2013 (4) TMI 929 - AT - Income Tax

Summary

Issues involved:
The judgment addresses the solitary issue of addition of interest income received by the assessee, treated as chargeable to tax under the head "income from other sources."

Issue 1: Addition of interest income under "income from other sources":
The appellant, a partnership firm engaged in the business as a builder and developer, filed its income tax return for the relevant year. The Assessing Officer (A.O.) noted interest received on fixed deposits and from private parties, which the appellant did not reflect in the Profit & Loss account but credited and debited to the Kharghar project account. The A.O. brought the interest income received by the appellant to tax under "income from other sources" based on the decision of the Supreme Court in Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. CIT. The appellant contended that the interest earned on temporary investments was credited to the project account where interest paid on funds borrowed for the project was debited. The A.O.'s decision was upheld by the ld. CIT(A), who found the facts similar to the Tuticorin case and rejected the appellant's arguments. The Tribunal, however, following the decision of the Bombay High Court in CIT vs. Lok Holdings, held that the interest income should be taxed under "profits and gains of business or profession" and not under "income from other sources."

Issue 2: Claim for netting of interest expenditure against interest income:
The appellant also claimed to net interest expenditure against interest income, arguing that the borrowed funds were used for temporary deposits. The Tribunal directed the A.O. to allow the deduction for interest expenditure if it was incurred wholly and exclusively for earning the interest income, which constituted business income. The A.O. was instructed to verify the relevant facts and allow the claim in accordance with the law.

In conclusion, the Tribunal allowed the appeal of the assessee, holding that the interest income should be taxed under "profits and gains of business or profession" and directing the consideration of the claim for deduction on account of interest expenditure.