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2013 (3) TMI 194 - AT - Income TaxTaxability of Interest Income - inter-corporate deposits - PGBP or income from other sources - held that - AO examined what is the business of the assessee, what is the dividend income and what are the investments made by the assessee and thereafter gave a specific finding that the assessee has made investments of Rs. 28,24,05,056/- and the main income of the assessee is dividend income. He gave further finding that the assessee has advanced inter-corporate deposits of only Rs. 1.25 crores, out of the total funds available with the assessee of Rs. 34,84,38,144/-. After considering the entire facts of the case, the AO came to the conclusion that the assessee is not in the business of money lending or finance and, therefore, the income received by the assessee was assessed as income from other sources. - CIT(A) confirmed the action of the AO. - Order of CIT(A) sustained - Decided in favor of Revenue.
Issues Involved:
1. Classification of interest income as 'business income' vs. 'income from other sources.' 2. Disallowance of interest expenses. 3. Treatment of Demat Charges. 4. Disallowance under Section 14A of the Income Tax Act. 5. Denial to set-off of unabsorbed business loss. 6. Addition of interest under Section 115JB. 7. Interest under Section 234B. Issue-Wise Detailed Analysis: 1. Classification of Interest Income: The primary issue revolves around the classification of interest income amounting to Rs. 3,44,038/-. The assessee argued that this should be treated as 'business income' as it is an investment company engaged in financing activities. The AO, however, classified this as 'income from other sources,' noting that only a small fraction (3.59%) of the total funds was used for interest-bearing loans, indicating that the assessee was not primarily in the business of lending or financing. The AO relied on the Supreme Court's decision in Lokshikshnan Trust Vs. CIT, emphasizing that for an activity to be considered a business, it must involve a course of dealings with a profit motive. The CIT(A) upheld the AO's decision, and the Tribunal confirmed this view, stating that the assessee's primary activity was investment, not money lending. 2. Disallowance of Interest Expenses: The AO disallowed the entire interest expenses of Rs. 79,44,067/- on the grounds that the interest income was not derived from business activities. The CIT(A) and Tribunal upheld this disallowance, aligning with the decision to classify the interest income under 'income from other sources.' 3. Treatment of Demat Charges: The issue of Demat Charges amounting to Rs. 7,185/- was addressed in the context of whether these should be treated as revenue expenditure. The Tribunal, following its decision in the assessee's case for AY 2004-05, held that these charges are revenue expenditure as they are necessarily incurred under SEBI rules, irrespective of whether the shares are transferred or not. 4. Disallowance under Section 14A: The Tribunal remitted the issue of disallowance under Section 14A to the AO for fresh consideration in light of the Bombay High Court's decision in the case of Godrej & Boyce Mfg. Co. Ltd. The AO was directed to provide a reasonable opportunity of being heard to the assessee. 5. Denial to Set-off of Unabsorbed Business Loss: The denial to set-off unabsorbed business loss of Rs. 3,06,781/- was upheld by the Tribunal. This decision was based on the classification of interest income as 'income from other sources,' which precluded the set-off of business losses against it. 6. Addition of Interest under Section 115JB: The Tribunal upheld the CIT(A)'s order regarding the addition of interest under Section 115JB, aligning with its decision in the assessee's case for AY 2004-05. The Tribunal emphasized that the disallowance under Section 14A should be reduced from the book profits as per Explanation 1 to Section 115JB. 7. Interest under Section 234B: The Tribunal directed the AO to consider the assessee's rectification application regarding interest under Section 234B. The AO was instructed to effect any necessary credit in accordance with the law. In conclusion, the appeals were dismissed on most grounds, with some issues remitted for fresh consideration. The Tribunal's decisions were largely consistent with the AO and CIT(A)'s findings, emphasizing the classification of income and adherence to legal precedents.
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