2005 (2) TMI 763 - AT - Income Tax

Tribunal classifies interest income as business income for real estate entity, granting tax benefits.

Swire Holdings (P.) Ltd. Versus Income-tax Officer, Ward 12(2)

Swire Holdings (P.) Ltd. Versus Income-tax Officer, Ward 12(2) - [2006] 6 SOT 621 (BANG.) (SMC) Issues involved: Taxability of interest income as business income or income from other sources.Summary:The appeal was filed against the order of the CIT(A)-IV, Bangalore, regarding the taxability of a sum of Rs. 1,89,025 as income for the year, representing interest earned by the assessee-company. The Assessing Officer considered the interest as income from other sources due to the assessee not canvassing its business. The Tribunal was approached by the assessee to challenge this decision.The assessee's main business is real estate, involving the identification, procurement, and development of properties into commercial/residential units. The company had advanced money to landowners for acquiring properties. The assessee argued that its business commenced upon incorporation, as no pre-operation period was involved. The interest income earned should be treated as business income, not income from surplus funds. The Departmental Representative disagreed, stating there was no business activity yet. The Tribunal noted that the real estate business had indeed started upon incorporation and the funds advanced for property dealings indicated business commencement. Citing a relevant case, the Tribunal ruled in favor of the assessee, stating the income should be treated as business income, allowing necessary benefits and deductions.Therefore, the Tribunal allowed the appeal filed by the assessee, concluding that the interest income should be treated as income from business, not from other sources.