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TMI Blog2014 (5) TMI 822X X X X Extracts X X X X X X X X Extracts X X X X ..... e is already carrying out his own business - the asessee has rightly show his income as business income – Decided against Revenue. Deletion of disallowance of interest on borrowed capital – Facts not properly appreciated – Held that:- The Tribunal was of the view that the assessee had claimed that the opening balance of advances from the customers was Rs. 36.92 lakhs as on 1.4.1996 - if the assessee has claimed the deduction of interest it has to prove that the borrowed funds have been utilized by it in its business but if part of the interest bearing funds have been diverted to other parties on which no income was being earned, the proportionate interest has to be disallowed - Revenue has to prove that the interest bearing funds have been diverted to other concerns for non-business purposes - the interest free advances with the assessee were far in excess of advances/investment made in purchasing the shares - CIT(A) was rightly appreciated the facts and deleted the addition - interest free advance with the assessee were far in excess to the investment made in purchasing the share, it is proved that borrowed funds have been utilized in business - the order of the Tribunal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured loans of Rs. 39,27,645/- and secured loan of Rs. 3,45,343/- and has paid interest of Rs. 5,26,213/- which was claimed as revenue expenditure. The assessee had made investment of Rs. 88,90,354/- in the shape of purchase of shares of its sister concern, namely, M/s Society Motors Ltd. The assessee claimed that loans are part of the working capital of business. The assessee claimed the interest as revenue expenditure. The Assessing Officer vide his order dated 7.7.2005 rejected the claim of the assessee that income of Rs. 3 lakh from the aforesaid two properties is a business income. The Assessing Officer held that the said income as income from house property . The claim that interest is revenue expenditure was denied and the interest of Rs. 5,26,213/- was added back to the income of assessee. Against the order of Assessing Authority, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Appellate Authority vide its order dated 12.1.2000 allowed the appeal of the assessee. The Appellate Authority held that the income received from the two properties is business income. It was further held that interest was an allowable expenditure under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interrelated and are being taken together . The Apex Court in Universal Plast Ltd. vs. Commissioner of Income-Tax 237 ITR 454 has laid down general principles to determine as to when the income can be treated to be income from business or income from house property. It is useful to refer to preposition of law as laid down by the Apex Court in the above judgment, which is to the following effect: In the light of the above discussion, the propositions may be summarised as follows: (1) no precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease, amount, rents, licence fee) received by an assessee from leasing or letting out of assets would fall under the head Profits and gains of business or profession ; (2) it is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case, including true interpretation of the agreement under which the assets are let out; (3) where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of each case including the true interpretation of the agreement. The period for which the assets are let out was a relevant factor. The intention of the assessee was also important. The Hon'ble Supreme Court also observed that if certain business assets was let out temporarily while the assessee is carrying out the other business activities then it is a case of exploiting the assets otherwise than employing them for own use of making profit for that business. But if the business never started or has started but ceased with no intention to be resumed, the assets will also cease to be business assets and the transaction will only be exploitation of the property by an owner thereof but not exploitation of business asset. Keeping in view the observations of the Hon'ble Supreme Court, we have examined the facts of the case. We find that the City Centre premises which was given on rent to M/s Society Motors Ltd has been taken back by the assessee and the business has started from this premises. This clearly indicates that the properties were given on rent for a temporary period with a view to exploit a commercial asset on account of financial crisis. The assessee had no intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cases which have come before the courts involving commercial or residential buildings owned by assessees it has been held that the income realized by such owners by way of rental income from a building, whether a commercial building or residential house, is assessable under the head Income from house property The only exceptions are cases where the letting of the building is inseparable from the letting of the machinery, plant and furniture In such cases, it has been held that the rental would not have been realized but for the letting out of the machinery, plant or furniture along with such building and therefore the rental received for the building is to be assessed under the head Income from other sources The proposition of law as laid down in the above noted cases is to the effect that whether a particular letting is a business has to be decided in the circumstances of each case and each case has to be looked into from the businessman's point of view to find out whether letting was the doing of business or exploitation of his property by an owner. There being categorical findings of fact by the Appellate Authority as well as the Tribunal that letting out was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, following was observed by the Apex Court. Where the assessee borrowed money for the purpose of making investment in certain shares and paid interest thereon during the accounting period relevant to the assessment year but did not receive any dividend on the shares purchased with those money. Held, accordingly, that the interest on money borrowed for investment in shares which had not yielded any dividend was admissible as the deduction under Section 57(iii) of the Income Tax Act, 1961, in computing its income from dividend under the head income from other sources . After considering the submission of learned counsel for the parties, the Tribunal recorded following findings in paragraph 7 which is as follows: 7. We have considered the rival submissions. We find that during the course of first appellate proceedings, the assessee had claimed that the opening balance of advances from the customers was Rs. 36.92 lakhs as on 1.4.1996. Such amount was interest free advance from the customers. Thus, this amount was available with the assessee for making advances. It was also claimed that much less funds were utilized for the purchase of shares of M/s Society Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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