2001 (8) TMI 271 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee's income should be computed under the head 'business' or 'other sources'.
2. Whether the assessee is entitled to carry forward and set off business losses against future profits.
3. Whether the expenses claimed by the assessee should be allowed in computing the income.

Issue-wise Analysis:

1. Computation of Income under the Head 'Business' or 'Other Sources':
The central issue was whether the assessee derived income from business or incurred losses from business. The Revenue contended that the assessee was not engaged in any business activity and thus, income should be computed under 'other sources'. The assessee argued that it was a trading and investment company involved in activities such as investment in shares, lending funds, trading in liquors, and leasing plant and machinery. The Tribunal found that the assessee was engaged in a systematic and organized activity starting with initial investments in companies and later venturing into different business activities, including lending monies, entering partnerships, and leasing transactions. The Tribunal concluded that the assessee's activities constituted an integrated business and thus, income should be computed under the head 'business'.

2. Entitlement to Carry Forward and Set Off Business Losses:
The assessee claimed losses under 'business' for the purpose of carry forward and set off against future profits. The Revenue argued that there was no provision for carrying forward losses incurred under 'other sources'. The Tribunal noted that the assessee was involved in various business activities over the years and had incurred losses due to substantial interest payments and other expenses. Citing several case laws, including the Supreme Court's decisions in Mazagaon Dock Ltd. v. CIT and United Commercial Bank Ltd. v. CIT, the Tribunal held that a broad view of the term 'business' should be taken, allowing the assessee to carry forward and set off business losses against future profits.

3. Allowance of Expenses in Computing Income:
The Revenue challenged the deduction of expenses towards interest while computing income under 'other sources'. The Tribunal found that the assessee had incurred substantial expenses, including interest payments on loans taken for business purposes. Following the decision in CIT v. Cocanada Radhaswami Bank Ltd., the Tribunal held that the expenses claimed by the assessee should be allowed in computing the income. The Tribunal directed the Assessing Officer to allow the full claim of expenses relating to the business activity of the assessee.

Conclusion:
The Tribunal allowed all the appeals filed by the assessee, holding that the assessee's income should be computed under the head 'business', allowing the carry forward and set off of business losses, and permitting the deduction of expenses claimed by the assessee. The Departmental Appeal was dismissed.