2018 (4) TMI 559 - AT - Income Tax

Tribunal Upholds Interest Income as Business Income, Dismisses Revenue's Appeal

The Assistant Commissioner of Income Tax, Chennai Versus Shri. S. Vinodh Kumar

The Tribunal upheld the Commissioner's decision to treat interest income as business income, dismissing the Revenue's appeal. The exemption of dividend ... Interest income assessment - whether to be considered under the head business income and allowing the expenditure exclusively incurred for earning such income? - Held that:- Non charging of interest from few persons to whom assessee had advanced loans would not be a sufficient enough a reason to hold that assessee was not doing a finance and investments business. Assessment order for assessment year 2009-2010 placed by the assessee clearly show that AO had accepted the business of the assessee as one of finance and investment. DR could not point out any difference in facts or any change of facts from what existed for assessment year 2009-2010, vis-a-vis the impugned assessment year. Commissioner of Income Tax (Appeals) was justified in taking a view that interest income of the assessee had to be considered under the head business income and allowing the expenditure exclusively incurred for earning such income. - Decided against revenue Dividend income received by Minor V. Prateek and Minor V.Palak - exemption u/s.10(34) r.w.s. 115O allowed - Held that:- DR fairly admitted that assessee had produced records which demonstrated payment of dividend distribution tax by the concerned companies from which dividends were received by Minor V. Prateek and Minor V.Palak. In our opinion, dividend distribution tax under Section 115O of the Act, having been paid by the companies concerned, ld. Commissioner of Income Tax (Appeals) was justified in holding that dividend income received by Minor V. Prateek and Minor V.Palak were exempt u/s.10(34) of the Act - Decided against revenue Addition claimed by the assessee u/s.35AC - claim of deduction u/s.35AC is not an allowable expenditure as the assessee has no business income - Held that:- A reading of the above ground clearly show that it is raised as corollary to ground No.2 regarding treatment of the interest income earned by the assessee. We have already upheld the order of the ld. Commissioner of Income Tax (Appeals) that interest received by the assessee was rightly treated as business income of the assessee. Disallowance of unrealized rent while computing its income from house property for a warehouse premise - Held that:- We find that none of the lower authorities had examined the issue based on the Section and Rule mentioned supra. Issue in our opinion requires a revisit by the ld. Assessing Officer. We therefore set aside the orders of the lower authorities and remit this issue back to the file of the ld. Assessing Officer for consideration afresh. Issues Involved:1. Treatment of interest income received by the assessee as business income.2. Exemption of dividend income under section 10(34) for minors.3. Allowance of deduction claimed under section 35AC.4. Disallowance of unrealized rent in computing income from house property.Issue 1: Treatment of Interest Income:The Revenue contended that the assessee was not engaged in any business activity and thus, interest income should not be considered as business income. They cited judgments to support their argument. However, the Tribunal noted that the Assessing Officer had previously accepted the business nature of the assessee's activities. The Tribunal found no change in facts and upheld the Commissioner's decision to treat interest income as business income, dismissing the Revenue's appeal.Issue 2: Exemption of Dividend Income:The Revenue challenged the exemption of dividend income for minors under section 10(34). However, it was established that dividend distribution tax had been paid by the companies, justifying the exemption. The Tribunal upheld the Commissioner's decision, dismissing the Revenue's appeal on this ground.Issue 3: Allowance of Deduction under Section 35AC:The Revenue raised a corollary issue regarding the deduction claimed under section 35AC, linked to the treatment of interest income. Since the Tribunal had already ruled in favor of treating interest income as business income, the deduction under section 35AC became irrelevant, resulting in its dismissal.Issue 4: Disallowance of Unrealized Rent:The assessee contested the disallowance of unrealized rent while computing income from a property. The Tribunal observed that the lower authorities did not consider relevant provisions of Section 23 and Rule 4 of the Income Tax Rules, which govern the treatment of unrealized rent. As a result, the Tribunal remitted the issue back to the Assessing Officer for a fresh consideration, allowing the assessee's cross objection for statistical purposes.In conclusion, the Tribunal dismissed the Revenue's appeal and allowed the assessee's cross objection on the issue of unrealized rent, directing a reassessment by the Assessing Officer.