2015 (10) TMI 2058 - HC - Income Tax

Treatment to interest income - business income or income from other sources - ITAT allowing the B/F loss to be set off against the income which was not allowed by the AO - Held that - even a single or isolated transaction can constitute business if it bears a clear indicia of trade, although the activity would normally be systematic and organized characterized by a course of dealing. Identical ratio was laid down by the Hon ble Madras High Court in the case of CIT vs. R.M. Meenakshi Sundram (1994 (4) TMI 34 - MADRAS High Court). It is not necessary that in every situation the past history has to be seen because even for a past history there is a starting point. It is an admitted fact that the other members of the family are also doing the same systematic and organized activity of earning such interest income, therefore, there is no reason to deny the benefit, if any, to the present assessee. Since we have discussed the issue in detail in the preceding paras of this order, this ground of the revenue is also having no merit, therefore, dismissed Once it has been held that the income of the assessee was to be assessed under the head income from business or profession, the assessee was thus entitled to set off against carry forward losses. The Tribunal was justified in allowing the same. Even for the subsequent assessment year i.e. 2005-06, the interest income was accepted as income from business or profession. Learned counsel for the appellant has not been able to show any illegality or perversity in the findings recorded by the Tribunal. - Decided against revenue.

Summary

Issues:
1. Classification of interest income as business income or income from other sources.
2. Allowance of set off of brought forward losses against the income.

Issue 1: Classification of Interest Income:
The appeal involved the classification of interest income earned by the assessee from money lending business as either business income or income from other sources. The Assessing Officer initially treated the income as income from other sources, but the CIT(A) reversed this finding, categorizing it as 'Income from business or profession.' The CIT(A) noted that in the assessment order for the subsequent year, the Assessing Officer acknowledged that the assessee was engaged in money lending business during the relevant year. The Tribunal affirmed this decision, emphasizing that even a single or isolated transaction can constitute a business if it demonstrates clear trade characteristics. Citing legal precedents, the Tribunal rejected the revenue's argument, stating that past history is not always necessary to determine business activity. The Tribunal concluded that the income should be classified as business income, as supported by the findings of the CIT(A).

Issue 2: Allowance of Set Off of Brought Forward Losses:
The second issue in the appeal was the allowance of set off of brought forward losses against the income. The CIT(A) allowed the set off of brought forward losses amounting to a specific sum against the income, a decision that was challenged by the revenue before the Tribunal. The Tribunal upheld the CIT(A)'s decision, stating that once the income was classified under the head 'Income from business or profession,' the assessee was entitled to set off the carry forward losses. The Tribunal further noted that for the subsequent assessment year, the interest income was also accepted as income from business or profession. The Tribunal found no merit in the revenue's arguments against the allowance of the set off. The Court concurred with the Tribunal's findings, dismissing the appeal and answering the substantial questions of law against the revenue.

In conclusion, the judgment addressed the issues of classifying interest income and allowing set off of brought forward losses in favor of the assessee. The decision was based on a thorough analysis of the facts, legal interpretations, and precedents, ultimately upholding the decisions of the CIT(A) and the Tribunal.