2002 (11) TMI 778 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of addition without allowing expenditure.
2. Computation of receipts under the head 'income from other sources'.
3. Computation of receipts under the head 'income from business or profession'.
4. Allowance of expenditure in computing income.
5. Liability for interest u/s 234B.

Summary:

1. Confirmation of Addition Without Allowing Expenditure:
The assessee challenged the confirmation of the addition of Rs. 1107.36 lakhs without allowing any expenditure incurred in earning such income. The Tribunal found that the authorities below did not appreciate the facts properly and held that the company had commenced its business activities immediately after obtaining the Certificate of Commencement of Business on 8-7-1994. The activities included loans and advances, bill discounting, structured financing, and hire purchasing, which were carried out systematically.

2. Computation of Receipts Under the Head 'Income from Other Sources':
The authorities below computed the entire receipts under the head 'income from other sources' and did not allow the expenditure incurred by the appellant. The Tribunal disagreed, stating that the company had carried on a systematic and continuous activity of lending, granting loans and advances, bills discounting, and purchase and sale of securities, which should be considered as business activities. Therefore, the income should be computed under the head 'profits and gains of business'.

3. Computation of Receipts Under the Head 'Income from Business or Profession':
The Tribunal held that the company had carried on business during the year and the income therefrom should be computed under the head 'business'. The systematic and continuous activities of borrowing and lending of funds, bill discounting, and leasing were sufficient to establish that the company had commenced its business. The Tribunal directed that the income should be computed under the head 'profits and gains of business'.

4. Allowance of Expenditure in Computing Income:
The Tribunal held that the expenditure incurred by the corporate treasury division, amounting to Rs. 15.50 crores, and the expenditure incurred on the issue of non-convertible portion of debentures, amounting to Rs. 10.77 crores, should be allowed as revenue expenditure in computing the income of the appellant. The Tribunal relied on the decisions of the Supreme Court in CIT v. Malayalam Plantations Ltd. and Sree Meenakshi Mills Ltd. to support the allowance of expenditure incurred for the purposes of business.

5. Liability for Interest u/s 234B:
The appellant denied the liabilities for interest u/s 234B and prayed that the interest should be levied only on returned income. The Tribunal directed the Assessing Officer to allow consequential relief on the interest levied u/s 234B of the Act.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal directing the Assessing Officer to compute the income under the head 'profits and gains of business' and allow the expenditure incurred by the corporate treasury division and on the issue of non-convertible portion of debentures.