SHRI VISHAL WARDHAMAN GOLECHA,NAGPUR vs. ACIT-CIRCLE-1, NAGPUR

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ITA 122/NAG/2014Status: DisposedITAT Nagpur23 November 2017AY 2009-106 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee was not engaged in a regular money lending business as there was no money lending license and the primary motive was to finance associate concerns. Therefore, the interest income was to be assessed under 'Income from Other Sources', not 'Business Income'. Consequently, Section 40(a)(ia) was not applicable.

What were the facts?

The assessee borrowed funds and advanced them to family concerns and a company where the assessee was a director. The Assessing Officer disallowed interest paid on these borrowings under Section 40(a)(ia) as tax was not deducted at source, treating the interest income as business income. The CIT(A) confirmed this disallowance.

What were the issues?

Whether the interest income earned by the assessee is assessable under the head 'Business Income' or 'Income from Other Sources', and consequently, whether the disallowance under Section 40(a)(ia) is justified.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194A

AI-generated summary — verify with the full judgment below

11,4. Nus !29, ] 10/NAG/2O11 i.1.!.Vc.!22/N4G/2014 Ml %rszoun -07 07 UK (Y-lO IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH; NAGPUR BEFORE SHRI Pa K. BANSAL, VICE PRESIDENT AND SHRI PAWAN SINGH; JUDICIAL MEMBER LLANo129& 1AQNAGL2OL1 Assessment_Years: 2006-QZ 2007-08 Shri Vishal Golechha; Laxminagar , Nagpur. PAN:ABYPG 4185 F (Appellant_ Vs, Addl. CIT, Circle- 1, Nagpur. (Respondent LLANo12ZINAG[2Q14 Assessment_years 2009 10 Shri Vishal Wardhaman Gofecha, Vs. ACIT, M-6, Laxminagar; WHC Road, Circle-1, Nagpur. Nagpur, PAN:ABYPG 4185 F (Appellant) (Respondent; Appellant by Respondent_by Date of hearing Date_of pronouncement Shri Rajesh Loya, C A. Shri Geetesh Kumar_DR, 21/11/2017 23/11/2017 QRDER PER PK_BANSAL_VB All these appeals filed by the assessee relate to the common issue regarding the applicability of provisions of section 40(a)(ia) of the IT. Act therefore, ali these appeals are being disposed of by this common order for the sake of convenience. Both the parties agreed that all these appeals be decided on the basis of facts involved in the assessment year 2006-07, The oly issue involved in all these appeals relates to the sustenance of ["} 4i;x.[24 MWNAG/ZAA 1 / N" 122/N46/2014 Asstt: trs.:2006-47, (7 {Ht} &: 4JY-18 2 in each of the assessment year by the Assessing Officer disallowance made u/s 40(a)(ia) of the Act: The facts of the case, in brief, are that the assessee has submitted 2 interest income under the head income from its return of income showing The Assessing Officer did not agree with the assessee but other sources. interest income has to be assessed under the head took the view that the The Assessing Officer was of the view that the total income from business of the assessee in each of the assessment year exceeds business receipts uJs 44AB of the Act and therefore, the the monetary limit as stipulated to deduct the tax at source as per the provisions of assessee was required paid by the assessee Since the section 194A on the amount Of the interest Qf section 194A therefore; he assessee has violated the provisions the assessee u/s 40(a)(ia) in each of the disallowed the interest paid by When the matter went before the CIT(A) the CITTA) issessment year. "confirmed the same: Learned counsel for the assessee vehemently contended 3 Before uS from private parties and has that the assessee has arranged money in which the assessee is director ad advanced the same to the company a5 the company ad the assessee concern are associated family concern business of builder and developer therefore, the lenders are engaged in the Instead; they preferred Ioan to directors hesitant to finance the concerns; Further there i5 restriction of obtaining loan in in their personal capacity; The money can be barrowed from the shareholders the case of company. does not have ay regular and systematic activity of only . The assessee market with a view to carry out ay financing business financing in the The loans obtained were mainly utilized for advancing to family concern; parties other than family concern is very The interest received from the license with the assessee: The minimal; There iS no money lending I.""A. Nos 13. 1 10;AAli/2mt [ 1"AN"2 N46/2014 Asstt Yx.JUU (7. (17-!IA8 & (F4-10 8 5 assessee has charged the interest on advances only to the extent payable to the lenders, The interest on money advanced 15 charged once at the end of the year and not at any other interval. There is no profit under the head income from other sources and income from business or profession. In assessment vear 2006-07 and 2007-08 the profit under the head income on account of Own capital of Rs.1,05 crore from other sources is mainly while in assessment year 2009-10 the profit under the head income from capital Qf Rs.1.38 crores The other sources is mainly on account of own observation of the CIT(A) that the interest was charged at varied rates and was earned is factually incorrect: The profit in the therefare; the interest fram other sources is due to deployment of Own shape of income sufficient capital with the assessee, Qut fundsfcapital: There is Own attention was drawn towards para 4 and para & of the assessment order where the Assessing Officer has observed that the money procured from Jwne the market was given to the different family concerns. In this regard the reliance was placed on the following case laws: (a) J,K Holdings Vs. ITO (2001) 70 TTJ (Mum;) 649 (6) Belagode Traders Vs. ITO (1996) 54 TTJ (Bang ) 449 {c) Ghanshyamdas Gangadhar Vs: CIT (1954) 25 ITR 318 (Pat:) (d) Godawari Sugar Mills Ltd. Vs. CIT 191 TTR 359 (Bom:) (e) CIT Vs Rajasthan Land Development Corporation 211 ITR 597 (Raj:) 4 On the other hand Learned D. R, vehemently relied on the orders of the authorities below ad contended that the Income has to be assessed under the head income from business not the income from other sources The income from ather sources is a residual head of income: It is only the not fall under any other head of income has to be income which does under the head income from other sources. The assessee is systematically carrying on1 the business of advancing the loans to various parties ad also to whom the assessee is paying the interest, borrowing the money I.T.

