before issuing a notice was purely an administrative and subjective. Further that, the word considered could not be equated with the word satisfaction, which implies a result achieved after full consideration of all aspects of the case by a principle of logical and legal reasoning. The finding of the Single Bench of the Tribunal in 1990 PTD (Trib.) 914 are similar, that the word considered means something more than mere thinking but something less than the opinion or satisfaction of I.A.C: or C.I.T. as the case may be. In the third case relied upon on this issue re: Abdul Majid Baig v. K. Karim-ud-Din (supra) the Supreme Court held that word consideration implied perusal and formation of opinion by the authority concerned about correctness or otherwise. The issue before their Lordships being the use of words "consideration of report" as used in Rule 8(f) of the Railway Servants (Efficiency and Discipline Rules, 1961). Since both the notices, issued to the assessee before and after remand amply indicated the reason on the basis of which the authority concerned believed that an error had crept in the aforesaid three assessments and that it was prejudicial to the interest of revenue we find no justifiable reason to accept the submissions made in this regard.

19. We are also in agreement with the learned Legal Advisor that from three assessments framed it does not emerge that the receipt of interest income was either disclosed to the Revenue or it was considered at any length by DCIT. Even otherwise the principle of change of opinion is relevant to proceedings under section 65 of the Ordinance and not to those initiated under section 66-A of the Ordinance. The simple reason being that revisional authority will act only where it finds that the assessment in issue is erroneous and prejudicial to the interest of revenue. Its disagreement with the assessment already framed on the ground that it was not in accordance with law or with the facts bone out from the record is raison d etre of initiation of revisional proceedings. Acceptance of the contention of the assessee would make the whole of the provision providing for exercise of revisional jurisdiction redundant. In the reported judgment of High Court of Azad Jammu and Kashmir, Muzaffarabad re: United Traders v. CIT their lordships were of the view that mere disagreement between the officers on the result of a case was not a genuine reason to resort to a revisional, jurisdiction. The case before us is totally different as the DCIT had not considered the issue in hand. It may also be added that the principle of change of opinion is attracted only where one and the same authority proceeds to pick up fault in its own order without laying hand upon any additional material to hold the earlier order as incorrect. In revisional jurisdiction even though the revising authority may at times be involved to approve a part of an assessment order its examination of the record and consideration of result is not based upon the personal consideration of the issue. As a general practice, it is limited to the case having already been made or put up for consideration by an assessing officer. There is a clear duplicity of character as well as functions of a revising authority while acting as a supervisory officer and involving in the process of an assessment when compared with one allowing jurisdiction to revise an order already framed in which the authority had to some extent contributed in one form or the other. Since an assessment order is framed by an assessing officer, the involvement of the supervisory officer is more in nature of mere guidance. .an order framed with the involvement of a supervisory officer cannot be described as having been done by the latter. It always remains of a person who ultimately signs the same to make it a legally enforceable order.

20. Rana Munir Hussain, Legal Advisor is also right in pointing out that issuance of a demand notice by I.A.C. even if ignored will hardly affect his exercise of jurisdiction as a revisional authority. Issuance of demand notice is primarily a ministerial act and in absence of any specific prejudice we will agree that the issue before us namely the vires of the revisional jurisdiction is not in any manner affected by that fact alone.

