2014 (2) TMI 566 - HC - Income Tax

Non charging of interest on dues - accrual of income - Application of Section 145(1) of the Act Sufficient evidences not brought Chargeability of Interest - Held that - The assessee failed to produce any evidence to establish that assessee was having interest free advance of its other sister concern of Rs.28 crores - Since no details were brought on record to establish it, the Appellate Tribunal remitted the matter to the AO with the direction to the Assessment Officer to consider on the basis of evidence as may be furnished by the assessee as to whether the assessee for the assessment year 1990-1991 and 1991-1992 was having interest free advances, more than interest free advances given by it, and no interest bearing fund was utilized to give interest free advances to its sister concern/partners/directors there is no substantial questions of law Decided against Revenue.

Summary

Issues:
1. Interpretation of first proviso to sec. 145(1) of the Act
2. Classification of deposit as capital receipt
3. Taxability of interest income due to non-charging of interest
4. Assessment of interest-free funds and advances

Interpretation of first proviso to sec. 145(1) of the Act:
The appeal involved the question of whether the first proviso to sec. 145(1) of the Act applied in the case. The Tribunal held that the Administrative and Process Charges credited by the assessee were not revenue receipts but capital receipts, based on a previous judgment. The Court agreed with this interpretation, stating that the issue had already been determined and was not a substantial question of law.

Classification of deposit as capital receipt:
Another issue was the classification of the entire deposit received by the respondent as a capital receipt. The Tribunal considered the terms and conditions of the application form, which included a provision for deducting a part of the deposit as Administrative and Process Charges. The Court found that the Tribunal's decision was proper, as the charges were not taxable income but capital receipts.

Taxability of interest income due to non-charging of interest:
Regarding the taxability of interest income amounting to Rs. 2,80,37,045, the Tribunal held that it was not assessable due to non-charging of interest on amounts due from the agent. The Court noted that the Tribunal directed the Assessment Officer to consider evidence regarding interest-free advances, emphasizing that it was premature to decide on the taxability of the interest income at that stage.

Assessment of interest-free funds and advances:
The assessee claimed interest-free funds exceeding interest-free advances given to sister concerns. However, the Tribunal found a lack of evidence supporting this claim and directed the Assessment Officer to reevaluate the situation based on evidence provided by the assessee. The Court concurred with this approach, stating that it was not the appropriate stage to address the substantial questions of law related to the interest income.

In conclusion, the appeal was disposed of without expressing an opinion on the substantial questions of law framed, allowing the Assessment Officer to make a decision based on the evidence presented regarding interest-free advances and funds.