2007 (7) TMI 353 - AT - Income Tax

Summary

Issues involved: Determination of whether interest received by the assessee on staff loans is taxable as 'income from other sources'.

Summary:
The common issue in both appeals was whether the CIT(A) was justified in holding that interest received on staff loans is taxable as 'income from other sources'. The assessments were made under the IT Act for the years 1998-99 and 1999-2000. Initially, the interest income was held taxable under 'Income from other sources'. The Tribunal directed the AO to examine if the interest was incidental to the real estate development business. However, the AO taxed the interest again without a clear finding. The CIT(A) upheld this decision based on legal precedents. The Tribunal found that the interest on staff loans was incidental to the real estate development business and should be set off against capital expenditure. The appeals were allowed, granting relief to the assessee.

The Tribunal emphasized that the appeal was about implementing its order, not re-evaluating the merits. The AO failed to follow the Tribunal's direction to determine if the interest was incidental to the business. Since staff loans were given to employees working in real estate development, the interest earned was considered incidental to the business. The authorities' stand was deemed unsustainable, and the AO was directed to adjust the interest on staff loans against capital expenditure. Relief was granted to the assessee, and both appeals were allowed.