1993 (6) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessees were carrying on money-lending business or merely deriving interest from deposits.
2. Applicability of maximum marginal rate under Section 161(1A) of the Income-tax Act.
3. Legitimacy of raising new contentions at the appellate stage.

Detailed Analysis:

1. Nature of Income: Money-Lending Business vs. Interest from Deposits
The primary issue was whether the assessees, all trusts, were carrying on money-lending business or merely deriving interest from deposits. The Tribunal examined the returns filed by the assessees for the assessment year 1986-87, which explicitly stated that the income was derived from money-lending business. The returns and trial balances showed specific interest receipts from various parties, indicating a systematic and organized course of activity. The Tribunal found that the trusts had been earning interest through money-lending activities, supported by promissory notes and varying interest amounts from different parties over the years. The definition of "business" under Section 2(13) of the Income-tax Act includes any trade, commerce, or adventure in the nature of trade, commerce, or manufacture. The Tribunal concluded that the trusts' activities met this definition, as they involved a systematic and organized effort to earn interest, thus constituting a business.

2. Applicability of Maximum Marginal Rate under Section 161(1A)
The Income-tax Officer had levied tax at the maximum marginal rate under Section 161(1A) of the Income-tax Act, which applies when a trust is carrying on a business. The Tribunal upheld this application, stating that the trusts were indeed engaged in money-lending business, and thus, the maximum marginal rate was correctly applied. The Tribunal noted that the trusts had been assessed on similar grounds in previous years, reinforcing the consistency and legitimacy of the tax treatment.

3. Legitimacy of Raising New Contentions at the Appellate Stage
The assessees raised a new contention before the Commissioner of Income-tax (Appeals), arguing that they were not carrying on any money-lending business and that their income should be taxed under the head "Income from other sources." The Commissioner (Appeals) rejected this contention, citing the Supreme Court's judgment in Addl. CIT v. Gurjargravures (P.) Ltd. However, the Tribunal referred to a later Supreme Court decision in Jute Corpn. of India Ltd. v. CIT, which allowed for new contentions to be raised at the appellate stage under certain circumstances. Despite this, the Tribunal found that the assessees' claim lacked merit, as their returns and trial balances consistently indicated that the income was derived from money-lending business. The Tribunal emphasized that the assessees had not raised this contention during the assessment proceedings or before the Commissioner (Appeals) initially, and there was no supporting evidence for their new claim.

Conclusion:
The Tribunal dismissed the appeals, affirming that the assessees were engaged in money-lending business and that the income derived from this activity should be taxed at the maximum marginal rate under Section 161(1A). The Tribunal also upheld the rejection of the new contention raised by the assessees, as it was not substantiated by the evidence on record. The decision reinforced the importance of consistency in tax treatment and the requirement for systematic and organized business activities to qualify as business income.