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TMI Blog2014 (7) TMI 1219X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and claimed as deductions are in fact not allowable. We also agree with the Commissioner of Income-tax(Appeals) that the income of the assessee has to be necessarily assessed under the head “income from other sources”. At the maximum, the assessee may be characterized as a “private charity”. It is not possible to hold that the assessee is carrying on any business and the income reported by the assessee is income from business. As it is necessary for every institution to incur expenditure for its sustenance and operation. For that purpose, the Commissioner of Income-tax(Appeals) has allowed an over-all deduction of expenditure at 2% of the gross collection of income reported by the assessee trust. We find that the said amount of expenditure is reasonable. Accordingly, we uphold the order of the Commissioner of Income-tax(Appeals). - Decided against assessee. - ITA No. 1035/Mds/2013 - - - Dated:- 7-7-2014 - Dr. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI V.DURGA RAO, JUDICIAL MEMBER Appellant by: Shri Percy Pardiwalla, Sr. Advocate Respondent by : Shri S. Das Gupta, IRS, JCIT O R D E R PER Dr.O.K.NARAYANAN, VICE-PRESIDENT This appeal filed by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred on research activities in setting up new units in different sectors. He held that those expenses are also capital in nature. Accordingly, he proposed to disallow the incubation expenses of ₹ 3,71,40,545/- and consultancy charges and legal and professional charges totalling to ₹ 3,40,16,836/-. 6. In reply to the proposition made by the Assessing Officer, the assessee trust explained that it has promoted various entities as Network Enterprises group, focusing on specific sectors, which included rural homestay for tourists, financing of drinking water projects in rural areas, financing of artisans and craftsmen, financing of dairy programme, cattle insurance, financing of providing energy efficient and environmental friendly products to rural households etc. The activities also included financing of processed food industries, rural BPO, financing for low cost and affordable housing, financing of vocational education, building of robust distribution channels for rural customers etc. The assessee further explained that the incubation expenses incurred during the year mainly consisted of salaries, bonus and other employee costs such as travel and conveyance etc. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted and offered the bank interest as income from other sources in its return of income. The interest on loans and advances were shown by the assessee as business income. The activity of the assessee is not banking, financing or money lending. Therefore, the Commissioner of Income-tax(Appeals) held that any interest earned from the loans and advances by the assessee will have to be assessed under the head income from other sources . In short, the Commissioner of Income-tax(Appeals) held that all the components of income earned by the assessee trust were in the nature of income from other sources . The Commissioner of Income-tax(Appeals) has examined the character of every item of income accounted by the assessee. Ultimately, he came to a conclusion that the assessee is not carrying on any business and all the income accounted by the assessee are assessable under the head income from other sources . As the assessee trust was not carrying on any business, those expenditure cannot be held to be incurred for the business activities carried on by the assessee trust. 10. In the light of the above finding arrived at by the Commissioner of Income-tax(Appeals), which is a paradigm sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me determined by the assessing authority at ₹ 7,78,71,140/- and against the loss returned by the assessee at ₹ 67,13,754/-. In short, the Commissioner of Income-tax(Appeals) has enhanced the taxable income by ₹ 5,98,95,103/-. Of course, the enhancement has been made by the Commissioner of Income-tax(Appeals) after giving proper notice to and hearing the assessee. 13. It is against the above enhancement order of the Commissioner of Income-tax(Appeals) that the assessee has come in second appeal before the Tribunal. 14. The assessee has raised the following grounds in the present appeal : 1. The Commissioner of Income-tax(Appeals) has erred in disallowing the entire expenditure debited in the profit and loss account of the assessee trust. 2. The Commissioner of Income-tax(Appeals) has particularly erred in disallowing incubation expenses, consultancy, legal and professional charges. 3. The Commissioner of Income-tax(Appeals) has erred in holding that the assessee is not carrying on any business of its own and the expenses incurred by the assessee trust were not incurred for the business activities carried on by the assessee trust. 4. The Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, submitted that the Assessing Officer has grossly erred in disallowing those expenses. 18. The learned senior counsel argued that the Commissioner of Income-tax(Appeals) has further erred in adopting a strange view of the case. The Commissioner of Income-tax(Appeals) has gone beyond the scope of the assessment and held that the activity carried on by the assessee cannot be considered as business activity . He has held that the income earned by the assessee trust is mainly from interest and, therefore, the income should be assessed as income from other sources . The learned senior counsel explained that the income, even though in the nature of interest, has been generated out of the business activities carried on by the assessee trust. Once the business of the assessee trust is admitted as business of investment, obviously, the nature of income generated in the hands of the assessee trust would be interests and dividends and nothing else. In such cases only for the reason that the components of the assessee s income are interest, it is not possible to hold that the assessee is not carrying on any business. If the assessee is carrying on business of investment then invariab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units cannot be considered as expenses incurred for any business carried on by the assessee trust. In that way, the assessee trust is not carrying on any business. If at all various expenses incurred by the assessee trust are to be allowed in computing the income, they could be allowed only in the hands of respective subsidiary units. 21. The learned Joint Commissioner has relied on the order of the Assessing Officer in the matter of expenses disallowed and equally supported the order of the Commissioner of Incometax( Appeals) in the matter of deciding the nature of activities carried on by the assessee trust. 22. We heard both sides in detail. It is admitted that the assessee is a private trust formed with the object of carrying on certain specific targets. The activities of the assessee trust is to identify the sectors, where small entities can be set up especially stressing on the requirement of rural population. The assessee is setting up such micro units in different sectors and handing over to the entrepreneurs to carry on such units in a viable manner. The main object of the assessee trust is the ultimate financial inclusion of all individuals and entities working in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of CIT v. Distributors (Baroda) (P) Ltd., 83 ITR 377, is not applicable to the present case, as it was rendered in an entirely different context of sec.23A of the Income-tax Act, 1922, in deciding whether the assessee was carrying on the business in dealing or holding of investments. In the case of CIT vs. Seshasayee Bros. (P) Ltd., 127 ITR 218, the issue considered by the Hon ble High Court was with reference to the dividend income vis a vis managing agency commission. The Court was examining the liability of unrecoverd expenditure incurred by the assessee on account of project expenses in its capacity as managing agency. In that case, the expenses incurred by the assessee had to be recovered later from the new unit. The short fall was sought to be claimed as a deduction. The said business model is entirely different from the present case. In the case of Tamilnadu Industrial Development Corporation Ltd., 215 CTR (Mad) 90, again, the Court was examining the case, where the assessee was in partnership with newly set up private sector enterprises as a partner. The assessee was indulging in the business carried on by the beneficiary unit Therefore, we find that the decisions r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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