2025 (6) TMI 1910 - AT - Income Tax

Correct head of income - interest income and miscellaneous income earned by the assessee - to be taxed under the head income from business and profession or income from other sources - HELD THAT - As in view of Tribunal s observation in assessee s own case for A.Y. 2015-16 2023 (8) TMI 1438 - ITAT AHMEDABAD wherein it has been held that such income qualifies as business income it is held that such interest income and miscellaneous income earned by the assessee is liable to be taxed under the head income from business and profession instead of income from other sources . Accordingly on this issue the earlier order passed by the Tribunal 2024 (3) TMI 199 - ITAT AHMEDABAD shall stand replaced with our above observations with regards to taxability of interest income and miscellaneous income. Decided against revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was the correct head under which the "interest income" and "miscellaneous income" earned by the assessee should be taxed. Specifically, the issue was whether such income should be classified as "income from business and profession" or "income from other sources". This issue arose in the context of a partial recall of the original order, which had incorrectly held that the income in question was taxable as "income from other sources". The Tribunal was called upon to reconsider this issue in light of a precedent in the assessee's own case for the immediately preceding assessment year, where the income was held to be taxable as business income.

2. ISSUE-WISE DETAILED ANALYSIS

Taxability of Interest Income and Miscellaneous Income: Business Income or Income from Other Sources?

Relevant Legal Framework and Precedents: The Tribunal examined its own coordinate bench's decision in the assessee's case for the assessment year 2015-16, where the issue had been adjudicated. The relevant precedent was ITA No. 569/Ahd/2019, in which it was held that interest income and miscellaneous income earned by the assessee were directly related to the business and, therefore, liable to be taxed under the head "income from business and profession". This decision was also supported by the jurisdictional High Court's affirmation in Tax Appeal No. 63 of 2020, which confirmed the Tribunal's findings.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer had originally treated the income as "income from other sources" without adequately controverting the assessee's submissions that the income was business-related. The Tribunal emphasized that the interest income arose from loans and advances related to the assessee's business operations, such as deposits placed with a power project and interest from a UL pool account with a power corporation, thereby establishing a direct nexus with the business activity.

Key Evidence and Findings: The Tribunal relied on the factual matrix that the interest and miscellaneous income were generated from transactions integrally connected with the assessee's business. The Tribunal also referenced the prior appellate orders, including the CIT(A) and the earlier Tribunal decision, which had accepted the business nexus of such income.

Application of Law to Facts: Applying the principle that income arising directly from business operations should be taxed as business income, the Tribunal concluded that the interest and miscellaneous income in question fell within this category. The Tribunal rejected the Department's contention that the income should be treated as "income from other sources", as this classification would be inconsistent with the nature and origin of the income.

Treatment of Competing Arguments: The Department had initially succeeded in having the income taxed under "income from other sources" in the original order dated 29.02.2024. However, this was found to be a mistake apparent from the record, as the Tribunal had failed to consider the assessee's reliance on the earlier coordinate bench decision. Upon review, the Tribunal gave precedence to the earlier consistent findings, thereby overruling the Department's argument.

Conclusions: The Tribunal held that the interest income and miscellaneous income earned by the assessee are liable to be taxed under the head "income from business and profession". Consequently, the earlier order dated 29.02.2024 was recalled to the limited extent of this issue and replaced with the present findings.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim extract from the earlier coordinate bench decision, which was adopted in the present order:

"The assessing Officer has treated the aforesaid income under the head income from other sources without controverting the submission of the assessee on the basis of which it was claimed that these income were of the nature of business income as elaborated in para seven of this order. The ld. CIT(A) has decided the issue in favour of the assessees taking that this issue was decided in favour of the assessee for assessment year 2009-10. During the course of appellate proceedings, the Revenue has failed to controvert the aforesaid contention and the findings of the ld. ClT(A), therefore after considering the material fact that interest earned on loan and advances from deposit placed with Mega Power Project toward its sharing of power and interest of UL pool account received from M/s. Power Grid Corporation India Ltd were directly related to the business of the assessee, therefore, this ground of appeal of the Revenue stands dismissed."

Further, the Tribunal affirmed:

"Respectfully following the Jurisdictional High Court judgment which has confirmed Tribunal's decision in assessee's own case, we hereby held that the interest income and miscellaneous income earned by the assessee were directly related to the business of the assessee and assessable as 'business income' only and not as 'income from other sources'."

The core principle established is that income derived from financial transactions integrally connected with the business operations of the assessee qualifies as business income, notwithstanding the nature of the income as interest or miscellaneous receipts. This principle ensures that the classification reflects the true nature of the income and its nexus to the business activity.

On the issue of taxability of interest income and miscellaneous income, the Tribunal conclusively held that such income is taxable under the head "income from business and profession". Accordingly, the appeal of the Department on this issue was dismissed, and the earlier order was modified to reflect this position.