2014 (1) TMI 700 - AT - Income Tax

Claim of office and administrative expenditure as business expenditure Held that - The parameters of section 37(1), as any deduction could only be in accordance with the provisions of law, would need to be positively met - The maintenance of corporate existence cannot by itself be a business purpose, though the cost of its maintenance becomes an essential part of the business where business activity is being carried out, and which in a broad manner as including exploring an opportunity for the same - the assessee would be required to exhibit the necessary wherewithal for carrying the business, not only in terms of office space, but also by way of capital, financial and human, (even if by way of the same being available on tap) as we presume it to be engaged only in seeking a business opportunity to exploit its business potential - the same would be required to be established as a fact, and cannot be adopted as a ruse - The matter remitted back to the AO for fresh adjudication Decided partly in favour of Assessee.

Summary

Issues:
1. Assessment of income earned by the assessee as 'income from house property' instead of 'income from business'.
2. Assessment of interest income as 'business income' or 'income from other sources'.
3. Claim of 'office and administrative expenditure' as business expenditure.

Issue 1:
The appeal concerns the assessment of income earned by the assessee from running a business center as 'income from house property' instead of 'income from business'. The assessee, a company registered as a Non-Banking Financial Company, purchased an office premises and commercially exploited it as a business service center. The Revenue assessed the entire claimed business receipt as 'income from house property', disallowing the claimed business expenditure. The Tribunal analyzed the legal framework distinguishing between income from letting of house property and income from business. It emphasized that owning house property cannot be considered a business unless used for the owner's business or profession. The Tribunal concluded that the income earned by the assessee from the business service center should be assessed as 'income from house property' after adjusting for certain expenses. The decision was based on the dominant purpose of the arrangement and the nature of services provided.

Issue 2:
The assessee claimed interest income as 'business income' instead of 'income from other sources'. The Tribunal rejected this claim as the interest income was from fixed deposits placed with a bank, indicating surplus funds temporarily parked in interest-yielding instruments. The Tribunal held that there was no basis for considering the interest income as 'business income' and confirmed the Revenue's assessment under the head 'income from other sources'.

Issue 3:
The final issue revolved around the claim of 'office and administrative expenditure' as business expenditure. The assessee argued that these expenses were necessary for maintaining corporate existence and business operations, even though no business was conducted during the year. The Tribunal acknowledged the importance of such expenses but emphasized that deductions could only be allowed for expenses related to a business or profession carried out during the relevant year. The Tribunal directed the Assessing Officer to reassess the claim based on whether the assessee was genuinely exploring business opportunities in the NBFC sector, as claimed. The decision highlighted the need for the assessee to demonstrate actual business activities to justify the claimed deductions under relevant provisions of the law.

In conclusion, the Tribunal partly allowed the assessee's appeal for statistical purposes, addressing key issues related to the assessment of income, interest income classification, and business expenditure claims. The decision provided detailed analysis based on legal principles and factual circumstances, ensuring a thorough examination of the issues raised in the appeal.