TMI Blog2017 (5) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration is concerned, the same is allowed as we have held above that it is the amended section 32(2) as amended by the Finance Act 2001 that will apply. In the result, ground no. 2 of assesses’s cross objection is partly allowed. Interest income earned - ‘Income from Business’ OR ‘Income from other sources’ - Held that:- What is relevant to examine is whether advancing of funds by way of interest bearing loan is one of the activities which has been regularly carried by the assessee as part of its business activities or not. And where such activities are not part of the regular business activities carried on by the assessee, what is the business expediency of advancing funds to the third parties. The next question that arise for consideration is the funds that have been advanced and whether the same have been advanced from borrowed funds as claimed by the appellant or internal surplus funds as available with the assessee and how the necessary nexus is established between the two. The ld AR has submitted that these advances were made in earlier years as is evidenced from copy of accounts submitted herewith along with Bank statement showing source of advance being from C.C A/c of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n business is assessable under the head Income from Business instead of under the head Income from other sources as held by the assessing officer. 2. That the ground No. 1 raised by revenue in its appeal do not arise from the assessment order or from appeal order hence not maintainable. In any case the said ground of appeal is wrong and bad in law in as much as the carried forward deprecation of earlier years remaining unabsorbed as on April 1, 2001 would be governed by the provisions of Finance Act, 2001 replacing sub- section (2) of S. 32 by a new sub-section (2) of S. 32. 2. Firstly, we take up the appeal of the Revenue for AY 2009-10 in ITA No. 357/JP/14 and assessee s cross objection in ITA No. 16/JP/14. 3. In its solitary ground of appeal, the Revenue has challenged the action of ld. CIT(A) in directing to allow set off of unabsorbed depreciation pertaining to A.Y. 2000-2001 and A.Y 2001-02 from income under the head income from other sources pertaining to the year under consideration in view of the amendment effected by the Finance Act 2001 which has been stated to be applicable from A.Y. 2002-03 only. 3.1 It is noted that the provision of section 32( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be allowance of that previous year, and so on for the succeeding previous years. 36. The purpose of this amendment has been clarified by Central Board of Direct Taxes in the Circular No. 14 of 2001. The relevant portion of the said Circular reads as under:- Modification of provisions relating to depreciation 30.1 Under the existing provisions of section 32 of the Income-tax Act, carry forward and set off of unabsorbed depreciation is allowed for 8 years. 30.2 With a view to enable the industry to conserve sufficient funds to replace plant and machinery, specially in an era where obsolescence takes place so often, the Act has dispensed with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depreciation u/s 32 shall be mandatory. 30.3 Under the existing provisions, no ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f till the A.Y. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. 38. Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during the year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation pertaining to A.Ys 2000-01 and 2001-02 have not been set off in the earlier years and the same is being carried forward to the year under consideration for being set off. In light of above, ground taken by the Revenue is dismissed. 3.5 In ground No. 2 of the assessee s cross objection, it cannot be said that issue relating to set off of unabsorbed depreciation doesnt arise from the assessment order. At the same time, as far as governing law relating to set off for the year under consideration is concerned, the same is allowed as we have held above that it is the amended section 32(2) as amended by the Finance Act 2001 that will apply. In the result, ground no. 2 of assesses s cross objection is partly allowed. 4. Now coming to the ground No. 1 of the assessee cross objection, the assessee has challenged the action of the ld CIT(A) in not accepting its plea that interest income ₹ 4975203/- earned by the appellant during the course of carrying on business is assessable under the head Income from Business instead of income under the head Income from other sources held by the assessing officer. 4.1. The ld. AR has submitted that in the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, interest on fixed deposits etc. where interest income was held to be assessable under the head other sources . The judgment in case of Tuticorin Alkali Chemicals referred by A.O. is on interest received on share capital before commencement of business and hence not applicable. Thus the receipt of interest is rightly assessable as income from business and not from income from other sources. The ld. CIT(A) has wrongly held that the assessee company has failed to establish that the loans were given for business purposes. As submitted the assessee company earned interest income from making advances out of its current business funds available in Bank A/c(s) including O.D. A/c(s) as is evident from details placed at Paper book. Thus the interest receipts of assessee as business receipts for set off from interest expenses of assessee company which both are to considered under the head business after netting and interest receipts alone cannot be said to be assessable under the head other sources. The ld. CIT(A) disallowed the claim of assessee in view of he held that interest income is assessable as income from other sources and so cannot be allowed to set off which is not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,83,93,641/- paid to banks and ₹ 12,92,976/- to others. The interest paid to banks was clearly for business purposes and, hence, it cannot be set off against the interest income under the head income from other sources. The balance amount has been paid to other persons. The appellant has failed to show any nexus between the interest paid to others and the interest earned by it. In order to claim set off against interest income, the appellant has to show that the amount was paid wholly and exclusively to earn interest income, which it has failed to do. Hence, the set off of interest expenses cannot be allowed against the interest income u/s 57(iii). 4.3. We have heard the rival contentions and perused the material available on record. The ld. CIT(A) has stated that the assessee has failed to establish necessary business nexus with the persons to whom the money was advanced. The assessee has submitted that the business funds out of CC limit of bank were advanced to various parties to reduce the burden interest payable to Bank and so the interest receipts are business receipts required to be set off from interest expenses of business. In our view, what is relevant to exam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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