6.

Wx. MAV/NA6/2O[1 1.T#W[Z2/NAI/ZOlA AS01 Yrs " 240H6-{97, (07-(J8 & 09-I0 Therefare; the income so derived from these sources has t0 be assessed under the head income from business not under the head income fram other sources; 53 We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below: This is a fact that the assessee Is earning interest income; The assessee has borrawed the funds 35 well as advanced the same funds to the family concern and also the concern in which the assessee i5 the director . The assessee has not obtained any money lending license so that it can be said that the assessee i5 engaged in the regular business of borrowing and lending of the money: The assessee in this case has used himself a5 a conduit to finance his associate concerns in which the assessee is interested and for that purpose he firstly borrowed the money from the market and then advanced to JVm family concern and the company in which he is a shareholder: The interest x- has been charged at the end of the financial year, It i5 not & case that the interest ha5 been regularly charged as is being done in the finance business_ The money has been taken On interest just to facilitate the availability of the funds with the associate concern: For carrying on the money lending business the assessee was required to have a money lending license which the assessee does not have: We have gone through the decisions as relied on by Learned counsel for the assessee and noted that Mumbai Bench of the Tribunal in the case of J, K. Holdings (supra) held on the similar facts that if an activity i5 carried on without any intention to make profit; the activity does not make income assessable income under the head business. Further, the Tribunal noted in that case that there was no money lending Iicense and the profit motive was absent: The transactions made by the assessee was held to be assessable under the head Income from Other Sources' In the case of Belagode Traders (supra), we noted that Bangalore Bench of this Tribunal took he view in the I"14 Ys 124, [AI)/N;;/2011 AXWJ2/#;/2]4 }ssi: Yrs:20(f.[17 , (7-U8 & (9 . 1{ license being held by the trust that simply absence of money lending because loans were advanced to business persons, interest income cannot be held to be business income We have also gone through the decision of and noted that in this case Hon'ble Ghanshyamdas Gangadhar (supra) Patria High Court held that the assessee had not taken out any license for the of money lending which the assessee would presumably do if purpose fact On money lending business in 3 regular he intended in to carry Therefore; Hon'bie High Court confirmed the order of the Tribunal manner. in which the Tribunal held the interest Income has to be assessed under We noted that in the case of the head income from other sources; Godawari Sugar Mills Ltd: (supra) Hon'ble jurisdlctional High Court took the view that when the money Was not advanced in the course of any business activity of money lending; the interest income earned is to be assessed as It is denied that the motive of the assessee Income from Other Sources; the money from third party and advancing the loan to the in borrowing on the business; Intension of the assessee in family concern Is to carry borrowing the money from the tird party is to assist the family concern in We; therefore, collecting the funds for them within four corners of the law: of the view that the interest income has to be assessed under the head are sources; Accordingly; we set aside the order of the income from other CIT(A) on this issue ad direct the Assessing Officer to assess the income head income from other sources. Since the from interest under the income has to be assessed under the head income from the interest the provisions of section 4O(a)(ia) are income from other sources; In case the assessee derives the income under the head applicable only of business or profession: Since the assessee has claimed profit and gains the deduction in respect of interest paid on money borrowed under the sources therefore; the provisions pf section head income from other eLLA_ !M NoxlZW, 14O/RAG/20]1 L.L;} Nu.lZX/NAG/2O14 Assll. %rs-208-I27, (17-(18 & 4)9.10 f+ 4O(a)(ia) will not apply in the case of the assessee: Accordingly , we delete the disallowance made u/s 4O(a)(ia) in each of the assessment year: 6_ In the result; all the appeals of the assessee are allowed, (Order was pronounced in the open court on 23/11/2017 Sd] . Sd/_ (PAWAN SINGH) P. K. BANSAL Judicial Member Vice President R4T907 Dated:23/11/2017 #Singh Copy of_the order fonarded_to 1 2 3 4 5 The Appellant The Respondent; Concerned CIT The CIT(A) D.R, C7uocd file #rue Sc 08 72 7741 40G7? cllaaz Trbunal "/3 / Nagpur Exr`

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