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Income Tax Appellate Tribunal, KOLKATA ‘D’ BENCH, KOLKATA
Before: Shri P.M. Jagtap, Vice-(KZ) & Shri Satbeer Singh Godara
Per Shri P.M. Jagtap, Vice-President (Kolkata Zone):- This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-15, Kolkata dated 24.01.2018.
In Grounds No. 1 to 3, the assessee has challenged the action of the ld. CIT(Appeals) in upholding the order of the Assessing Officer treating the interest income of Rs.2,48,18,698/- as “income from other sources” in place of “business income”.
The assessee in the present case is a Company, which derives income from rent, lending activity, power generation and investment. The return of income for the year under consideration was filed by it on 22.09.2009 declaring total income of Rs.4,50,43,750/-. Thereafter a
I.T.A. No. 728/KOL/2018 Assessment Year: 2009-2010 M/s. Aradhana Investment Limited
revised return was filed by the assessee on 11.09.2010 declaring total income of Rs.4,66,16,040/-. As disclosed in the said return, interest income of Rs.2,48,18,698/- was received by the assessee during the year under consideration as under:- HUDCCO Rs, 2,35,616/- Interest on PMS Rs. 30,943/- CESC Limited Rs. 78,974/- Interest on I.T. Refund Rs. 7,66,458/- DBS Bank Limited Rs. 5,77,919/- HDFC Limited Rs. 6,82,603/- Canara Bank Rs.2,24,46,185/- Rs.2,48,18,698/-
During the course of assessment proceedings, the assessee was called upon by the Assessing Officer to explain as to why the aforesaid interest income should not be assessed under the head “income from other sources” in place of “business income” as claimed by the assessee. In reply, it was submitted on behalf of the assessee that its main business being financing and investment, interest income earned constituted its business income. It was also submitted that similar interest income earned in the earlier years was treated as business income and the said treatment was accepted by the Assessing Officer. The Assessing Officer did not find merit in the submissions made by the assessee. According to him, interest on income-tax refund could not be regarded as income from carrying on any business. He also held that the other investments made by the assessee in Fixed Deposits with Banks, etc. was out of its surplus fund and the same, therefore, could not be treated as income derived by the assessee from its business of money lending. He accordingly brought to tax the entire interest income earned by the assessee during the year under consideration under the head “income from other sources”.
I.T.A. No. 728/KOL/2018 Assessment Year: 2009-2010 M/s. Aradhana Investment Limited
The action of the Assessing Officer in treating the interest income as income from other sources in place of business income was challenged by the assessee in the appeal filed before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), the submissions made before the Assessing Officer during the course of assessment proceedings were reiterated on behalf of the assessee The ld. CIT(Appeals), however, did not find merit in the said submissions and proceeded to uphold the action of the Assessing Officer in treating the interest income as income from other sources for the following reasons given in his impugned order:- “I have considered the submission of the appellant and perused the relevant assessment records. On examination of the audited account of the appellant, it is found that the appellant is obtaining income from-interest, rent, windmill income, income from dividend, profit on sale of investment and derivative income etc. The appellant has not given loans to any party. The appellant had invested surplus funds in bank deposits for which he had received interest income as follows:
HUDCCO Rs, 2,35,616/- Interest on PMS Rs. 30,943/- CESC Limited Rs. 78,974/- Interest on I.T. Rs. 7,66,458/- Refund DBS Bank Limited Rs. 5,77,919/- HDFC Limited Rs. 6,82,603/- Canara Bank Rs.2,24,46,185/- Rs.2,48,18,698/-
On examination of the interest received by the appellant, it is clear that interest on I.T. Refund, interest from CESC Ltd and interest from PMF are come under the head income from other sources and under no stretch of imagination can be held to be income from business.
As regards, interest income from HUDCCO, DBS Bank Ltd, HDFC and Canara Bank, these are .resulting from surplus funds of the appellant and have no nexus with the business of the appellant. The appellant cited the following case law i.e. M/s Morgan Walker & Co Ltd vs ACIT, ITA No. 1108/Kol/2016 for the AY 2008-09 (ITAT Kolkata Bench). However, the facts of the case are distinguished. In M/s Morgan Walker & Co (supra), the Hon'ble ITAT had followed the principle of consistency and held that as in the previous year interest income was held to be income from business, the same principle should be followed in the succeeding years. However, 3
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in the case under appeal, the AIR of the appellant had not adduce any evidence that interest income earned from fixed deposits and interest on TDS and from CESC Ltd had been considered as income from business in earlier assessment years. Even if, the A.O. had allowed these interest incomes as income from business, they had to be disallowed because as per the Act interest on I T Refund and from bank deposits not related to business comes under the head income from other sources. Interest income is either assessed as business income or as income from other sources depending upon the activities carried on by the assessee. If the investment yielding interest is part of the business of the assessee, the same would be assessable as business income but where the earning of the interest income is incidental to an not the direct outcome of the business carried on by the assessee, the same is assessable as income from other sources. Business ·implies some real, substantial and systematic or organized course of activity with a profit motive. Interest, generated from such an activity, is business income; else it would be interest from other sources.