21. This brings us to the issue if the treatment of interest income and refusal of the Revenue to allow expenses as claimed with reference to the provisions of section 31(1)(b) was legally correct. At the outset it needs to be mentioned that the claim of the assessee to allow interest on borrowed capital as an expense in the circumstances is not based upon any statutory provision. It is based upon the above reported judgments from Indian jurisdiction and most of all, on the ratio settled by this Tribunal in 1988 PTD (Trib.) 369. The fact of the matter is that except for this case no other judgment is express in supporting the claim of the assessee. All other cases cited at the Bar are not only from foreign jurisdiction but are also clearly distinguishable. In the first case re: Security Printers (supra) pre-incorporation travelling expenses were allowed against income earned and disclosed for that period. In the second case as well re: Cavil Chand Mehr Chand (supra) the assessee was finally allowed to set off interest earned from borrowed money against the interest income which accrued on such money and was included in his total income. In the third case re: Motilal Hera Bhai Spinning and Weaving Company Limited the assessee company was closed after having remained in business for many years. Also advances to parties were found to be one of the permissible business activities as mentioned in the Memorandum of ,Association. The next case re: Raja Bahadur Vheer Singh (supra) is also not relevant inasmuch as the Court on the facts before it and considering the magnitude and frequency of the transactions, the ratio of sales purchases and total holding of the assessee found him to be engaged in business of dealing in shares as against treatment of the Revenue as an investor simplicitor. The two cases of the Supreme Court of Pakistan re: Pakistan Industrial Engineering Agency (supra) and re: Packages Limited (supra) are also distinguishable as the facts as well as the issues before their Lordships were not identical to those in the present case. The cases relied upon bay the learned Legal Advisor on the other hand certainly give support to the position taken up by the Revenue. a specific reference in this regard can be made to the cases re: CIT N.-W.F.P. v. M/s N.-.W.F.P Forest Development Corporation (supra); CIT v. Hindustan Electro Graphites Limited (supra); CIT v. Bihar Alloy Steel Company (supra); Additional Commissioner of Madras v. Madras Fertilisers Limited (supra) CIT v. Manglam Cement Limited (supra); Madhya Pradesh State Industries Corporation Limited v. CIT, M.P. (supra) and Bokaro Steel Limited v. CIT (supra), where in comparable situations interest income was held assessable as "income from other sources".

22. As said above, the only case favourable to the assessee on the issue remains that of the Division Bench of the Tribunal, which was followed in a later judgment by one of Benchers earlier comprising the Division Bench. It also appears to have been followed in another unreported case re:D.G. Cement Factory. Since whole of the case of the assessee depends upon the ratio settled in this case and since the assessee has attempted its best to fit in the pattern mouded by the said judgment it needs to be considered at some length.

23. The assessee in the reported judgment 1988 PTD (Trib.) 369 declared nil income in the three years involved on the ground that no business activity was done as the factory remained under construction and installation process. Besides paid up capital the assessee borrowed loan which was not only spent on the project each year but also kept the balance in banks on fixed deposit and earned interest at various sutras. This amount was deducted from the interest which the assessee paid on the borrowed amount and then capitalised the balance. The assessing officer did not accept the method adopted by the assessee. After usual proceedings and on rejecting the contention that interest earned on borrowed capital was not a separate source but the reduction in interest charges, the assessing officer proceeded to hold:

"(1) Only loss can be set off against income. There is no provision under the law where capital expenditure is reduced by income under any head for the purpose of assessing the total income.

(2) The assessee has shown nil income on the ground that manufacturing has not been commenced and the assessee's income was exempt under clause (119) of the Second Schedule to the Ordinance. In other words, the business has not yet been carried on assessee. In such a case there is no income or loss under the head of business and as such income from other sources i.e. interest cannot be reduced by any loss or expenditure incurred before the commencement of the business."

24. Also it appears that the alternate request for allowing of expenses under section 31(1)(b) was rejected. The first appellate authority maintained the assessment order. Before the Tribunal a number of reported judgments were relied upon. The Tribunal addressed itself to the question if an interest income on fixed deposits could be treated as income from business? The learned Division Bench instead of discussing the reported cases relied upon from both sides proceeded on the premises that for levy of Income tax on investment the purpose for which an assessee had invested becomes very material. Also that superior Courts have favoured adoption of a wider meaning of the word "business" and that it was the form of transaction and not the name given to it which decided the levy of Income Tax. To reach a finding in favour of the assessee learned Division Bench referred to the phrase "commercial expediency" as used in the case of re: Motilal Hera Bhai Spinning and Weaving Company (supra). Before concluding the learned Division Bench repeatedly referred to the facts and circumstances of the case to hold that loan was obtained for earning of interest as well as for business of earning income from manufacturing of liquid sugar. Finally it was noted that the Articles of Association of the assessee company permitted it to earn income on investment.

