2012 (5) TMI 602 - AT - Income Tax

Summary

Issues Involved:
1. Classification of management and advisory fee as business income or income from other sources.
2. Classification of establishment charges as business income or income from other sources.
3. Set-off of carry forward speculation losses against speculation profit before setting off business losses.

Summary:

Issue 1: Classification of Management and Advisory Fee
The Revenue challenged the Ld. Commissioner of Income Tax (Appeals) decision to assess the management and advisory fee of Rs. 31,50,000/- as business income instead of income from other sources. The assessee argued that the fee was received from M/s Far East Investment Corporation Ltd. and European Investment Ltd. for investment management services, which had been consistently treated as business income in previous years. The Ld. Commissioner of Income Tax (Appeals) found that the Assessing Officer did not independently examine the nature of the receipts and failed to prove that the assessee did not perform the stated investment management activities. The principle of consistency was also considered, as the income had been assessed as business income in earlier years. The Tribunal upheld the Ld. Commissioner of Income Tax (Appeals) decision, agreeing that the income should be classified as business income.

Issue 2: Classification of Establishment Charges
The Revenue contested the Ld. Commissioner of Income Tax (Appeals) decision to assess establishment charges of Rs. 4,20,000/- as business income instead of income from other sources. The assessee claimed that the charges were for the use of office premises, furniture, fixtures, and related services. The Ld. Commissioner of Income Tax (Appeals) noted that the charges were composite and included expenses for electricity, telephone, and manpower, which could not be entirely classified under the head of hiring furniture and building. The principle of consistency was applied, as the income had been treated as business income in previous years. The Tribunal upheld the Ld. Commissioner of Income Tax (Appeals) decision, agreeing that the income should be classified as business income.

Issue 3: Set-off of Carry Forward Speculation Losses
The Revenue appealed against the Ld. Commissioner of Income Tax (Appeals) decision to direct the Assessing Officer to recompute the income by first setting off carry forward speculation losses of Rs. 1,01,39,840/- against the speculation profit and then setting off the business losses. The Ld. Commissioner of Income Tax (Appeals) referred to the CBDT Circular No. 23D of 1960 and relevant High Court judgments, which supported the priority of setting off carried forward speculation losses against current year's speculation profit before adjusting other business losses. The Tribunal upheld the Ld. Commissioner of Income Tax (Appeals) decision, agreeing that the carried forward speculation losses should be adjusted first as per the Board Circular and judicial precedents.

Conclusion:
The Tribunal dismissed both appeals filed by the Revenue, upholding the Ld. Commissioner of Income Tax (Appeals) decisions on all issues. The management and advisory fee and establishment charges were correctly classified as business income, and the set-off of carry forward speculation losses was appropriately prioritized.