2015 (4) TMI 339 - HC - Income Tax

Interest received on income - whether would fall under the head 'Business Income' or 'Income from other sources' ? - whether ITAT was right in law in not deciding the issue on merits in respect of the interest income by remitting back the issue to the file of the Assessing Officer? - Held that - A cursory glance at the order of assessment as also the order of the CIT (Appeals) reveals that the Assessing Officer has taken a view that the interest earned from money lending business is 'income from other sources', whereas the CIT (Appeals) has taken it under the head 'Business Income'. Both the authorities, as is evident from their orders, have given their finding for treating the said income under the relevant heads. However, the Tribunal has lost sight of the said findings recorded by the authorities below, and in its order has stated that no finding has been rendered on this issue on facts by the authorities below, which is factually incorrect. In such view of the matter, this Court is not inclined to decide the issue at this point of time on the questions of law raised above, since we find that the Tribunal had failed to go into the relevant portion of the orders of the Assessing Officer and CIT (Appeals) and come to a definite finding as to which view, i.e., whether the view of the Assessing Officer or the view of the CIT (Appeals), in regard to bringing the interest income earned from money lending business under appropriate head, is right on the facts of the present case. Thus the Tribunal has not decided the issue on facts and, therefore, no question of law arises for this Court to consider at this juncture. Accordingly, this Court remands the matter back to the Tribunal to decide the issue afresh on the basis of the materials available on record. - Decided in favour of assessee by way of remand.

Summary

Issues Involved:
1. Interpretation of interest income as 'Business Income' or 'Income from other sources' for assessment purposes.

Detailed Analysis:

Issue 1:
The primary issue in this case revolves around determining whether the interest income earned by the appellant should be classified as 'Business Income' or 'Income from other sources' for assessment purposes. The appellant, engaged in garment manufacturing and money lending businesses, declared 'NIL' income for the assessment year 1998-1999. The Assessing Officer questioned the treatment of interest income of Rs. 94,39,517/- as business income, considering the appellant's money lending activities. The authorized representative argued that interest income should be treated as business income due to money lending operations. However, the Assessing Officer relied on precedents like CIT Vs Pandian Chemicals Ltd. and Kerala High Court decisions to categorize the interest income as 'Income from other sources.' Subsequently, the CIT (Appeals) reversed this decision, citing the Supreme Court's ruling in Commissioner of Income Tax Vs Sun Engineering Works (P) Ltd., emphasizing that if an assessee is engaged in advancing money, the interest earned qualifies as 'Business Income.' The CIT (Appeals) directed the Assessing Officer to treat the interest income as 'Business Income' for deduction u/s 80HHC.

Issue 2:
The Department challenged the CIT (Appeals) order before the Tribunal, which observed a lack of a definitive finding on whether the interest income could be considered business income by the lower authorities. The Tribunal remitted the issue back to the Assessing Officer for a factual determination on whether the interest income qualifies as business income, emphasizing the need to reduce 90% of the interest for deduction u/s 80HHC if deemed business income. The appellant contested this decision, highlighting the clear finding by the CIT (Appeals) that the interest earned from money lending constitutes business income. The appellant argued that the department had consistently accepted this income under the 'Business' category, urging the Tribunal to reconsider its stance.

Judgment Analysis:
The High Court noted discrepancies in the Tribunal's assessment, emphasizing that both the Assessing Officer and CIT (Appeals) had provided distinct findings on categorizing the interest income. The Court criticized the Tribunal for overlooking these findings and remanding the matter without a comprehensive analysis. Consequently, the Court remanded the case back to the Tribunal for a fresh decision based on existing records, stressing the importance of considering the Assessing Officer and CIT (Appeals) findings. The Court refrained from deciding on the legal questions raised, given the Tribunal's failure to address the issue adequately. The appeal was disposed of by remanding the case to the Tribunal for a thorough reconsideration based on available evidence, with no costs imposed on either party.