25. We will agree that facts in the above stated judgment were identical to those unfolded before us in this case. However, the ratio settled in that case cannot be followed for the simple reason that it is diametrically opposed to the ratio and principle settled by the Dacca High Court as well as the Supreme Court of Pakistan in re: Lequidator Khuna Bagerhat (supra). After gong through the judgment of the High Court as well as that of the Supreme Court three principles emerge boldly. First, that if an income properly falls under the head it cannot be assessed by the I.T.O. under another. Secondly that where a businessman keeps his money intended to be used as a capital of his particular business or part of such money or his other money in the banks and derives income by way of interest it would not be his income from business but from "other sources". Thirdly, that there was a difference between the objects and the power of activities of a company in carrying out that object into effect.

26. It will he noted that both the aforesaid judgments were duly relied upon before the learned Division Bench. However, none of them was either discussed or the facts were distinguished in order to hold them inapplicable. As the three principles settled above indicate the ratio was squarely applicable in the facts before the learned Division Bench. Therefore, its conclusion, which was otherwise based upon the alleged commercial expediency a term borrowed from the aforesaid judgment from Indian jurisdiction resulted in a decision which can only be described as a decision per incuriam. We are conscious of our view held in 1997 PTD (Trib) 879 that ratio settled by the Tribunal is binding upon a Bench of equal strength. However, it will be noted that Article 189 of the Constitution enjoins that any decision of the Supreme Court shall, to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all other Courts in Pakistan. The aforesaid three principles being clearly applicable to the facts in hand the ratio settled in the aforesaid judgment of the Tribunal cannot be followed. In 1995 CLC 1453 re: Abdul Razzak v. The Collector of Customs the Karachi High Court observed, "A per incuriam decision, even of the highest Court does not bind any other Court and it matters little that such Court itself be at the lowest rung of the hierarchy of Courts".

27. The term commercial expediency in our considered view is too general a phrase to effect the classification of income as made by law or to change their nature or nomenclature. To treat interest income as income from business either before incorporation of the company or even during the progress of installation or setting up of an industry or business on the basis of commercial expediency does not find support from any of the provisions of the Ordinance. In fact it assumes too many things which are yet to come in existence in future. It is too liberal a view of the phrase "business". Section 15 of the Income Tax Ordinance provides for the heads of income "for the purpose of charge of tax and the computation of total income". Both steps, the charge of tax and computation of total income being most vital parts of the assessment proceedings cannot be, allowed to be changed, modified or manipulated on the basis of "commercial expediency". The term is so personal to a trader, a businessman or an assessee that it can completely change in every changed situation. An act of, commercial expediency of one businessman may be taken as blunder by another of equal prudence. It is correct that the intention behind a transaction will many a time change its nature but such an intention cannot be said to have changed the law. Legal provisions stand fast while intentions of persons keep on changing. These differ not only from person to person but at times even in respect of same aspect an individual may change his earlier view in order to keep pace with the ever changing commercial scenario. Therefore, an intention has to be judged on the touchstone of legal provisions and not the legal provision on the mercurial human wishes and desires. Making a deposit of part of loan not immediately required for installation of a project is a wiser act but not enough to be wiser than law. Any income not falling in the first five sub heads (a) to (e) of Section 15 will fall in the residuary category of sub clause (f) read with section 30 irrespective of the intention of the depositor or the nature, source and colour of the transaction which yielded, it. Interest income which is neither receivable nor is actually received in any other heads will squarely fall under this sub-head without regard to the source of money which generated it or for that matter the purpose for which the money deposited was obtained by the depositor. The only qualification being that if the money on which the interest had accrued belonged to the assessee he will not qualify for certain deductions as given in section 31. However, if the money was borrowed it may qualify for such deductions after fulfilling the requirements and considerations stated therein. The revising authority, in the case before us, therefore, had all the justifications in the world to make resort to the provisions as contained in section 66-A of the Ordinance, 1979.

