2009 (12) TMI 1002 - HC - Income Tax

Tribunal's Decision Upheld: Interest Income from Bonds Classified as Business Income

Commissioner of Income-Tax, Thiruvananthapuram Versus Kerala Infrastructure Investment Fund Board

The court upheld the Tribunal's decision, dismissing the revenue's appeals. It concluded that the respondent's raising of funds through bonds and ... - Issues involved: Appeal by revenue against Tribunal's decision on interest income classification as business income or income from other sources.Details of the judgment:1. Issue 1 - Classification of interest income: The respondent, constituted under the Kerala Infrastructure Investment Fund Act, raised funds through public borrowings by issuing bonds. The Assessing Officer initially treated the interest income as income from other sources, citing the need for the respondent to advance funds for infrastructure projects to be considered as commencing business. However, the CIT (Appeals) and the Tribunal held that the setting up of the fund itself marked the commencement of business, allowing the interest income to be assessed as business income. The Tribunal found that the interest earned on deposits of borrowed funds was part of the business activity of financing infrastructure projects. The court differentiated this case from a previous Supreme Court decision involving a manufacturing company, emphasizing that the respondent's primary activity was financing for infrastructure projects, justifying the treatment of interest income as business income.2. Decision: The court upheld the Tribunal's decision, dismissing the revenue's appeals. It concluded that the respondent's raising of funds through bonds and subsequent deployment for infrastructure projects constituted the commencement of business. Therefore, the interest income earned on the deposited funds was rightly classified as income from business, entitling the respondent to all applicable deductions in the computation of business income.