2010 (12) TMI 695 - AT - Income Tax

Business income/other sources - In the present case no case has been made out that any business advances had been temporarily put in short term deposits pending utilization in the business - assessee had deposited the surplus funds from which interest income had been received - Therefore interest income is treated as other sources Regarding rental income of business centre - assessee had taken the premises on lease on month to month basis and after developing the same as business centre had sublet the same to different corporate entities along with facilities - The property has been let out with various facilities and amenities for corporate clients such as board room facilities letters receipt/dispatch facilities computer with internet facilities security arrangements in addition to telephone and electricity and water facilities etc. The income has therefore to be assessed as business income Regarding disallowance of co-sponsorship fees - The dispute is regarding nature of expenditure on account of payment of Rs.9 lacs to RPG Academy of Art and Music by the assessee - once the business centre is fully occupied on long term basis there is no question of making any payment for publicity. Obviously the assessee had made the payment as a donation to RPG Academy of Art and Music which could not be held as expenditure incurred wholly and exclusively for the purpose of business - Decided against the assessee Regarding set off/carried forward - Held that under the provisions of section 72 the brought forward loss/depreciation has to be adjusted against the business income and in case the loss is not fully set off against business income it shall be carried forward to the subsequent year. The brought forward loss in our view cannot be set off against the income from other sources or capital gain.

Summary

Issues Involved:
1. Treatment of interest income and dividend income.
2. Nature of income from the business centre.
3. Disallowance of co-sponsorship fees.
4. Disallowance of VRS expenses.
5. Addition on account of sundry creditors.
6. Disallowance of rates and taxes.
7. Disallowance of professional fees.
8. Disallowance of depreciation on plant and machinery.
9. Disallowance of employee cost.
10. Disallowance of administrative expenses.
11. Set off and carry forward of brought forward business loss.
12. Charging of interest under section 234D.
13. Additional grounds regarding set off of brought forward business loss and depreciation, and allowability of rates and taxes against capital gain.
14. Revenue's appeal on sales tax payment, professional expenses, employee cost, and administrative expenses.

Detailed Analysis:

1. Treatment of Interest Income and Dividend Income:
The first dispute is regarding the treatment of interest income and dividend income as income from other sources by the authorities below against the business income declared by the assessee. The tribunal upheld the CIT(A)'s decision, confirming that the dividend income should be classified under "income from other sources" as defined in section 56(1) of the I.T. Act, and similarly, the interest income derived from inter-corporate deposits, fixed deposits, and mutual funds should also be classified under "income from other sources."

2. Nature of Income from the Business Centre:
The second dispute revolves around the classification of rental income from the business centre. The tribunal concluded that the rental income should be assessed as business income, considering the assessee's significant investment in developing the property and providing various facilities and services to tenants, aligning with the Supreme Court's judgment in the case of S.G. Mercantile Corporation Pvt. Ltd.

3. Disallowance of Co-Sponsorship Fees:
The third dispute concerns the disallowance of co-sponsorship fees paid to RPG Academy of Art and Music. The tribunal upheld the disallowance, agreeing with the CIT(A) that the expenditure was not incurred wholly and exclusively for the purpose of business, especially since the business centre was fully occupied on a long-term basis.

4. Disallowance of VRS Expenses:
The fourth dispute involves the disallowance of VRS expenses. The tribunal directed the AO to allow the expenditure under section 35DDA of the I.T. Act, as the income from the business centre was to be assessed as business income.

5. Addition on Account of Sundry Creditors:
The fifth dispute pertains to the addition of sundry creditors under section 41(1). The tribunal set aside the order of CIT(A) and restored the matter to the AO for a fresh examination, as the assessee failed to provide necessary details and confirmations for substantial liabilities.

6. Disallowance of Rates and Taxes:
The sixth dispute concerns the disallowance of rates and taxes related to land not used for business purposes. The tribunal held that the expenditure could not be allowed as a business deduction and deferred the decision on its allowability against capital gains to the additional grounds section.

7. Disallowance of Professional Fees:
The seventh dispute is about the disallowance of professional fees. The tribunal upheld the CIT(A)'s directive to the AO to examine the nature of the expenses and capitalize those related to capital assets, while allowing professional expenses of a revenue nature against business income.

8. Disallowance of Depreciation on Plant and Machinery:
The eighth dispute involves the disallowance of depreciation on plant and machinery. The tribunal directed that depreciation on all plants and machinery installed in the business centre should be allowed, as the income from the business centre was to be assessed as business income.

9. Disallowance of Employee Cost:
The ninth dispute pertains to the disallowance of employee costs. The tribunal held that the expenditure should be allowed against business income, given that the income from the business centre was to be assessed as business income.

10. Disallowance of Administrative Expenses:
The tenth dispute concerns the disallowance of administrative expenses. The tribunal directed that these expenses should be allowed while computing the income from the business centre.

11. Set Off and Carry Forward of Brought Forward Business Loss:
The eleventh dispute involves the set-off and carry-forward of brought forward business loss. The tribunal held that the brought forward loss should be adjusted against business income and carried forward if not fully set off, but it cannot be set off against income from other sources or capital gains.

12. Charging of Interest Under Section 234D:
The twelfth dispute is about the charging of interest under section 234D. The tribunal deleted the interest levied, citing the decision of the Special Bench of the Tribunal in the case of Ekta Promotors Pvt. Ltd., which held that section 234D applies only from assessment year 2004-05.

13. Additional Grounds:
The tribunal dismissed the additional ground regarding the allowability of rates and taxes against capital gain, holding that such expenditure cannot be allowed under section 48 as it did not relate to the improvement of the land or expenditure incurred wholly and exclusively in connection with the transfer.

14. Revenue's Appeal:
The tribunal dismissed the revenue's appeal on all four grounds, confirming the CIT(A)'s decisions to allow the sales tax payment, professional expenses, employee costs, and administrative expenses against business income.

Conclusion:
The appeal of the assessee is partly allowed, whereas the appeal of the revenue is dismissed. The tribunal's detailed analysis and decisions on each issue provide a comprehensive resolution to the disputes raised in the cross appeals.