1998 (3) TMI 24 - HC - Income Tax

Court categorizes company's interest income under 'Other sources' not 'Business' due to investment nature.

The court upheld the decision that the interest income of the company should be assessed under the head 'Other sources' rather than 'Business.' The court ... Income From Other Sources, Appellate Tribunal Issues Involved:1. Whether the interest income arising to the assessee should be assessed under the head 'Other sources' or 'Business'.Summary:Issue 1: Assessment of Interest IncomeThe primary issue was whether the interest income arising to the assessee should be assessed under the head 'Other sources' or 'Business'. The assessee, a company, claimed that its interest income should be assessed under the head 'Business' to set off against the business loss carried forward from earlier years. The Income-tax Officer, however, found that the characteristics of money-lending business were absent in the advances made to fourteen private trusts, and thus, the interest income should be assessed under the head 'Other sources'. This decision was upheld by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal (ITAT).Arguments by Assessee:The assessee argued that the advances were made out of its own capital, not borrowed funds, and that similar transactions by public financial institutions and banks are considered under the head 'Business'. The assessee also cited previous Tribunal findings for the assessment year 1976-77, where it was accepted that the assessee was carrying on money-lending business. The assessee relied on several judicial precedents, including Supreme Court decisions in *Investment Ltd. v. CIT* and *CIT v. Calcutta National Bank Ltd.*, to support its claim that even isolated transactions could constitute business activity.Arguments by Revenue:The Revenue contended that the Tribunal's finding that the assessee was not carrying on money-lending business was based on the facts and should be regarded as a finding of fact. They argued that the mere presence of an object clause in the memorandum of association was insufficient to prove that the assessee was carrying on money-lending business. The Revenue also cited judicial precedents, including *Ghanshyamdas Gangadhar v. CIT* and *Amarchand Sobhachand v. CIT*, to support their position.Court's Analysis:The court noted that the Tribunal had examined the matter in detail and found that the advances were short-term, with low interest rates, and were made to closely connected parties, indicating that the transactions were investments rather than money-lending business. The court emphasized that each assessment year is self-contained, and previous Tribunal findings were not conclusive but could be considered as evidence. The court also considered the absence of continuous and systematic activity in the assessee's transactions, which is essential to constitute a business.Conclusion:The court concluded that the Tribunal's finding that the assessee was not carrying on money-lending business was based on the materials on record and constituted a finding of fact. Therefore, the interest income should be assessed under the head 'Other sources'. The common question of law was answered in the affirmative and against the assessee, with the Revenue entitled to costs of Rs. 1,500.