2024 (8) TMI 816 - AT - Income Tax

Correct head of income - characterization of receipts - interest income - income from other sources or business income - HELD THAT - CIT(A) has rightly held that the interest income derived by the assessee company registered as Non-Banking Finance Company required to be treated as business income earned in the ordinary course its core business activity. The re-characterization of income from business income as declared by the assessee to income from other sources by the AO on the rationale that interest earned from investment in securities out of surplus fund falls under the head income from other sources is totally misplaced having regard to the fact that money lending and income from investment are the core business activities of the assessee company. It is thus far fetched to characterize the income derived from main business activity as Income From Other Sources . No error in the process of reasoning adopted by the CIT(A) and thus, decline to interfere therewith - Decided against revenue.

Summary

Issues:
Appeal against re-characterization of interest income from business income to income from other sources.

Analysis:
The appeal was filed by the Revenue against the first appellate order of the Ld. Commissioner of Income Tax (Appeals) concerning the assessment order passed by the National e-Assessment Centre under the Income Tax Act for Assessment Year 2018-19. The Revenue challenged the treatment of interest income under the head Business Income and the allowance of claimed expenses by the appellant company.

The assessee, a Non-Banking Finance Company (NBFC) registered with RBI, had declared interest income as business income in its return. However, the Assessing Officer treated it as income from other sources during assessment proceedings under Section 143(3) of the Act. The CIT(A) reversed this decision based on precedents from Co-ordinate Bench, emphasizing the core business activities of the appellant.

The CIT(A) considered the appellant's submissions and relevant case laws, highlighting that the appellant company, being an NBFC, engaged in money lending and investment activities as part of its core business operations. The CIT(A) found that the interest income derived by the appellant should be treated as business income, not income from other sources, as ruled in previous judgments.

The Tribunal agreed with the CIT(A)'s decision, stating that the interest income earned by the appellant from its core business activities should be categorized as business income, not income from other sources. The re-characterization by the Assessing Officer was deemed misplaced, given the nature of the appellant's business operations. The Tribunal upheld the CIT(A)'s reasoning and dismissed the Revenue's appeal.

In conclusion, the Tribunal affirmed that the interest income derived by the appellant, a registered NBFC, should be considered business income due to its core business activities involving money lending and investments. The re-characterization of income by the Assessing Officer was deemed incorrect, and the appeal of the Revenue was dismissed.