2010 (1) TMI 768 - AT - Income Tax

Income from other sources or business income - purchases and sales of shares and commission work - nexus between services rendered and commission received - Held that - matter restored back to the file of ld. CIT(A) with the direction to examine the objects clause of the assessee and decide whether the commission income was earned during the course of regular business activities or it was an isolated transaction.

Summary

Issues:
1. Treatment of commission income as business income or income from other sources.

Analysis:
The appeal by the Revenue for Assessment Year 2001-02 challenges the deletion of additions made by the Assessing Officer under the head "Income from Other Sources." The primary issue is whether the commission income of Rs.60,13,945/- should be treated as profits of business, as claimed by the assessee, or categorized under the head "Other sources." The Assessing Officer concluded that the assessee failed to establish a nexus between services rendered and commission received from M/s Kundan Rice Mills Ltd. Consequently, the amount was treated as income from other sources.

Before the ld. CIT(A), the assessee argued that documentary evidence was provided to support the income earned through commission. Reference was made to previous years' assessments where similar income was treated as business income. The ld. CIT(A) considered precedents and held that the commission income should be assessed as business income.

During the hearing, the Revenue argued that the lack of details about services rendered to M/s Kundan Rice Mills Ltd. indicated a lack of nexus between the commission received and business activities, justifying the income to be categorized under "Other Sources." Conversely, the assessee relied on a decision by I.T.A.T. Delhi Bench 'D' to support assessing commission income under "Profits and Gains of Business and Profession."

The Appellate Tribunal noted that the ld. CIT(A) did not thoroughly analyze why the commission income should be treated as business income. It was highlighted that the assessee did not provide the Memorandum of Association to justify the treatment of commission income. Therefore, the matter was remanded back to the ld. CIT(A) for a detailed examination of the company's objects clause and the nature of services rendered to determine the appropriate categorization of the commission income.

In conclusion, the appeal by the Revenue was allowed for statistical purposes, and the case was remanded to the ld. CIT(A) for a comprehensive review based on the company's objectives and the services provided to M/s Kundan Rice Mills Ltd.