28. Before concluding we would like to record that use of interest income as a factor to reduce the capital cost has no nexus with its accrual as such. After an income has accrued or has been earned by an assessee its actual use thereafter cannot change the nature of income accrued or earned. Therefore, the view adopted by some High Courts in India with regard to income earned before start of business in distinguishable. The real test in view of their Lordships appears to be the link between the income earning activity and the setting up of the business. In the first case in point re: Additional CIT v. Indian Drugs and Pharmaceuticals Limited cited as (1983) 141 ITR 134 the company was established to start manufacture of drugs and pharmaceuticals. During the period under consideration the factory building of the assessee was under construction. The business, therefore, had not yet been set up and none of the units had commenced production. During this period the assessee realised certain amounts by supply of tender forms regarding construction and erection of plant and machinery, by sale of grass and trees etc. and certain amounts also by sale of stones and boulders which was consequential to the land being cleared for the construction of the factory. Also some amounts were realised by supplying water and electricity to the contractors constructing factory. The assessing officer lumped all these amounts and held them assessable under the head "income from other sources." The first appellate authority held that the amounts so received were not from any business and that these formed part of the capital assets. On further appeal the Tribunal held that receipts on account of sale of tender forms and on account of excess realised for electricity and water charges from contractor resulted in reducing cost of construction and therefore should be treated as deductions from such cost and not as revenue receipts, that the receipts on account of the sale of trees, grass, stones and boulders were in connection with the clearance of the land to be used for the erection of the factory also resulted in reducing the cost of land and therefore were directly related to the capital structure of the business being set up; that the receipts did not create any independent source and were in fact inextricably linked with the process of setting up the business and hence the receipts were clearably referable to the business, profession of vocation and since the business was not fully set up the receipts were of capital nature. On reference their Lordships of the Delhi High Court maintained the order of the Tribunal holding that the receipts were from sources which were trot independent but were linked with the process of setting up of the business. In the second case as well re: CIT v. Bokaro Steel Limited reported as (1988) 170 ITR 522 the assessee company promoted to construct and own integral iron and steel works was in the completion process. No business was done, as the construction work was not completed. There were certain receipts, which the assessee grouped in the head "miscellaneous income" During this, period these receipts were set off against expenses of the year and the balance expenses were then capitalized. On seeking explanation and break up of the miscellaneous income the assessing officer considered them as receipts chargeable to tax. These receipts were from property let out to contractor's employees, hire charges, receipts from contractors for the use of plant and equipments let out to them, interest on advances to the contractors, interest on short term deposits miscellaneous income royalty, land rent and liquidated damages received from the contractors. The Contention of, the assessee that these receipts were incidental to its business of construction and that these had gone merely to reduce the cost of construction was rejected by the assessing officer. The Tribunal found that receipts from 'let out of property to outsiders (contractor's employees) were chargeable under section 22 of the Indian Income Tax Act of 1961 but other receipts were incidental to the business of the assessee and were not assessable. On reference the Patna High Court held that the occupation of the company's quarters by the employees of the Contractors was also incidental and subservient to the business of the assessee. All receipts were, therefore, found incidental to the overall construction work during the business period. Accordingly it was found that none of the receipts was assessable to tax. The ratio in both cases clearly brings out the view of their Lordships that only such receipts could be used to minimise the cost of construction or capital cost of the project if these were incidental and subservient to the business of the assessee and also to the construction work in progress. In the case before us however interest income was neither inter linked directly or indirectly to the project in progress nor the business of the assessee, it was also not incidental or subservient to the proposed business or plant installation process. The assessee before us going for earning particular kind of income could not give it a different colour either on account of lack of choice or vice versa, business prudence, expediency or reality. All these elements, as observed earlier are irrelevant when it comes to consider the head of income under which these are to fall for the purpose of charge of tax and computation of total income.

