2012 (9) TMI 1194 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest expenditure u/s 36(1)(iii).
2. Classification of income from property as "business income" vs. "income from house property".
3. Eligibility for depreciation and other expenses.

Summary:

1. Disallowance of Interest Expenditure u/s 36(1)(iii):
The Revenue challenged the CIT(A)'s decision that the assessee had sufficient non-interest bearing funds to fund investments in equity shares. The Assessing Officer (AO) had disallowed interest expenditures for A.Y. 2005-06 and 2006-07, arguing that the assessee diverted interest-free funds to group companies and invested in equity shares, necessitating borrowing. The CIT(A) held that the advances to group companies were for business purposes and that the assessee had sufficient own funds, thus disallowing interest u/s 36(1)(iii) was not justified. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's rulings in S.A. Builders Ltd. and Munjal Sales Corporation, and other ITAT decisions, confirming that the assessee's own funds were sufficient to cover the investments.

2. Classification of Income from Property:
The AO classified the income from the property "Subhaag" as "income from house property," while the assessee claimed it as "business income" due to providing office space and related services. The CIT(A) sided with the assessee, referencing ITAT and High Court decisions that income from providing composite services (office space, EPABX, lift, etc.) should be classified as "business income." The Tribunal confirmed this view, noting that the assessee provided comprehensive services and facilities, thus the income was rightly assessed as "business income."

3. Eligibility for Depreciation and Other Expenses:
The Revenue's residual ground contested the allowance of depreciation and other expenses following the classification of income as "business income." Since the Tribunal upheld the classification of the income as "business income," it consequently dismissed this ground, affirming the assessee's eligibility for the claimed depreciation and expenses.

Conclusion:
Both appeals by the Revenue were dismissed, affirming the CIT(A)'s decisions on all grounds.