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2017 (3) TMI 1246 - HC - Income TaxNature of interest income - income of the assessee was assessable under the head 'business' rather than income from 'other sources' - Held that:- It is not disputed that the assessee had advanced loan to about eight parties in the 1970s, as could be gathered from the facts incorporated in the order of the Income Tax Appellate Tribunal in the appeal pertaining to the assessment year 1984-85. Since the loans were not recovered and the business of banking and money lending was being wound up, the assessee had to continue with its establishment at Nagpur and also had to incur expenses for the business establishment. The facts involved in the case before the Gujarat High Court and the present case are similar and it would be necessary to hold in the circumstances of the case that the activity of advancing money to about eight parties by the assessee was a sort of an organized activity based on the object mentioned in the Memorandum and Articles of Association of the company and the income that was derived by the assessee was liable to be taxed as income from business and not income from other sources. It would be necessary to note that the assessee had advanced a sum of ₹ 2,00,000/to Shri Ramprasad in the year 1975 on a pronote with interest of 12% per annum. Ramprasad paid the interest to the assessee only till 31.03.1978 and thereafter did not pay a single pie towards interest or principal. As nothing could be recovered from the party, the loan was ultimately written off in the year 1984 by the assessee. The assessee claimed that since no real income was earned by the assessee, nothing could be assessed in respect of the same. In the aforesaid set of facts, we find that the Income Tax Appellate Tribunal was not justified in adding accrued interest on the loan advanced to Shri Ramprasad, which was ultimately written off in the year 1984. An addition in respect of the accrued income of the nonperforming asset could not have been made. The income of the assessee was assessable under the head 'business' and not income from 'other sources'. Having answered the aforesaid question in favour of the assessee, we hold that in the circumstances of the case, there was no justification in law for the disallowance of 20% of the establishment expenses. We further hold that the set off of losses of earlier years could be allowed as deduction during the relevant assessment year. We also hold that in the circumstances of the case, no income from interest on the loan to Shri Ramprasad could be assessed during the relevant assessment year on accrual basis when the loan was written off in the year 1984.
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