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Issues involved: Determination of whether interest income from debentures should be taxed as business income or income from other sources for Assessment Year 1996-97.
The High Court of Bombay heard an appeal related to the Assessment Year 1996-97, concerning the taxation of interest income earned by the assessee from fixed convertible debentures. The Assessing Officer contended that the interest income should be taxed under the head of income from other sources as the assessee was not engaged in a systematic lending activity. The Commissioner (Appeals) also held that the main objective of the assessee was textile yarn manufacturing, making the investment activity incidental. However, the Tribunal considered the history of the assessee's investment arm, which was later demerged into a separate company, and previous decisions allowing the interest income as business income. Based on these facts, the Tribunal concluded that the interest income from debentures should be taxed as business income, as there was a systematic investment activity involved. Therefore, the appeal was dismissed as it did not raise a substantial question of law. In summary, the key issue in this judgment was the classification of interest income earned by the assessee from debentures as either business income or income from other sources for the Assessment Year 1996-97. The Assessing Officer and the Commissioner (Appeals) initially considered the interest income as income from other sources due to the assessee's primary business being textile yarn manufacturing. However, the Tribunal analyzed the history of the assessee's investment arm, which was later demerged, and previous decisions allowing similar interest income as business income. The Tribunal concluded that the interest income should be taxed as business income, as there was a systematic investment activity involved, leading to the dismissal of the appeal.
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