9911796707
|
Home
Issues Involved:
1. Whether the write-off of the deposit was a trading loss or capital in nature. 2. Whether the interest earned from the deposits was income from other sources or income from business or profession. Summary: Issue 1: Write-off of Deposit as Trading Loss or Capital in Nature The assessee company contended that the write-off of the deposit was a trading loss and not capital in nature. The CIT (A) had disallowed the deduction claimed for the irrecoverable inter-corporate deposits written off, stating that the deposit was not a trade debt but capital in nature. The Tribunal noted that the assessee was engaged in lending/depositing monies to other companies and had placed an inter-corporate deposit with ICNET Ltd. The Tribunal found that the CIT (A) did not provide sufficient evidence to single out ICNET and concluded that the deposit was not a normal business activity. The Tribunal held that once the assessee had written off debts as irrecoverable in its accounts, it was not required to prove that they had become bad. The Tribunal cited various judicial pronouncements, including T.R.F. Ltd. v. CIT (2010) 323 ITR 397 (SC), which stated that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Therefore, the Tribunal allowed the deduction of Rs. 15 lakhs written off in its books of account u/s 36(1)(vii) r.w.s. 36(2)(i) of the Act. Issue 2: Interest Earned from Deposits as Income from Other Sources or Business Income The CIT (A) had observed that the interest earned from the deposits was income from other sources and not income from business or profession. The Tribunal referred to the ruling of the Hon'ble Bombay High Court in CIT v. Indo Swiss Jewels Ltd. and Anr. 284 ITR 389 (Bom), which held that interest earned on short-term deposits of money kept apart for business purposes should be treated as business income. The Tribunal also cited the Hon'ble High Court of Madras in CIT v. Tamilnadu Dairy Development Corporation Ltd. 216 ITR 535 (Mad), which stated that interest on short-term deposits made out of business funds should be treated as business income. The Tribunal concluded that the interest income from such inter-corporate deposits is to be treated as business income. Conclusion: (i) The assessee was entitled to claim the deduction of Rs. 15 lakhs written off in its books of account u/s 36(1)(vii) r.w.s. 36(2)(i) of the Act. (ii) The interest earned from inter-corporate deposits was to be treated as income from business. (iii) The additional ground raised by the assessee during the course of hearing was deemed superfluous and was not addressed. Result: The assessee's appeal was allowed.
|
