2016 (1) TMI 634 - AT - Income Tax

Loss set off against the interest income - continuity of business activity after sale of business - whether entire undertaking is not sold as stock-lock barrel and there is no slump sale? - Held that - As the assessee has not transferred the entire undertakings but only portion of it was transferred by way of business transfer agreement and the assessee has carried on the business of job work of outsourcing of ATMs business in the financial years 2005-06 and 2006-07 and earned income of ₹ 12.81 crores with the very same M/s. eFunds International P.Ltd. to whom part of the business was already sold. It was also the finding of the Commissioner of Income Tax (Appeals) that the assessee has retained portion of employees and infrastructure i.e. fixed assets like computers, electrical equipments, furniture etc. These employees and infrastructures are capable of running the business either in the same line or in any other business. It is the finding of the Commissioner of Income Tax (Appeals) that during the financial year 2007-08 relevant to the assessment year under consideration, the assessee utilizing the said employees, manpower and infrastructural facilities carried out a new contract work for M/s. Cash Link Global Systems (P)Ltd. and earned business income of ₹ 7,00,000/-, therefore he concluded that assessee in fact carried on the business even after the business transfer agreement in the year 2005. On going through the above order of the Commissioner of Income Tax (Appeals), we do not find any infirmity in the findings holding that assessee engaged in the business during the assessment year 2008- 09 and therefore loss is to be allowed. Thus, we sustain the order of the Commissioner of Income Tax (Appeals) and reject the grounds raised by the Revenue - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee was engaged in business activities during the assessment year 2008-09.
2. Whether the expenses claimed by the assessee can be allowed as business expenses.
3. Whether the income from interest should be set off against business losses.

Issue-wise Detailed Analysis:

1. Engagement in Business Activities During the Assessment Year 2008-09:

The Revenue contended that the assessee had sold its business in the financial year 2004-05 and was barred from entering the same line of business for three years. Consequently, the Revenue argued that there was no live business activity during the assessment year 2008-09. However, the assessee argued that it had not sold its entire undertaking but only the "outsourcing of ATMs business" to M/s. eFunds International P. Ltd. The assessee retained the Tandem-Base 24 platform related business and continued to carry out job work for its sister concerns, earning income of Rs. 7,00,000/- during the assessment year 2008-09. The Commissioner of Income Tax (Appeals) found that the assessee had retained a portion of employees and infrastructure, which were sufficient to carry on business activities. The Commissioner concluded that the assessee had indeed carried on business activities during the assessment year 2008-09, thereby allowing the assessee's claim.

2. Allowability of Expenses as Business Expenses:

The Revenue argued that the expenses claimed by the assessee were not related to any business activity and should be disallowed. The assessee, on the other hand, contended that it had incurred administrative and operational expenses while carrying on business activities. The Commissioner of Income Tax (Appeals) observed that the assessee had retained a portion of employees and infrastructure after transferring the "outsourcing of ATMs business." These resources were utilized to carry out job work for M/s. eFunds International P. Ltd. and other contracts. The Commissioner noted that the assessee's employee cost and infrastructure remained intact during the relevant financial years, indicating ongoing business activities. Therefore, the Commissioner held that the expenses claimed were legitimate business expenses and allowed them.

3. Set Off of Interest Income Against Business Losses:

The Revenue contended that the interest income should be assessed under the head "income from other sources" and not be set off against business losses. The assessee argued that it had carried on business activities and the interest income should be adjusted against business losses. The Commissioner of Income Tax (Appeals) found that the assessee had carried on job work and earned business income during the assessment year 2008-09. The Commissioner concluded that the assessee's business activities were in existence, and the interest income could be set off against business losses. The Commissioner directed the Assessing Officer to allow the assessee's claim of losses under the head "income from business" and their set off against income from other heads.

Conclusion:

The Tribunal upheld the findings of the Commissioner of Income Tax (Appeals) that the assessee was engaged in business activities during the assessment year 2008-09. The Tribunal also sustained the decision that the expenses claimed by the assessee were legitimate business expenses and that the interest income could be set off against business losses. Consequently, the appeal of the Revenue was dismissed. The order was pronounced in the open court on 28th October 2015.