2009 (3) TMI 496 - HC - Income Tax

Substantial Question of law- An Appeal under section 260A of the Act lies to the High Court from an order passed by the Tribunal only if the High Court is satisfied that the case involves a substantial question of law. Held that- the question whether the interest amount of Rs. 9, 91, 508 received by the assessee on the FDR should have been shown by it as income from business or income from other sources might be a question of law but it was not a substantial question of law inasmuch as on the answer to the question the Revenue was not entitled to higher or lesser amount of tax from the assessee.

Issues:
Appeal under section 260A of the Income-tax Act, 1961 - Treatment of interest on FDR as income from business or other sources - Substantial question of law determination.

Analysis:
The case involved an appeal under section 260A of the Income-tax Act, 1961 regarding the treatment of interest on Fixed Deposit Receipts (FDR) as income from business or other sources. The respondent had filed a return of income for the assessment year 2001-02, showing a total income of Rs. 42,18,260, which included interest on FDR. The Assistant Commissioner added a sum of Rs. 9,91,508 as interest on FDR, resulting in a higher total income and demand notice. The Commissioner of Income-tax (Appeals) later deleted this addition after verifying that the amount was duly credited to the profit and loss account and was genuine. The Income-tax Appellate Tribunal also upheld this decision. The appellant contended that the interest on FDR should have been shown as income from other sources, not business, citing a previous judgment in a similar case involving the same respondent.

The court acknowledged the appellant's argument but declined to admit the appeal under section 260A of the Act. It was stated that for an appeal to be admitted, it must involve a substantial question of law. Referring to the Civil Procedure Code, the court highlighted that a substantial question of law must be of general public importance or directly affect the parties' rights, and should not be free from difficulty or settled by higher courts. Applying this test to the present case, the court found that the question of whether the interest on FDR should be classified as income from business or other sources did not constitute a substantial question of law. Even if the interest was treated as income from other sources, the taxable income of the respondent would remain the same, and the department would not be entitled to any additional tax. Therefore, as no substantial question of law was involved, the appeal was dismissed.

In conclusion, the judgment emphasized the requirement of a substantial question of law for admitting appeals under section 260A of the Income-tax Act. Despite recognizing the legal argument presented by the appellant, the court found that the classification of interest on FDR did not impact the tax liability, making it insufficient to qualify as a substantial question of law. As a result, the appeal was dismissed by the court.

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