2016 (12) TMI 505 - HC - Income Tax

Deduction in respect of cost of funds and proportionate administrative and other expenses u/s 57 - whether Tribunal was right in law in holding that the income by way of interest on deposits held with scheduled banks was chargeable to tax u/s 56 under the head income from other sources without allowing any deduction in respect of cost of funds and proportionate administrative and other expenses u/s 57?- Held that - The appellant does not appear to have claimed the deduction under Section 57 of the Income Tax Act (in short the Act) in view of the contention before the authorities that the gross interest income ought to be considered as business income. It was treated by the authorities as income from other sources. The ends of justice would be met by permitting the appellant to raise this contention before the Tribunal. It is only for this limited purpose that the appeal on this question is remitted to the Tribunal. It is open to the Tribunal to consider the issue itself or to remit it further. The appeal is accordingly disposed of so far as question above is concerned.

Summary

Issues:
1. Legality of orders passed by the Income Tax Appellate Tribunal
2. Deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961
3. Treatment of interest income on loans advanced to employees
4. Treatment of interest income as business income
5. Taxability of interest on deposits with scheduled banks
6. Classification of income as business income or long-term capital gain
7. Consideration of deduction under Section 57 of the Income Tax Act

Analysis:

1. The appeal challenged the order of the Income Tax Appellate Tribunal regarding the legality of the orders passed. The High Court noted the substantial questions of law raised by the appellant, including the sustainability of the orders and the treatment of income from various sources.

2. The issue of deduction under section 80P(2)(a)(i) of the Income Tax Act was raised concerning the gross total income earned from banks other than cooperative banks. The Tribunal did not allow the deduction, considering it as income from other sources attributable to business income.

3. The appellant contested the treatment of gross interest income of a specific amount received as interest on loans advanced to employees. The Tribunal upheld the Assessing Officer's order, leading to a dispute over the nature of this income and its relation to service rules.

4. The High Court addressed the classification of interest income as business income or income from other sources. The Tribunal's decision was questioned based on the treatment of similar income in previous years and the lack of distinction in the current order.

5. The taxability of interest on deposits held with scheduled banks was examined by the Tribunal under the head 'income from other sources.' The appellant's contention regarding the deduction for cost of funds and expenses under section 57 was not considered, leading to a remittal of the issue back to the Tribunal for further examination.

6. The classification of income as business income or long-term capital gain was disputed by the appellant. The Tribunal's decision to treat the income as business income, disallowing necessary deductions, was challenged but was covered against the appellant based on previous judgments.

7. The High Court allowed the appellant to raise the contention of claiming a deduction under Section 57 before the Tribunal, as it was not considered previously. The appeal on this question was remitted back to the Tribunal for proper consideration, while the appeal on other questions was dismissed.

This detailed analysis covers the various issues raised in the legal judgment, addressing the arguments presented by the appellant and the decisions rendered by the High Court.