2007 (6) TMI 521 - HC - Income Tax

Summary

Issues Involved:

1. Nature of receipts of advance money against proposed sale of property.
2. Addition of Rs. 2,55,000/- to the income of the assessee.
3. Classification of interest income from FDRs as business income or income from other sources.
4. Genuineness of loan received from Sh. Gulam Mohd. Dar.

Summary:

Issue 1: Nature of Receipts of Advance Money Against Proposed Sale of Property

The Tribunal held that the sums of Rs. 65,000/- received from Anil Kapur and Rs. 1,90,000/- from Smt. Shanta Kapur were not advances for the sale of property. The court noted discrepancies in the statements and receipts provided by the assessee, and the lack of agreements or evidence of property handover. Both Anil Kapur and Smt. Shanta Kapur failed to show the source of their funds. The court concluded that the amounts were not advanced for the purchase of property and upheld the Tribunal's decision.

Issue 2: Addition of Rs. 2,55,000/- to the Income of the Assessee

The court rejected the assessee's argument that the amounts should be taxed in the hands of the depositors. The court cited precedents, emphasizing that the burden shifts to the Revenue to prove the funds belong to the assessee once the identity of the person advancing the funds is established. However, in this case, the court found the assessee's explanation false and upheld the addition of Rs. 2,55,000/- to the assessee's income.

Issue 3: Classification of Interest Income from FDRs

The Tribunal found a direct nexus between the FDRs and the loans raised for business purposes, classifying the interest income as business income. However, the court referred to the Supreme Court's rulings in M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd. and Dr. V.P. Gopinathan, concluding that the interest earned on FDRs should be classified as income from other sources, not business income. The court ruled in favor of the Revenue on this issue.

Issue 4: Genuineness of Loan from Sh. Gulam Mohd. Dar

The Tribunal had accepted the loan of Rs. 30,000/- from Sh. Gulam Mohd. Dar as genuine after inspecting the accounts and confirmatory letter. The court found this to be a question of fact, not law, and upheld the Tribunal's finding, ruling against the Revenue.

Conclusion:

Questions No. 1 and 2 raised by the assessee were answered in favor of the Revenue. Question No. 1 raised by the Revenue was answered in its favor, while Question No. 2 was decided against the Revenue. The reference was answered accordingly, and the Registrar General was directed to send a copy of the judgment to the Income Tax Tribunal.