2015 (9) TMI 1289 - AT - Income Tax

Taxation on interest whether interest income received by the assessee has already been transferred to the beneficiaries? - Held that - We find it appropriate to remit the issue back to the Assessing Officer to consider the issue afresh, particularly, whether, the assessee has transferred the income earned by it to the beneficiaries or not? If the very same income is taxed in the hands of beneficiaries, then it cannot be taxed in the hands of the assessee. Further, if the assessee has not able to produce relevant details to satisfy the Assessing Officer that the interest amount is transferred to the beneficiaries, the same amount may be taxed in the hands of the assessee as its income in accordance with law. We further direct the Assessing Officer that if the assessee has incurred any expenditure relating to earning the interest income, the same may be allowed as business expenditure, if the activity of the assessee is treated as business activity. Decided in favour of assessee for statistical purposes.

Summary

Issues:
Assessment of interest income as business income in the hands of the assessee.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2009-10. The assessee, a trust, collected unit contributions from contributors, transferring a significant amount to an investment fund and retaining some for operational activities. The Assessing Officer considered this activity as a business, assessing interest income of Rs. 1,38,83,203 as business income. The Commissioner upheld this decision, rejecting the assessee's argument that the income belonged to the beneficiaries. The Tribunal noted the systematic nature of the assessee's activities but remitted the issue back to the Assessing Officer to determine if the income was indeed transferred to beneficiaries. If not proven, the income may be taxed in the assessee's hands. The Tribunal directed that if the activity is deemed a business, allowable expenditures should be considered. The appeal was allowed for statistical purposes.

This case involved the classification of interest income received by a trust as business income. The Assessing Officer and the Commissioner considered the trust's activities as a business, taxing the interest income in the trust's hands. The Tribunal acknowledged the systematic nature of the trust's operations but emphasized the need to establish whether the income was indeed transferred to beneficiaries. If not proven, the income may be taxed in the trust's hands. Additionally, if the trust's activities are deemed a business, allowable expenditures should be considered. The Tribunal allowed the appeal for statistical purposes, remitting the issue back to the Assessing Officer for further examination.