KITCHEN EXPRESS OVERSEAS LTD.,KALOL vs. THE ACIT, CIRCLE-7, NOW ITO, WARD-3(3)(2), AHMEDABAD

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)-2, Ahmedabad (‘CIT(A)’ in short), dated 27.11.2017 arising in the assessment order dated 23.12.2011 passed by the Assessing Officer (AO) under s. 143(3) r.w.s 147 of the Income Tax Act, 1961 (the Act) concerning AY 2007-08.

As per grounds of appeal, the assessee has challenged the action of the Revenue authorities in making disallowance of expenses towards partners’ remuneration under s.40(b) of the Act on account of rent income Rs.70,000/- on let out of building, interest income of Rs.5,87,344/- from advances given to sister concern M/s. R. M. Foods and interest on fixed deposits of Rs.1,08,726/- from FDs. Holding such source of income come ‘income from other sources’.

When the matter was called for hearing, the learned AR for the assessee pointed out that as per return of income, all the three sources of income namely; rent income, interest on advance and interest on fixed deposits have been declared by the assessee under the head ‘business income’. It was further pointed out that rent income has been derived from letting out a portion of existing infrastructure on temporary basis and therefore was an extension of the business. It was further pointed out that interest earned on advances given to M/s. R. M. Foods arises out of business nexus. It was pointed out that the assessee has shown several trading transactions with M/s. R. M. Foods, and advances have been given on interest alongside. It was similarly submitted that interest on fixed deposits has been derived by the assessee in the course of business activity. The fixed deposits have been placed as security for sanction of term loan. The learned AR further pointed out that in the light of the decision of the Hon’ble Calcutta High Court in Md. Serajuddin & Brothers vs. CIT [2012] 210 TAXMAN 0084 (Cal.), it is not necessary that partners’ remuneration can be distributed only out of income from business alone.

In the light of the decision of the Hon’ble Calcutta High Court in Md. Serajuddin & Brothers (supra) and in the light of the facts [Kitchen Express Overseas Ltd.] A.Y. 2007-08 - 3 - pointed out on behalf of the assessee, we find merit in the plea of the assessee. The order of the CIT(A) is accordingly set aside and the AO is directed to allow partners’ remuneration after taking into account the aforesaid source of income.

In the result, appeal of the assessee is allowed.