2019 (2) TMI 2020 - HC - Income Tax

Revision u/s 263 by CIT - income generated out of the assessee s investment funds in fixed deposits - As per CIT AO had not undertaken proper inquiries and had not examined the issue whether the interest income was to be assessed under the head Income from business income or of other source - Tribunal by the impugned judgment allowed the assesssee s appeal and set aside the order of the Commissioner of Income Tax - HELD THAT - Tribunal noted that the assessee was previously engaged in the business primary dealing of securities. The assessee was in the process of switching over to the new business of stock broking. The assessee had liquidated its investment from the past business and parked the surplus fund in fixed deposit awaiting commencement of activities in the new business. It was on account of such facts that the assessee had claimed the interest income as arising out of its business activity. The Tribunal was of the opinion that this was entirely plausible view. We see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More importantly if the Commissioner was of the opinion that on the available facts from record it could be conclusively held that income arose from other sources he could and ought to have so held in the order of revision. There was simply no necessity to remand the proceedings to the Assessing Officer when no further inquiries were called for or directed. - Decided in favour of assessee.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was correct in holding that the order passed by the Assessing Officer was not erroneous and prejudicial to the interest of the revenue?
2. Whether the interest income of the assessee should be taxed as business income or income from other sources?

Analysis:

Issue 1: The appeal was filed by the Revenue against the judgment of the Income Tax Appellate Tribunal regarding the correctness of the Assessing Officer's order. The Commissioner of Income Tax had taken the order in suo moto revision under section 263 of the Income Tax Act, considering it erroneous and prejudicial to the revenue's interest. The Tribunal, however, allowed the assessee's appeal, stating that the Assessing Officer had accepted the income arising out of the assessee's business activity. The Tribunal found the Commissioner's revision order unsustainable as the Assessing Officer had already examined the issue and accepted the assessee's contention after due inquiries. The High Court upheld the Tribunal's view, emphasizing that the question of taxing the income as business income or from other sources was debatable, and the Commissioner should have conclusively determined the nature of income in the revision order if necessary.

Issue 2: The core issue revolved around whether the interest income of the assessee should be taxed as business income or income from other sources. The Tribunal noted that the assessee, a private limited company, had shifted from dealing in securities to stock broking and had temporarily parked surplus funds in fixed deposits. The assessee claimed the interest income as arising from its business activity due to this transition phase. The Tribunal found this claim plausible, especially since the Assessing Officer had already accepted it after proper inquiries. The Commissioner's directive for reassessment was deemed unnecessary as he had not conclusively determined the taxability of the income under other sources. The High Court concurred with the Tribunal's reasoning, dismissing the Income Tax Appeal on the grounds that no question of law arose from the case.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the Assessing Officer's plausible view on the debatable issue of taxing the interest income as business income or income from other sources. The Court found the Commissioner's revision order unsustainable as he had not conclusively determined the taxability of the income, making the reassessment directive unnecessary.