2012 (12) TMI 204 - AT - Income Tax

Remuneration to partners - interest income - whether business income or income from other sources for the purpose of computation u/s 40(b) - financial charges (income) were treated by the assessee as business income - While claiming the remuneration to partners the said income was considered. the financial charges are earned as per the provisions of section 56 of I.T. Act. The AO has concluded that the assessee was not entitled to include such interest receipts while working the amount of remuneration to partners u/s.40(b) of IT Act. - Held that - Assessee is not in a money lending business but the transaction was nothing but dove-tailed with the business activity of the assessee - appeal of the Assessee is allowed

Summary

Issues:
1. Confirmation of additions made by Asst. CIT disregarding detailed submission for financial charge receipts as Business Income.
2. Confirmation of financial charge Receipts as income from Other sources.
3. Confirmation of additions on account of excess remuneration claimed.

Analysis:
1. The appeal arose from the order of Learned CIT(Appeals)-XVI confirming additions made by the Asst. CIT regarding financial charge receipts treated as Business Income by the Assessee. The AO found financial charges of Rs.45,52,483 treated as business income by the Assessee. The Assessee claimed remuneration to partners based on this income. The AO disallowed the claim, reworking the remuneration to partners at Rs.4,82,068. The issue was whether the financial charges should be considered as business income.

2. The CIT(A) confirmed the financial charge receipts as income from Other sources, citing various legal precedents. The Assessee contended that the transaction was business-related, receiving a supply order from a concern in exchange for advancing funds to associate concerns. The Assessee argued that the interest income was offset by interest paid, resulting in no profit. The Revenue argued that the Assessee was not in a money lending business, hence the interest income should be from Other sources. The Tribunal analyzed the facts, concluding that the transaction was business-related, overturning the lower authorities' decision.

3. The AO disallowed Rs.18,17,932 as excess remuneration claimed by the Assessee. The CIT(A) upheld this decision, referring to legal definitions of "business." The Assessee argued that the transaction was commercial and beneficial for its trading business. The Tribunal found the transaction integral to the business activities, allowing the deduction of remuneration to partners under section 40(b) of the IT Act. Citing a relevant precedent, the Tribunal reversed the lower authorities' decision, allowing the Assessee's claim for remuneration.

In conclusion, the Tribunal allowed the Assessee's appeal, overturning the decisions of the lower authorities regarding the treatment of financial charge receipts and excess remuneration claimed.