2015 (2) TMI 1283 - AT - Income Tax

Interest income - treated as income from other sources or busniss income - Held that - The assessee was engaged in the business of development and construction of properties. The assessee firm had received advances from customers and money received through such advances which were not required immediately was deposited in FDRs etc. on temporary basis. The interest credited on such deposits was deducted from the work in progress. Assessing Officer taxed such interest as income from other sources . Referring to decision of Hon ble Supreme Court in the case of CIT v Bokaro Steel Ltd.(1998 (12) TMI 4 - SUPREME COURT) and held that interest income is to be assessed as business income because the assessee had already commenced business. In this background the interest income was held to be not taxable. In our opinion the facts of the assessee s case are identical to this case and therefore following this decision we hold that interest income cannot be treated as income from other sources as since he same has been reduced from the work in progress the same is not taxable. Therefore we set aside the order of Ld. CIT(A) and delete the addition. - decided in favour of assessee.

Summary

Issues:
1. Addition of interest income as 'Income from other Sources' instead of 'business income.'
2. Eligibility for relief under sections 70 or 71.
3. Consideration of written submissions during appellate proceedings.

Analysis:

Issue 1:
The Assessing Officer noted that the assessee, engaged in land development and construction, had not commenced business but earned interest income. Citing the Tuticorin Alkali Chemicals case, the interest income was taxed as 'Income from other Sources.' The CIT(A) upheld this decision, stating the business had not started. However, the appellant argued that construction had begun, and expenses were accounted for as 'work in progress.' Referring to the Bombay High Court's decision in Lok Holdings, the appellant contended that interest income should be considered as business income. The tribunal agreed, emphasizing that once construction activity starts, the business commences. Following precedent, the interest income was held not taxable, and the addition was deleted.

Issue 2:
The appellant contended that the company was eligible for relief under sections 70 or 71 due to advances received from customers linked to the business. The Assessing Officer's view was that the business had not commenced, thus denying the relief. The tribunal, however, found that the business had indeed started with construction activities, leading to the conclusion that the relief under sections 70 or 71 was applicable.

Issue 3:
The appellant raised concerns about the CIT(A) not considering written submissions during the appellate proceedings. While the CIT(A) confirmed the interest income assessment, the tribunal, after careful consideration, found in favor of the appellant, emphasizing the commencement of business activities and the treatment of interest income. The addition was consequently deleted, and the appeal was allowed.

In conclusion, the tribunal reversed the CIT(A)'s decision, ruling in favor of the appellant on all issues raised, emphasizing the commencement of business activities and the treatment of interest income as business income rather than 'Income from other Sources.' The judgment highlights the importance of correctly assessing the nature of income in line with business activities to determine tax liability accurately.