2011 (10) TMI 711 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of Assessing Officer u/s 154.
2. Classification of interest income as "Income from Other Sources" vs. "Profits & Gains of Business".
3. Application of Section 50C for computation of capital gains.

Summary:

1. Jurisdiction of Assessing Officer u/s 154:
The first legal issue was whether the Assessing Officer (AO) had the jurisdiction to invoke provisions of Section 154 of the Income Tax Act, 1961, to change the head of income from "Profits and Gains of Business" to "Income from Other Sources". The Tribunal held that the AO could not revise the intimation and re-determine the income under Section 154, as it is not permissible to change the head of income under this provision. The Tribunal allowed the assessee's appeal on this jurisdictional issue.

2. Classification of Interest Income:
The second issue was whether the interest income earned by the assessee from money-lending activities should be classified as "Income from Other Sources" or "Profits & Gains of Business". The Tribunal found that the assessee could not provide sufficient evidence to prove that the interest income was part of its business activities. Therefore, the interest income was rightly treated as "Income from Other Sources" by the lower authorities. However, the Tribunal allowed the assessee's claim for deduction u/s 57 of the Act for interest expenditure incurred in earning such income. This issue was partly allowed in favor of the assessee.

3. Application of Section 50C:
The third issue was whether the provisions of Section 50C of the Act were applicable for computing capital gains on the sale of an office space. The Tribunal noted that the sale agreement was not registered and thus not subject to stamp duty valuation. The Tribunal referred to the explanatory circular of Finance No. 2 Act, 2009, which clarified that the amended provisions of Section 50C, including the term "assessable", were applicable from 1st October 2009. Since the relevant assessment year was 2006-07, the Tribunal held that Section 50C did not apply. This issue was allowed in favor of the assessee.

Conclusion:
The appeal in ITA No. 1866/Kol/2010 was allowed, and the appeal in ITA No. 1867/Kol/2010 was partly allowed. The order was pronounced in open court on 31.10.2011.