Itta/146/2004 Of M/S.north East Securities Limited v. Deputy Commissioner,The Income Tax Circle No.iv {3}

THE HON'BLE SRI JUSTICE DILIP B. BHOSALE AND THE HON'BLE SRI JUSTICE A.RAMALINGESWARA RAO ITTA Nos.142 and 146 of 2004 COMMON ORDER:(Per Hon’ble Sri Justice A.Ramalingeswara Rao) These two appeals are being disposed of by this common order as in both the appeals the following substantial questions of law were raised for ourconsideration: “a) Whether in the facts and circumstances of the case, Income Tax AppellateTribunal was correct in law, in holding that the interest obtained by theAppellant Company from granting of loans and advances and ICDS etc.constituted income from other sources and not business income? b) Whether the Income Tax Appellate Tribunal was correct in law in holdingthat the interest obtained on ICDS, Loans and Advances made in the course ofcarrying on business did not constitute business income and if not, whether theTribunal was correct in limiting the allowance of expenditure while sustainingthe assessment of income under other sources? 2. The appellant was incorporated on 09.12.1994 with the main object of settingup of spinning and weaving mill and to carry on business of manufacture andsale of various kinds of cotton and synthetic fibers and machinery equipmentand also to invest and to deal in shares. 3. The assessee filed its return of income for the assessment years 1996-97and 1997-98 and they were finalized under Section 143(3) of the Income TaxAct, by orders dated 31.03.1999 and 31.03.2000 respectively. Challenging thesaid orders, the assessee preferred appeals before the Commissioner ofIncome Tax (Appeals)-IV, Hyderabad. Before the appellate authority, theassessee challenged the tax treatment given by the Assessing Officer to theloss on account of purchase and sale of shares and the action of the Assessing Officer in restricting the claim for deduction of expenditure. Theappeals were dismissed by the appellate authority holding that the sharesrepresented investment made by the appellant and the loss incurred onpurchase and sale of shares was correctly treated as “short term capital loss”by the Assessing Officer, and accordingly, confirmed the action of theAssessing Officer. So far as the deduction on account of expenses isconcerned, it was observed that the interest income, dividend and servicecharges had been assessed under the head “Income from other sources” andthe main receipt was on account of interest on inter-corporate deposits andsince the aforesaid income had been assessed under the head “Income fromother sources”, the assessee would be entitled to deduction only for that part ofthe expenditure which was necessary for earning the income. 4. The assessee carried the matter in appeal to the Income Tax AppellateTribunal, Hyderabad Bench ‘B’, Hyderabad, and the Tribunal disposed ofappeals bearing ITA Nos.715/Hyd/99 and 523/Hyd/2001 for the assessmentyears 1996-97 and 1997-98 respectively by common order dated 27.10.2003.The Tribunal held that the loss on sale of shares has to be treated as lossunder the head “business” and since there is no appeal against the said findingby the revenue, we are not concerned with the said issue. With regard to theother issue of disallowance of proportionate expenses on the income receivedon ICDs, security deposits and service charges and dividends, it was held thatonly such expenditure which has a direct bearing on earning of such income isallowable as deduction. Accordingly, it confirmed the orders of the AssessingOfficer and the appellate authority in treating the expenditure referable to theincome declared under the head “other sources”. Against this finding of theTribunal, the above appeals are filed by the assessee. 5. Learned Counsel for the appellant submits that the income derived frominterest received on ICDs, security deposits and service charges anddividends could not form part of income from other sources, but as a businessincome. Hence, the expenses for earning such income should have beenallowed as deduction. The learned Counsel for the Revenue, on the other hand,submitted that the main object of the assessee was to establish spinning andweaving mill, and the investment in ICDs and other deposits were made only to make income out of idle funds and it cannot be construed as business incomeas there was no nexus. 6. Apart from the short term capital loss on sale of shares claimed by theassessee, income from interest on ICDs, dividends, security deposits andservice charges are the main sources of income. The assessee debited allexpenses to the profit and loss account and claimed deduction against theaforementioned income. The Assessing Officer treated the above income asincome from other sources and allowed deduction only to the extent ofexpenses relatable to earning of other incomes. Out of the expenses ofRs.5,91,404/- for the assessment year 1996-97, the Assessing Officer alloweda sum of Rs.1,25,000/-, whereas for the assessment year 1997-98, theAssessing Officer allowed only Rs.5.00 lakhs as against the total claim ofRs.25.31 lakhs towards expenditure. 7. Before the Tribunal, the treatment of income under the head “other sources”was not assailed, but only the deduction of expenditure was challenged. Whenthe income was treated under the head “other sources”, it is logical that theexpenditure incurred for earning such income from “other sources” alone canbe allowed as deduction. Such treatment of expenditure by the assessingofficer was confirmed by the appellate authority as well as by the Tribunal. Wesee no error in the order of the Tribunal. 8. In the facts and circumstances of the case, no substantial question of lawarises for consideration. The Appeals are, accordingly, dismissed.Miscellaneous petitions, if any, pending in these appeals shall stand disposedof. There shall be no order as to costs. ______________________ (DILIP B. BHOSALE, J) Date: 31.03.2015 TJMR ________________________________ (A.RAMALINGESWARA RAO, J)