2016 (7) TMI 53 - HC - Income Tax

If gain on account of purchase and sale of shares is in the nature of business income, then, the interest paid by the respondent-assessee for borrowing funds for its business has necessarily to be allowed

Summary

Issues:
1. Whether the Tribunal was correct in accepting the revised computation submitted by the assessee without a revised return of income?
2. Whether the borrowed funds used for business purposes, on which interest was paid, should be considered as allowable expenditure when the income was declared as capital gain from share transactions?

Analysis:

Issue 1:
The respondent-assessee revised its computation of income during assessment proceedings, claiming that profits from share transactions should be classified as business income, not short-term capital gain/loss. The Assessing Officer rejected this claim due to the absence of a Revised Return of Income. The Commissioner of Income Tax(Appeals) also did not accept the claim, leaving the Assessment Order unchanged. However, the Tribunal allowed the appeal, citing a previous court decision where a similar claim without a revised return was accepted by the Appellate Authorities. The High Court found no distinguishing features in the current case to warrant a different view and upheld the Tribunal's decision, stating that the first issue did not raise any substantial question of law.

Issue 2:
Regarding the second issue, the Revenue argued that it was consequential to the first issue. The Revenue contended that if the gain from share transactions was considered business income, then the interest paid on borrowed funds for business purposes should be allowed as an expenditure. The High Court agreed with the Revenue, stating that if the gain on share transactions was treated as business income, then the interest paid on borrowed funds had to be allowed as an expenditure. Consequently, the second issue did not give rise to any substantial question of law, and the High Court dismissed the appeal without any order as to costs.