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Commissioner of Income Tax I, Ludhiana Versus Late Smt. Reeta Gupta C/o. M/s R.K. Cloth Mills

Treatment to interest income - business income or income from other sources - adjust B/F losses related to against interest Income denied by AO - ITAT allowed assessee claim - Held that:- Where the assessee is regularly engaged in money lending business and is earning interest therefrom, interest income is to be taxable under the head "business income", regardless of the fact that the assessee has obtained any licence for such money lending business or not. For this proposition, we are fortified .....

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iven in the ordinary course of its activities. The Hon'ble Apex Court held that "absence of money lending licence is not so crucial for the purpose of Income Tax Act, if the nature of activity undertaken by the assessee can be decided on the basis of other facts." Admittedly, the assessee was engaged in granting of loans on regular basis and interest income was shown as business income, also attained finality on identical fact in earlier assessment year and accepted by the department as business .....

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-2015 - Ajay Kumar Mittal And Ramendra Jain, JJ. For the Petitioner : Mr. Rajesh Katoch, Adv For the Respondent : Mr. S. K. Mukhi, Adv JUDGMENT Ajay Kumar Mittal, J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dated 31.7.2008 Annexure A.III passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh in ITA No.269/Chandi/2008, for the assessment year 2004-05, claiming fo .....

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ndividual. She had filed her return of income on 10.10.2004 declaring income of ₹ 42,20,191/- i.e. ₹ 1,75,396/- from business of clothes as proprietor of M/s Reeta Industries and ₹ 41,95,010/- from money lending business. The interest income from money lending had been shown at ₹ 48,20,155/- and net profit of ₹ 41,95,010/-. While framing assessment, the Assessing Officer assessed income at ₹ 70,32,250/- by treating the interest income of ₹ 47,05,978/- as .....

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against income from other sources. The issue of set off of brought forward business losses of earlier years with profit from money lending business of the assessee considering it income from interest under the head 'Income from business or profession' was also allowed. Aggrieved by the order, the Department went in appeal before the Tribunal. Vide order dated 31.7.2008, Annexure A.III, the Tribunal dismissed the appeal holding that the interest income was business income. Hence the insta .....

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e year which cannot be taken as the main business activity of the assessee. The activity carried on by the assessee can be termed as internal management of funds which is not the money lending business but spread over to the family members or other connected persons. 5. The CIT(A) while allowing the appeal filed by the assessee held that the assessee had been carrying on business of money lending for the last many years and there was continuous rotation of money wherein deposits were made with d .....

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8 parties. However, as already discussed, there cannot be any yard stick regarding minimum number of parties from whom interest is received to decide as to whether such income could be considered to be the business income or otherwise. This alone would not decide the nature of interest income of an assessee and the entirety of the facts and circumstances would have to be taken into account. Another objection of the AO in this regard, is that appellant has not taken any licence for money lending .....

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r the purposes of Income Tax Act, 1961 if nature of activity undertaken by the assessee can be decided on the face of other facts. In that case, the assessee was shown to be engaged in granting loans on regular basis and income has also been shown as business income, which also reflected the intention of the assessee. Therefore, in the facts and circumstances of that case, in the absence of licence for money lending business, interest earned by the assessee was held to be from business and profe .....

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rned counsel that it is not essential that to run such business the appellant must have incurred such expenses. In view of the above discussion and taking into account the fact that the appellant in the earlier years was also claiming interest income as business income while filing returns of income on this basis and the same having been accepted by the department in the order under Section 143(3) dated 9.1.2006 for the assessment year 2003-04, the claim of the appellant that the income earned d .....

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lared for the purpose of taxation and that has been done by the assessee. The moot question before us is the consideration of categorization of income as "business income" or "income from other sources". Where the assessee is regularly engaged in money lending business and is earning interest therefrom, interest income is to be taxable under the head "business income", regardless of the fact that the assessee has obtained any licence for such money lending business .....

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