2013 (2) TMI 42 - HC - Income Tax

Allocation of interest expenditure between two business of assessee - Whether the Tribunal was right in law in restoring the issue of allocation of interest expenditure and financial charges with the direction to the A.O. to follow the decision of the Special Bench of the Tribunal Question to be decide - how the principal business of a company is to be ascertained - what is the principal business of a company Held that - The general proposition that while remanding issues for fresh consideration by the A.O., the Tribunal should be very cautious in issuing directions, even if it is only for the guidance of the A.O. The direction should not give rise to a situation where the assessing authority is likely to feel incommoded by it The A.O. need not be confined to those guidelines only and can travel much beyond them, if the inquiry justifies it and can take into account all the attendant and relevant facts and circumstances of the case, without being confined to those guidelines In favour of revenue

Summary

Issues:
1. Allocation of interest expenditure between different business activities.

Analysis:
The High Court judgment involves the issue of allocation of interest expenditure between two business activities - share dealing and loans and advances. The assessing officer had bifurcated the interest and financial charges between the two activities, resulting in a loss in the speculative activity and taxable income in the other. The CIT (Appeals) accepted the assessee's contention that the interest payable on borrowings made for business purposes should be allowed as a deduction without being allocated between different business activities. The Tribunal, referring to a Special Bench decision, remanded the matter to the assessing officer to decide the allocation of interest expenditure afresh, considering the ratio laid down by the Special Bench.

The Revenue contended that the Tribunal erred in directing the assessing officer to follow the Special Bench's ratio while deciding the allocation of interest expenditure. The Revenue argued for an open remand without any specific directions. The assessee, on the other hand, claimed that the assessing officer's distinction between share dealing and advancing loans was artificial and that the Special Bench's guidelines were general in nature and could be considered by the assessing officer. The High Court acknowledged the need for caution in issuing directions on remand, ensuring that the assessing officer is not unduly restricted. The Court clarified that the assessing officer can consider all relevant facts and circumstances beyond the Special Bench's guidelines while deciding the allocation of interest expenditure.

In conclusion, the High Court answered the substantial question of law in favor of the Revenue and against the assessee. The Court emphasized that the assessing officer, while considering the allocation of interest expenditure, should not be confined to the Special Bench's guidelines but can explore all relevant facts and circumstances to make an informed decision.