Income Tax Appellate Tribunal - Amritsar
Assistant Commissioner Of Income Tax vs Ishar Dass Mahajan & Sons on 31 May, 1999
Equivalent citations: [2000]73ITD77(ASR)
ORDER
D.R. Singh, J.M.
1. The Revenue has filed this appeal against the order of the CIT(A), Jalandhar in Appeal No. 544/90-91/CIT(A), dt. 16th July, 1992, on the following effective grounds :
"1. That on the facts and in the circumstances of the case, the learned CIT(A) has erred in directing the recomputation of deduction under s. 80HHC on rental income of Rs. 32,400 and interest income of Rs. 1,88,807, holding that the interest and rental income form part of property and business.
2. While allowing relief at 1 above, CIT(A) ignored the fact that the AO has assessed rental income under the head income from house property and interest income under the head 'income from the other sources'."
2. Stated briefly, the relevant and material facts for the disposal of this appeal are that the AO noticed that rent of Rs. 32,400 and interest of Rs. 1,88,807 have been credited to the P&L a/c. The deduction under s. 80HHC of the IT Act had been claimed with reference to profits of business determined including these two amounts. According to the AO the said deduction was not admissible as rental income but was in the nature of income from house property' and interest income was in the nature of income from 'other sources'. Before the AO, it was explained that the said rental income as well as interest income was a part of the business income and had correctly been credited to the P&L a/c. The reliance was placed on the decisions in CIT vs. Ajmera Industries (P) Ltd. (1976) 103 ITR 245 (Cal) and CIT vs. Gaurishankar Agarwal (1981) 131 ITR 27 (All). After considering the explanation the AO held that interest income was in the nature of income from 'other sources' and rental income was income from 'house property'. Therefore, deduction under s. 80HHC was not available with reference to this income. However, while computing income, the entire income was assessed as profits of the business.
3. Aggrieved with the order of the AO the assessee filed an appeal before the CIT(A), who vide her detailed order, held that rental and interest income of the assessee formed part of the profits of business as computed by the AO and in this view of the matter, the CIT(A) directed the AO to recompute the deduction under s. 80HHC of the IT Act with reference to the profits so determined including interest and rent.
4. Against this order of the CIT(A), now the Revenue is in appeal before us on the above stated grounds with the prayer that the order of the learned CIT(A) be set aside and that of the AO be restored.
5. We have heard the learned authorised representatives of the parties, considered their rival submissions, perused the records and carefully gone through the orders of the lower authorities.
6. The main controversy relates to the deduction claimed by the assessee under s. 80HHC on rental income and interest income. The assessee is earning interest income from M/s. Swani Motors, Jalandhar, and from IDBI on deposits made with them and interest from FDRs. The first issue required to be resolved is whether the interest income is income from business income or the same is income from 'other sources'. If the AO was going to deny the benefit of this income, then he should have given the finding regarding the nature of the interest income. But on going through the order of the AO it is clear without any doubt that this income has been treated by him as business income and not as income from other sources. There are by and large judgments on this issue which give different interpretation as to what should be the classification of income because the classification is relevant for allowing expenditure. Prima facie, the income from other sources gets similar benefits as income from business and profession except some specified advantage is available to business income. So far as the rental income is concerned, if it is not part of the business then the same becomes part of income from house property, which is entitled to specific deduction.
7. The Hon'ble Supreme Court has decided this issue while deciding the case of CIT vs. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC). The Hon'ble Supreme Court has relied on the observation of Justice Shah in the case of CIT vs. Chugandas & Co. (1965) 55 ITR 17 (SC). The Hon'ble Justice Shah has observed as under on this issue :
"The heads described in s. 6 and further elaborated for the purpose of computation of income in ss. 7 to 10 and 12, 12A, 12AA and 12B are intended merely to indicate the clauses of income; the heads do not exhaustively delimit sources from which income arises. This is made clear in the judgment of this Court in the United Commercial Bank Ltd.'s case, that business income is broken up under different heads only for the purpose of computation of the total income-by that break up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Indian IT Act for computation of income."
8. This landmark judgment was followed by the various Courts as and when this issue came before them for adjudication.
9. The Hon'ble Madras High Court in the case of B. Nagi Reddy vs. CIT (1993) 199 ITR 451 (Mad) has dealt with the issue of computing income earned from letting out of the business property and observed that particular act of letting out property has to be decided in the circumstances of each case and in the setting and background of facts prevailing around each case. The Hon'ble Madras High Court has further observed that there is nothing like naturally borne commercial asset. The income derived from the asset with total intention and purpose of exploiting such asset will determine the nature of income for the purpose of classification of the income. An asset becomes commercial one in view of the use to which the asset is put in the business. In spite of the facts that the broader interpretation was given by the Hon'ble Supreme Court still divergent views were taken by various High Courts and different Benches of the Tribunal because the facts and the circumstances and the nature of the commercial asset was interpreted in different ways and with different angles. The Hon'ble Supreme Court further elaborated the issue in CIT vs. Govinda Choudhury & Sons (1993) 203 ITR 881 (SC). The Hon'ble Supreme Court has developed the interpretation of the facts, which can lead to the finding that the interest income can be interpreted and categorised an business income instead of income from other sources.
