1983 (6) TMI 65 - AT - Income Tax

Summary

Issues:
1. Character of income - business or other sources
2. Admissibility of expenses
3. Levy of penalty u/s 221(1)
4. Action of CIT u/s 263 regarding set off of loss

Analysis:

Issue 1: Character of income - business or other sources
The appeals revolved around determining whether the income for the assessment year 1977-78 should be considered as income from business or other sources. The assessee, an HUF, had leased out a woollen mill after closing it down. The lease was terminated prematurely, and the factory remained closed for a period before being leased out again. The Income Tax Officer (ITO) held the income to be from other sources and disallowed certain expenses. The Appellate Assistant Commissioner (AAC) confirmed the ITO's decision. The Tribunal disagreed, noting that the assessee had the intention to revive the factory and run it. The Tribunal cited relevant case law to support its decision, emphasizing that the income derived from leasing out the factory should be considered business income.

Issue 2: Admissibility of expenses
As the Tribunal determined the income to be from business, it directed the ITO to allow the expenses that were previously disallowed by the lower authorities. The expenses included legal expenses, bonus, premium of car, salary, interest, and car expenses. The Tribunal held that these expenses should be treated as admissible since the income was categorized as business income.

Issue 3: Levy of penalty u/s 221(1)
The penalty imposed by the ITO under section 221(1) was based on the total income computation, which was disputed by the assessee. The Tribunal, after categorizing the income as business income and allowing the expenses, canceled the penalty imposed by the ITO, as it reversed the finding of the AAC and accepted the contentions of the assessee.

Issue 4: Action of CIT u/s 263 regarding set off of loss
The Commissioner of Income Tax (CIT) directed the ITO to disallow the set off of loss amount, considering the income to be from other sources. However, since the Tribunal categorized the income as business income, the order of the CIT was deemed to have lost its basis. The Tribunal accepted the assessee's appeal in this respect.

In conclusion, all three appeals of the assessee were allowed by the Tribunal, setting aside the decisions of the lower authorities and the CIT, and determining the income to be from business, thereby allowing the previously disallowed expenses and canceling the penalty imposed under section 221(1).