2008 (1) TMI 587 - HC - Income Tax

Business Income- The assessee a public limited company declared nil income in its return of income. Assessing officer found there was a proposal to start a steel plant which had not commenced production but the assessee had earned income by way of interest in deposits. The Assessing Officer held that the assessee had not commenced any business and treated the income so earned as Income from other sources . Commissioner (Appeals) dismissed the appeal. Tribunal held that the investment of shares and finance came within the ancillary object of the assessee company and any income and the assessee was entitled to claim interest earned and dividend received had to be treated as income from business and that the expenditure incurred by the central treasury office was to be treared as revenue expenditure and directed the Assessing officer to pass order accordingly. Held that- relief granted by the Tribunal without considering all the points urged before it the order was to be set aside and remanded to the assessing officer for fresh consideration.

Summary

Issues:
1. Appeal by Revenue challenging order of Income-tax Appellate Tribunal for assessment year 1995-96.
2. Treatment of income earned by the assessee before commencement of business.
3. Allowance of expenditure incurred by the assessee before commencement of business.

Analysis:
1. The Revenue challenged the order of the Income-tax Appellate Tribunal for the assessment year 1995-96. The assessee, a public limited company, declared nil income for the year and claimed income from interest as business income. The Assessing Officer, upon scrutiny, treated the income as "Income from other sources" due to the company not commencing any business activities. The Commissioner of Income-tax (Appeals) dismissed the appeal, but the Tribunal allowed it in part, considering the company's objects and held that income from ancillary business activities should be treated as business income.

2. The first substantial question of law raised was whether the interest earned before the commencement of business is taxable as "Income from other sources" or "Income from business." The Tribunal relied on section 2(13) of the Income-tax Act, holding that income from ancillary business activities should be considered business income. The Revenue contended that the Tribunal erred in not considering relevant documents and reversing the findings of the Assessing Officer and the Commissioner of Income-tax (Appeals).

3. The second substantial question of law was about allowing expenditure incurred before the commencement of business. The Tribunal directed to allow certain expenditures, holding that the business had commenced. The Revenue challenged this decision, arguing that the Tribunal did not adequately consider the case and should have remanded the matter for fresh consideration. The High Court set aside the Tribunal's order, remanding the matter to the Assessing Officer for reconsideration with an opportunity for the assessee to present relevant documents.

In conclusion, the High Court allowed the appeal by the Revenue, remanding the case for fresh consideration by the Assessing Officer, emphasizing the need for a detailed examination of all aspects before making a decision on the treatment of income and expenditure related to business activities.