2010 (9) TMI 1258 - AT - Income Tax

Tribunal classifies income, allows deductions, disallows set off of losses.

The tribunal upheld the classification of lease rent and interest income as 'income from other sources' instead of 'income from business,' rejecting the ... - Issues Involved:1. Classification of lease rent and interest income.2. Disallowance of expenses due to no business activity.3. Set off of accumulated unabsorbed business losses.Summary:Issue 1: Classification of Lease Rent and Interest IncomeThe appellant contested the treatment of lease rent and interest as 'income from other sources' instead of 'income from business.' The appellant argued that in previous years, similar interest income was consistently assessed as business income, invoking the principle of consistency. However, the tribunal noted that the principle of res judicata does not apply in income tax proceedings and emphasized that the principle of consistency is only applicable if the earlier view is legally tenable. Since the appellant was not in the business of money lending, the tribunal concluded that interest income could not be assessed as business income. Consequently, the tribunal upheld the CIT(A)'s order, rejecting the appellant's ground.Issue 2: Disallowance of Expenses Due to No Business ActivityThe appellant claimed deductions for various expenses against the lease rent and interest income, which were disallowed by the A.O. on the grounds that no business was carried out. The tribunal referred to the judgment of the Hon'ble High Court of Calcutta in CIT Vs New Savan Sugar & Gur Refining Co. Ltd., which allows deductions for expenses incurred to maintain an establishment and comply with statutory obligations even if no business is carried out. The tribunal remanded the matter back to the A.O. to determine the extent of expenses incurred for maintaining the establishment and complying with statutory obligations, and to verify if the business was facing a temporary lull or was discontinued. The tribunal allowed the appellant's grounds for statistical purposes.Issue 3: Set Off of Accumulated Unabsorbed Business LossesThe appellant sought to set off brought forward unabsorbed business losses, which was disallowed by the A.O. and upheld by the CIT(A). The tribunal noted that u/s 72(1), brought forward business losses can only be set off against business income. Since the appellant had no business income in the current year, the tribunal concluded that the set off of brought forward business losses could not be allowed, thereby rejecting the appellant's ground.Conclusion:The appeal was partly allowed for statistical purposes, with the tribunal remanding the issue of expense deductions back to the A.O. for fresh consideration.