As earning of interest is not part of the business of the appellant, the interest amount earned Rs.2,48,18,698/- is considered as income from other sources. This ground of appeal fails, is therefore, dismissed. The A.O. is directed accordingly”.
The ld. Counsel for the assessee submitted that the main business of the assessee was of investment and financing and the interest income earned from investment made in deposits of Bank, etc. constituted its business income and not income from other sources. He has contended that similar interest income earned by the assessee in the earlier years was offered to tax as its business income by the assessee-company and the same was accepted by the Assessing Officer even in the assessments completed under section 143(3), inter alia, for A.Y. 2007-08 and 2008-09.
The ld. D.R., on the other hand, strongly relied on the orders of the authorities below in support of the revenue’s case that interest income earned by the assessee from the investment made out of surplus fund constituted its income from other sources.
I.T.A. No. 728/KOL/2018 Assessment Year: 2009-2010 M/s. Aradhana Investment Limited
We have considered the rival submissions and also perused the relevant material available on record. It is observed that the assessee in the present case is a Company, which is engaged inter alia in the business of investment and money lending and there is no dispute about the same. During the year under consideration, it had earned interest income of Rs.2,48,18,698/- in the form of interest and the said interest income barring the amount of Rs.7,66,458/- earned by the assessee on income- tax refund was received on the investment made in deposits of Banks, etc. The interest income to that extent earned by the assessee thus had a direct nexus with its main business of investment and lending and in our opinion, it, therefore, constituted its business income, which was chargeable to tax under the head “profits and gains of business or profession” as rightly claimed by the assessee. It is also observed that similar interest earned by the assessee from the investment made in deposits with Banks, etc in the earlier years was declared under the head “profits and gains of business or profession” and the same was accepted by the Assessing Officer even in the assessments made under section 143(3), inter alia, for A.Ys. 2007-08 and 2008-09. Keeping in view all these facts of the case, we are of the view that the entire interest income earned by the assessee during the year under consideration barring the interest of Rs.7,66,458/- received by the assessee on income-tax refund is chargeable to tax under the head “profits and gains of business or profession” as rightly claimed by the assessee and not under the head “income from other sources” as treated by the Assessing Officer as well as by the ld. CIT(Appeals). We accordingly direct the Assessing Officer to bring to tax interest income to the extent of Rs.2,40,52,240/- as business income of the assessee and allow partly Grounds No. 1 to 3 of the assessee’s appeal.
As regards the other issue raised by the assessee in Grounds No. 4 & 5 relating to the allowability of deduction on account of interest paid to Bank amounting to Rs.8,29,174/-, it is observed that the same is
I.T.A. No. 728/KOL/2018 Assessment Year: 2009-2010 M/s. Aradhana Investment Limited
consequential to the main issue involved in Grounds No. 1 to 3 of the assessee’s appeal. Keeping in view the decision rendered by us on the main issue involved in Grounds No. 1 to 3 directing the Assessing Officer to bring to tax, the interest income earned by the assessee during the year under consideration under the head “profits and gains of business or profession”, we direct the Assessing Officer to consider the claim of the assessee for deduction on account of interest paid to Bank amounting to Rs.8,29,174/- against the said income in accordance with law. Grounds No. 4 & 5 of the assessee’s appeal are accordingly treated as allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on April 24, 2019.
Sd/- Sd/- (Satbeer Singh Godara) (P.M. Jagtap) Judicial Member Vice-President (KZ) Kolkata, the 24th day of April, 2019 Copies to : (1) M/s. Aradhana Investment Limited, 5, Middleton Street, Kolkata-700 071 (2) Assistant Commissioner of Income Tax, Central Circle-2(1), Kolkata, 110, Shantipally, Aayakar Poorva, E.M. Bye Pass, Kolkata-700 107
(3) Commissioner of Income Tax (Appeals)-15, Kolkata, (4) Commissioner of Income Tax- , (5) The Departmental Representative (6) Guard File By order
Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.