2003 (6) TMI 191 - AT - Income Tax

Summary

Issues:
1. Characterization of interest income from IDBI Bonds as business income or income from other sources.
2. Allowance of travelling expenses of the partner.
3. Disallowance of car expenses for personal use.

Analysis:

Issue 1:
The Revenue appealed against the CIT(A)'s decision to treat interest earned on IDBI Bonds as business income instead of income from other sources for the assessment year 1992-93. The assessee-firm, engaged in running a flour mill, declared a loss from the business and earned interest income from IDBI Bonds. The AO initially categorized the interest income as income from other sources, but the CIT(A) directed it to be treated as business income. The Revenue contended that the investment in IDBI Bonds was not part of the assessee's business activities, relying on legal precedents. The assessee argued that the investment was made to claim a deduction under a specific section of the Act, not to earn interest income. The Tribunal held that the investment in IDBI Bonds was a one-time affair and not a systematic business activity, concluding that the interest income should be taxed under the head "income from other sources."

Issue 2:
The Revenue challenged the deletion of the disallowance of travelling expenses of the partner. The AO disallowed the expenses, stating they lacked a business connection since the assessee's previous business had closed. However, the CIT(A) allowed the deduction, considering that the assessee had purchased a new flour mill and was conducting the same business. The Tribunal upheld the CIT(A)'s decision, emphasizing that the partner's travel was related to the current business activity, and dismissed the Revenue's appeal.

Issue 3:
The Revenue contested the deletion of the disallowance on personal use of a car. The Tribunal found that the car expenses were incurred in a location where none of the partners resided, indicating no personal expenditure by the partners. Consequently, the CIT(A)'s decision to delete the addition was upheld, and the Revenue's appeal on this ground was dismissed.

In conclusion, the Tribunal partly allowed the Revenue's appeal concerning the characterization of interest income from IDBI Bonds while upholding the decisions on the allowance of travelling expenses and the disallowance of car expenses for personal use.