2016 (10) TMI 978 - HC - Income Tax

Interest earned on money lending operation - Profits and Gains from Business & Profession OR Income from Other Sources - Held that - We find that the two authorities have concurrently come to a finding of fact that the activity of money lending carried out by the respondent assessee is its business activity. This on account of its activity of money lending being in accordance with the object clause of the company, duly supported by the Resolution of its Board of Directors and on examination of entries made in the books of accounts as well as in the bank statement. This findings of fact by the CIT(A) and the Tribunal, are not shown to be perverse and / or arbitrary in any manner. The view taken is a possible view

Summary

Issues:
Classification of interest income from money lending operation under "Profits and Gains from Business & Profession" or "Income from Other Sources"

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 challenges the order passed by the Income Tax Appellate Tribunal regarding the classification of interest income from money lending for Assessment Year 2008-09. The main question of law raised by the Revenue was whether the Tribunal was correct in treating the interest earned on money lending under "Profits and Gains from Business & Profession" instead of "Income from Other Sources." The respondent, engaged in investment and trading, claimed the interest income as part of its business profits, but the Assessing Officer categorized it under "income from other sources" in the assessment order.

The Commissioner of Income Tax (Appeals) examined the facts, including the company's object clause, board resolutions, and bank statements, and concluded that the respondent was indeed involved in the business of money lending in an organized manner with a profit motive. The CIT(A) allowed the appeal based on these findings. Subsequently, the Revenue appealed to the Tribunal, which also determined that the respondent was engaged in the business of money lending and upheld the CIT(A)'s decision to classify the interest income under "profits and gains" of business.

Both the CIT(A) and the Tribunal found that the money lending activity was a legitimate business activity of the respondent, supported by the company's objectives, board resolutions, and financial records. The High Court noted that these findings were not arbitrary or perverse and constituted a possible view. Therefore, no substantial question of law was found to arise for consideration, leading to the dismissal of the appeal without costs.

In conclusion, the High Court affirmed the decisions of the lower authorities, emphasizing that the respondent's money lending activity was a genuine business operation, justifying the classification of interest income under "Profits and Gains from Business & Profession."