2022 (3) TMI 153 - AT - Income Tax

Correct head of income - interest income qualifies as Income from Other Sources or 'Income from Business or Profession - The assessee is a society registered under the under the Society Registration Act, 1960 with the object to augment and promote sports in the State of Gujarat - HELD THAT - As relying on cases GUJARAT CRICKET ASSOCIATION 2019 (11) TMI 35 - GUJARAT HIGH COURT ,THE BOMBAY PRESIDENCY GOLF CLUB 2016 (5) TMI 1179 - ITAT MUMBAI ,THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 2013 (7) TMI 205 - DELHI HIGH COURT and case of ICAI 2011 (9) TMI 77 - DELHI HIGH COURT it cannot be inferred that the interest income earned on deposit of surplus funds kept with GSFC Limited would qualify as income from business or profession . The assessee is admittedly not engaged in any business activity. The dominant/ sole object of the assessee is promotion of sports in the State of Gujarat. The Ld. AR of the assessee has not brought forth any argument or material to support his contention that he is engaged in any activity, the income from which may qualify as business income. The earning of interest on surplus funds kept with GSFC Limited is incidental to its dominant objective i.e. to encourage sports in the State of Gujarat, which we have concluded itself cannot qualify as a business activity. Therefore, in our considered view, interest income earned from surplus fund cannot qualify as income from business and profession . - Decided against assessee. Claim of depreciation against Interest Income - HELD THAT - As noted above, the assessee in the present set of facts is not earning any business income and has earned only interest income which is assessable as income from other sources . Accordingly, in our view, depreciation as claimed by the assessee cannot be allowed. We accordingly uphold the order of Ld. CIT(A) and dismiss the appeal of the assessee in respect of ground no. 3.

Summary

Issues Involved:
1. Status of the appellant as AOP versus Trust.
2. Classification of interest income as "Income from Other Sources" versus "Income from Business or Profession."
3. Claim of depreciation against interest income.

Detailed Analysis:

Ground Number 1: Status of the appellant as AOP versus Trust

Before the tribunal, the Authorized Representative of the assessee submitted that this ground is not being pressed. Accordingly, this ground was dismissed as not pressed.

Ground Number 2: Classification of Interest Income

The core issue was whether the interest income of ?1,15,71,995/- should be classified as "Income from Other Sources" or "Income from Business or Profession." The assessee argued that the interest income earned on deposits of surplus funds, which were grants from the State of Gujarat, should be treated as business income since it was utilized for the society's objectives. The Revenue relied on the order of the CIT(Appeals) which treated the interest income as "Income from Other Sources."

The tribunal examined the objectives of the assessee, a society registered under the Society Registration Act, 1960, aimed at promoting sports in Gujarat. The Assessing Officer (AO) noted that none of the objectives listed in the memorandum indicated any business or professional activity. The AO observed that the interest income was earned from surplus funds parked with GSFC Ltd., and held that such income could not be termed as business or professional activity.

The tribunal referred to various judicial precedents, including the Gujarat High Court's ruling in the case of Gujarat Cricket Association, which held that activities aimed at promoting sports, even if they generate some profit, do not constitute business activities. Similar views were echoed in other cases, such as Bombay Presidency Golf Club Ltd. v. ITO and Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions), Delhi, where passive income like interest was not considered as business income.

Based on these precedents, the tribunal concluded that the interest income earned on surplus funds does not qualify as "Income from Business or Profession." The tribunal upheld the CIT(A)'s decision to treat the interest income as "Income from Other Sources."

Ground Number 3: Claim of Depreciation against Interest Income

This ground pertained to the claim of depreciation of ?1,15,65,042/- against the interest income. The assessee argued that the interest income should be treated as business income, thereby allowing the claim of depreciation. However, having concluded that the interest income qualifies as "Income from Other Sources," the tribunal examined whether depreciation could be claimed under this head.

Section 57(ii) of the Income Tax Act specifies that depreciation is allowable under "Income from Other Sources" only if the income is derived from letting on hire of machinery, plant, or furniture. Since the interest income in this case was from the investment of surplus funds, the tribunal held that depreciation under Section 32 is not allowable. The tribunal also noted that the case of Rakesh Singh vs. ACIT, cited by the assessee, was not applicable as it involved positive business income, unlike the present case where the income was from other sources.

The tribunal upheld the CIT(A)'s decision to disallow the claim of depreciation against the interest income.

Conclusion:

The tribunal dismissed all grounds of the assessee's appeal, thereby upholding the CIT(A)'s order. The interest income was classified as "Income from Other Sources," and the claim of depreciation against such income was disallowed. The appeal was dismissed in its entirety.