2015 (10) TMI 1740 - HC - Income Tax

Treatment to interest income - business income or income from other sources - adjust B/F losses related to against interest Income denied by AO - ITAT allowed assessee claim - Held that - Where the assessee is regularly engaged in money lending business and is earning interest therefrom, interest income is to be taxable under the head business income , regardless of the fact that the assessee has obtained any licence for such money lending business or not. For this proposition, we are fortified by the decision in the case of Smt. Gulab Sundari Bapana vs. DCIT (2000 (9) TMI 219 - ITAT DELHI-D) and in the case of Loka Shikshana Trust vs. CIT (1975 (8) TMI 1 - SUPREME Court), wherein the Hon ble Apex Court held that the regular course of dealing in money lending could not be brushed aside merely for the reason that the assessee was not having any money lending licence. In that case, the assessee entered into number of transactions over the year and earned interest on loans and advances given in the ordinary course of its activities. The Hon ble Apex Court held that absence of money lending licence is not so crucial for the purpose of Income Tax Act, if the nature of activity undertaken by the assessee can be decided on the basis of other facts. Admittedly, the assessee was engaged in granting of loans on regular basis and interest income was shown as business income, also attained finality on identical fact in earlier assessment year and accepted by the department as business income, the department is not justified in diverting from its earlier stand in the impugned assessment year. This ground of the revenue therefore, is having no merit. Once it has been held that the income of the assessee was to be assessed under the head income from business or profession, the assessee was entitled for set off against carry forward losses. The Tribunal was thus justified in allowing the same. - Decided in favour of assessee.

Summary

Issues:
1. Classification of interest income as business income or income from other sources.
2. Allowance of set off against brought forward losses.

Analysis:

Issue 1: Classification of interest income
The appeal pertains to the classification of interest income as business income or income from other sources for the assessment year 2004-05. The Assessing Officer treated the interest income as income from other sources, not business income, as claimed by the assessee. The CIT(A) allowed the appeal, recognizing the money lending business carried out by the assessee for several years. It was noted that the absence of a money lending license for an individual does not preclude the income from being categorized as business income. The Tribunal upheld the CIT(A)'s findings, emphasizing that regular engagement in money lending business justifies treating interest income as business income, irrespective of licensing requirements. The Tribunal's decision was supported by legal precedents, including the case of Smt. Gulab Sundari Bapana vs. DCIT and Loka Shikshana Trust vs. CIT. The Court found no error in the lower authorities' conclusions, affirming that the interest income should be classified as business income.

Issue 2: Allowance of set off against losses
The Assessing Officer initially disallowed the set off of brought forward losses against the income from money lending, considering it as income from other sources. However, once the income was classified as business income, the assessee became eligible for the set off against carry forward losses. The CIT(A) and the Tribunal both supported this position, leading to the allowance of the set off. Consequently, the Tribunal's decision to permit the set off was deemed justified. As a result, the substantial questions of law raised by the revenue were answered against them, and the appeal was dismissed.

In conclusion, the judgment primarily focused on the correct classification of interest income and the subsequent implications on the allowance of set off against brought forward losses. The Court upheld the decisions of the lower authorities, emphasizing the continuous engagement in money lending business as the basis for treating interest income as business income and allowing the set off of losses.