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2023 (2) TMI 250 - AT - Income TaxCorrect head of income - Treatment of compensation received for breach of specific performance of the agreement - Business income or Income from other sources - HELD THAT:- Assessee did not lose any source of income or any profit / income deriving source but it was clearly a loan facility. The findings rendered with respect to re-stated agreement dated 15.02.2007 remain uncontroverted before us. All these facts would lead us to inevitable conclusion that the stated arrangement was nothing but loan facility extended by the assessee to the borrower. In return of loan facility, the assessee was to receive nothing but interest only. Therefore, the amount so received by the assessee has rightly been considered as interest income by Ld. AO and the adjudication as done by Ld. CIT(A), in the impugned order, to that extent, could not be faulted with. At the same time, it could be seen that the assessee is engaged in the business of making strategic investments in real estate space and having objective to invest in large projects both in commercial and residential space. The loans have been granted in furtherance of business objectives and therefore, interest income has to be considered as the ‘Business Income’ of the assessee and not as ‘Income from other sources’. Therefore, AO is directed to compute the interest income earned by the assessee as ‘Business Income’ and as a consequence, allow business expenditure, as allowable against the same. Applying the same reasoning, the interest earned by the assessee on inter-corporate deposits advanced to M/s Indus City Scapes Construction Pvt. Ltd. would be assessed as ‘Business Income’. We order so. The appeal stands partly allowed. Allowability of factoring charges - AO held that factoring charges was nothing but interest and therefore, the deduction of which would not be allowed to the assessee in terms of Sec.40(a)(ia), inter-alia, for want of deduction of tax at source - HELD THAT:- From the facts, it emerges that the assessee has availed factoring facility from EAFSL against receivables and paid factoring charges. We find that factoring charges could not be termed as interest u/s 2(28A) as per the decision of Hon’ble High Court of Delhi in PCIT vs. M. Sons Gems N Jewellery (P) Ltd. [2016 (4) TMI 1132 - DELHI HIGH COURT] This decision has referred to the decisions of Hon’ble Kolkata High Court in CIT v. MKJ Enterprises Ltd. [2014 (12) TMI 682 - CALCUTTA HIGH COURT] as well as another decision of Cargill Global Trading (P.) Ltd [2011 (2) TMI 209 - DELHI HIGH COURT] Considering these binding decisions and in the absence of any contrary decision on record, we would hold that no such disallowance could have been made u/s 40(a)(ia). Since we have already directed that the interest income earned by the assessee would be assessable as ‘business income’ and there is complete nexus of factoring charges with the funds advanced by the assessee and therefore, the factoring charges, would be an allowable deduction to the assessee. We order so. This Ground stands allowed.
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