29. The last issue relates to claim of the assessee for allowing of expenses under section 31(1)(b) of the Ordinance. The revising authority refused the claimed interest by referring to the provisions as contained in section 31(1)(b). In its view these provisions emphasize that the expenditure should be incurred wholly and exclusively for the purpose earning such income. According to it in the case under review capital was borrowed by the assessee for setting up a cement plant and not for the purpose of interest income. Therefore, the interest paid on borrowed capital was held to be inadmissible under section 31(1)(b) against income under section 30. It was further opined that such interest was an admissible expense only against business income. As a further argument the revising authority expressed the view that if the capital was borrowed for the purpose of earning interest income as in the case of banks only then such interest could be allowed to the assessee.

30. We are, however, of a different view. Section 31(1)(b) contains sufficient authority for the allowing of expense in the facts before us. We have noted that in almost all the cases relied upon by the Revenue in support of the first contention with regard to assessability of interest as income from other sources the interest paid by the assessee was directly or indirectly found admissible. In the case re: CIT v. Hindustan Graphite Limited the Madhhya Pradesh High Court decided against the assessee only on the ground that it could not establish that interest on fixed deposit and on late payment of call money was related to any particular item of expenditure. The principle settled in 1992 PTD (Trib.) 1142 another case relied upon by the Revenue also support the contention that where an expense is directly relatable to the income earned is an admissible expense. In Behar Alloys Steel Limited (supra) their Lordship of the Patna High Court found for the proposition that if the amount earning interest had been borrowed the interest payable would be an allowable deduction. In the next case relied upon by the Revenue CIT v. United Wire Ropes (supra) as well the Bombay High Court decided against the assessee as the transaction of borrowing money and its deposit in bank was not considered as a single composite transaction. The proportionate interest paid on the amount deposited in the case before us was directly relatable to the deposit as well as the interest earned thereupon. Therefore, the revising authority clearly erred in law as well in fact to assign restricted meanings to the word "purpose' as used in the aforesaid clause of section 31. Also it will be noted that in another case relied upon by the Revenue re: Additional CIT v. Madras Fertilisers Limited while considering the comparable provisions of section 57(iii) of the Income Tax Act of 1961 the Madras High Court observed, "It has to be noticed that this section has imposed two requirements to be simultaneously complied with, namely the expenditure must be laid out wholly and exclusively for the purpose in question and the purpose in question must be the making or earning of income with reference to which the expenditure is claimed to have been incurred." The facts before us do not admit of any distinguishing feature which can be said to effect the claim or to lack in any of the two aspects considered necessary, for the claim. The 'only case relied upon by the Revenue on this issue viz. 1996 PTD (Trib.) 205 authored by one of us the Judicial Member is certainly not relevant. It will be noticed that word "purpose" referred to in section 31(i)(b) is relatable more to the actual use of the money involved rather than the intention or expectation behind the borrowing or the deposit or investment. The interpretation adopted by the revising authority is narrow and unrealistic. A part of the borrowed capital having admittedly been employed in earning interest income, the proportionate interest paid on such borrowing was clearly an admissible expenditure irrespective the intention or purpose for which the money was borrowed. The rejection of the claim on the ground that since the purpose at the time of borrowing of money was not to earn interest it was not an allowable expense does not find support from any of the aforesaid provision or the case-law relied upon by the Revenue. The two conditions contemplated in the aforesaid provision having fully been answered in the case before us the refusal of the claim of the assessee cannot be approved. We have noted that the revising authority did not challenge, as a matter of fact that either the money on which the interest income was earned was not borrowed or that interest in terms of claim was not paid to the lender. Therefore, the assessee is held entitled to the claimed expense under section 31(1)(b) of the Ordinance.

31. For the above reasons while the exercise of revisional jurisdiction is approved and the objection of the assessee is refused we will direct the revising authority to amend the impugned order so that the claimed expenses are allowed.

C.M.A./545/Trib.Order accordingly.