10. Before categorising any income, one has to look into the totality of the intention and purpose for such exploitation of the asset and link the same with total business scenario of the assessee and with the ultimate intention of the user.
11. The interest will have three different meanings :
12. The first meaning for the purpose of classification is to be given when the interest is earned by a money-lender. The money-lender is dealing in the business of money-lending. In the case of money-lender, this income will not be from other sources, the same will be the income from business because the user is using the income as a business activity.
13. The second interpretation is to be given to a person, who will invest his earning as a deposit with the third party for earning interest income. The intention of such person is to earn interest income and such interest is safely classified as income from other sources.
14. The third aspect of the issue is that when the assessee under contract will charge interest on outside trade debit balances from the customers. The purpose of such interest income is to adjust the interest income incurred on overdraft facility. Such type of interest income is incidental to the normal business activity of the assessee. Such type of interest can safely be classified as business income, rather than the income from other sources. To conclude, the controversy, we are of the opinion that each and every action and receipt has to be interpreted under its own peculiarity and facts and the circumstances of the case.
15. The AO has discussed the very nature of the interest in his assessment order. The nature of the intention reproduced as follows :
"(i) Interest from Swani Motors, Jalandhar : The assessee has contended that the amount of Rs. 3,337.35 has been received on advance made for booking of a car. The car has been purchased and debited to the car account and is being used for business purposes. As the car was to be used by the firm for business purposes, interest received on advance for the booking of the car, according to the assessee, should be treated as business income.
I have examined this contention of the assessee and found that though the interest has been received on advance for the booking of a car, but that fact does not alter the nature of the income which is interest income under the head from other sources. Hence, the plea of the assessee is rejected.
(ii) Interest against deposits under s. 32AB : The assessee has submitted that the amount of Rs. 49,000 was received as interest from the IDBI on deposits made with them for the purpose of claiming deduction under s. 32AB and the sole purpose of depositing the amount with the bank was to claim the benefit of deduction under s. 32AB. The assessee has relied on CIT vs. Gaurishankar Agarwal (1981) 131 ITR 27 (All). I have gone through the contention of the assessee. The decision quoted at (1981) 131 ITR 27 (All) (supra) deals with the deduction under s. 80L on interest income and, therefore, is not of any relevance to the case under consideration. The amount of Rs. 49,000 has clearly been received as interest from the IDBI and cannot be treated as income under the head "profit and gains of business or profession" by any means. Hence, this plea of the assessee is rejected.
(iii) Interest on FDRs : The assessee has received further interest of Rs. 1,36,469.90 on FDRs. The assessee has contended that it had kept its spare funds in the shape of FDRs to be utilised as reserves for offering of more credit facilities and by this act the assessee having its own funds can invest in further stocks, etc. It would ultimately mean more of business income to the assessee, it was claimed. Here again, the assessee has relied upon the decision quoted at (1981) 131 ITR 27 (All) (supra). As far as assessee's contention is concerned, the amount of FDRs may have offered the assessee more credit facilities and may help the assessee in buying further stocks but the interest income derived on the FDR is beyond any doubt interest income assessable under the head "other sources". So far as the decision referred to in (1981) 131 ITR 27 (All) (supra) is concerned, it has already been discussed that it pertains to deduction under s. 80L for the purpose of interest income."
16. Now, the first fact is very clear that the assessee booked a car for the purpose of business and for that he was bound to keep some interest-bearing deposit with the dealer and as such the interest became incidental to the normal business activity of the assessee.
17. The second amount of interest is received from the IDBI on the deposits to be kept with them for claiming benefit under s. 32AB. The assessee has to make deposits with the IDBI and those deposits are subject-matter of interest and the assessee has received the interest which is incidental to the normal business activity of the assessee. The third area of interest is received on FDRs. The assessee whenever has an extra money, he converts the extra funds available into FDRs with the intention to pledge his FDRs for receiving credit facilities from the bank. The assessee explained this fact to the AO that the purpose and need of making FDRs is just to pledge his FDRs to the bank and by pledging these FDRs, the assessee has received overdraft facilities for running of the business. The interest became incidental to the normal activity of the business in case FDRs are pledged with the bank. Apart from these facts, one has to look into s. 80HHC, sub-s. (4) and cl. (baa) to the Explanation which is reproduced as under :
"(baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by :
(1) ninety per cent of any sum referred to in cl. (iiia), (iiib) and (iiic) of s. 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India;"
18. This will clear the position further. This clause clearly shows that in case the AO has treated brokerage, commission and interest income as income from profits and gains of the business, then w.e.f. 1st April, 1992, that income is to be reduced from the total income for the purpose of deduction under s. 80HHC. That clearly shows that prior to 1st April, 1992, if such income is part of the business income then there is no power available with the AO to reduce income from interest and rent for the purpose of allowing deduction under s. 80HHC. There is finality to this fact that the AO himself in the assessment order has assessed interest and rent as income from business and profession. We, therefore, find no infirmity in the order passed by the learned CIT(A).
19. In the result, the appeal of the Revenue is dismissed.