1989 (7) TMI 158 - AT - Income Tax

Summary

Issues: Challenge to deletion of interest as allowable deduction from rental income for the assessment year 1982-83.

Analysis:
1. The case involved two separate appeals challenging the deletion of interest as an allowable deduction from rental income for the assessment year 1982-83. The appeals were based on identical grounds.

2. The Tribunal decided to dispose of both appeals through a single order due to common facts, circumstances, parties, and issues.

3. The assessment for the year 1982-83 revealed that the appellant derived income from renting out property. The appellant claimed interest payable to a bank as a deduction based on a decree passed by a Civil Court. The Income Tax Officer (ITO) disallowed the interest deduction, stating that the business was discontinued until the financial year 1981-82 when rental income was earned. The assessment was completed under section 143(3) of the Income Tax Act, 1961.

4. The appellant contested the assessment orders, particularly focusing on the partnership deeds indicating the business activity of leasing out buildings. The appellant argued that leasing commercial property constituted a business activity, citing relevant judgments from the Punjab & Haryana High Court.

5. The Appellate Authority Commissioner (AAC) allowed the appeal, considering the partnership deed and the precedents cited, concluding that the interest paid under a court decree was an allowable deduction from rental income.

6. The Revenue's appeal challenged the AAC's decision, contending that the interest was related to a bank loan for business purposes, not rental income. The Revenue argued that the income was shown as property income, not business income, and thus, interest deduction against property income was not permissible.

7. The appellant reiterated the arguments made before the AAC, emphasizing that registration as a firm indicated the business of letting out property. The appellant maintained that the interest claim was rightly allowable against business income.

8. The Tribunal considered the facts and arguments presented. It noted that the appellant had discontinued a previous business and started a new business of renting out property after registering as a firm. The Tribunal found the ITO's disallowance of interest deduction contrary to the precedents cited and upheld the AAC's decision.

9. The Tribunal concluded that the registration as a firm and the nature of the business activity supported the allowance of interest deduction against rental income. It dismissed the Revenue's appeals, finding no merit in the grounds presented.

10. The Tribunal affirmed the AAC's reasoning and decision, emphasizing the proper classification of income and the applicability of relevant legal precedents in allowing the interest deduction against rental income for the assessment year 1982-83.