2017 (10) TMI 1080 - AT - Income Tax

Nature of income - income earned from the Department store - assessable as business income or income from house property - Held that - The assessee was not actually selling the goods or that it was undertaking a set of organised activities in support of the counter holders who were executing the sale and purchase of goods, would not distract from the fact that the receipts from the counter holders were business receipts liable to be assessed under the head income from business . Thus the lower authorities have erred in assessing the income earned by the assessee from running of Departmental store as income from house property as against the claim of the assessee of treating it as business income . Thus, on this aspect, assessee succeeds. Disallowance of the rent paid to LIC of India - Held that - The claim of the assessee before the lower authorities has been that the liability crystallized during the previous year relevant to the assessment year under consideration and is thus an allowable deduction while computing the income earned for the assessment year under consideration. On this aspect, we find no clear finding by either of the lower authorities and, therefore, we remand this issue to the file of the Assessing Officer who shall examine the plea of the assessee of the liability having crystallized during the year under consideration. Treating income from sale of units of Mutual Fund - Income from other sources OR claim of capital loss made by appellant - Held that - We deem it fit and proper to restore the matter back to the file of the Assessing Officer to be adjudicated afresh in accordance with the law since no clinching findings have been recorded on the pleas raised by the assessee. Therefore, on this aspect also, assessee succeeds for statistical purposes.

Summary

Issues Involved:
1. Nature of income earned from the Department store.
2. Validity of initiation of proceedings under sections 147/148 of the Income Tax Act.
3. Disallowance of rent paid to LIC.
4. Classification of income from sale of mutual fund units.
5. Classification of income from foreign exchange difference, money transfer, and interest.
6. Disallowance of interest paid to partners.
7. Disallowance of expenses incurred for earning income.

Detailed Analysis:

1. Nature of Income Earned from the Department Store:
The primary dispute in all appeals pertains to whether the income earned by the assessee from the Department store should be classified as 'business income' or 'income from house property'. The assessee argued that the income was 'business income' due to the organized and systematic activities conducted to earn profits. The Revenue, however, contended that the income was 'income from house property', as it was derived from letting out premises to various counter-holders. The Tribunal examined the agreements with counter-holders and the detailed activities undertaken by the assessee, including sales collection, packaging, and delivery, and concluded that the income was indeed 'business income' due to the organized manner in which the Department store was run.

2. Validity of Initiation of Proceedings under Sections 147/148:
In Assessment Year 2010-11, the issue of the validity of the initiation of proceedings under sections 147/148 was raised but not pressed by the assessee, and thus, it was dismissed.

3. Disallowance of Rent Paid to LIC:
The assessee contested the disallowance of ?6,56,799/- paid to LIC, arguing that the liability crystallized during the relevant assessment year. The Tribunal found no clear findings from the lower authorities on this issue and remanded it back to the Assessing Officer for re-examination.

4. Classification of Income from Sale of Mutual Fund Units:
The assessee challenged the classification of profit from the sale of mutual fund units as 'income from other sources' instead of being adjusted against the capital loss. The Tribunal remanded this issue back to the Assessing Officer for fresh adjudication, as there were no conclusive findings from the lower authorities.

5. Classification of Income from Foreign Exchange Difference, Money Transfer, and Interest:
The Tribunal held that these incomes should be treated in line with the decision to classify the income from the Department store as 'business income'. Therefore, the amounts related to foreign exchange difference, money transfer, and interest should also be classified as 'business income'.

6. Disallowance of Interest Paid to Partners:
In Assessment Year 2006-07, the assessee raised an issue regarding the disallowance of ?1,97,414/- representing interest paid to partners. The Tribunal noted the absence of specific findings from the lower authorities and remanded the issue back to the Assessing Officer for adjudication.

7. Disallowance of Expenses Incurred for Earning Income:
The assessee also contested the disallowance of ?5,43,293/- as expenses incurred for earning income and ?4,02,539/- out of interest, rent, and telephone charges. The Tribunal found no specific findings in the assessment order and remanded these issues back to the Assessing Officer for re-examination.

Conclusion:
The Tribunal concluded that the income earned from running the Department store should be treated as 'business income' and not 'income from house property'. The other issues regarding the disallowance of rent paid to LIC, classification of income from mutual fund units, and disallowance of expenses were remanded back to the Assessing Officer for fresh adjudication. The appeals were partly allowed.

Order Pronounced:
The order was pronounced in the open court on 27th September 2017.