Ancillary money-lending activity can make interest taxable as business income, with related expenditure deductible as business expense.

Where money-lending forms an ancillary object and is carried on as a systematic activity, interest earned from such lending is assessable as business income rather than income from other sources, and the related expenditure is allowable as business expenditure. The note applies this principle to a company whose main development activity had become impossible under the Urban Land Ceiling Act, but whose lending transactions were treated as a regular money-lending business. Accordingly, the interest receipts were taxed as profits and gains of business and the connected expenses were deductible.

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Issues: Whether interest earned on loans advanced by the assessee company was assessable as business income and whether the related expenditure was deductible as business expenditure.

Analysis: The company's principal object was to develop lands and construct buildings, but that activity had become impossible because of the Urban Land Ceiling Act. One of its ancillary objects permitted money-lending and finance business. The lending of money to several parties on different dates was treated as a systematic activity amounting to money-lending business. On that basis, the interest receipts were held to arise from business operations and not from income from other sources. Since the receipts were taxable as business income, the connected expenditure was also held allowable as business expenditure.

Conclusion: The interest income was taxable as profits and gains of business, and the assessee was entitled to deduction of the related expenditure as business expenditure.

Ratio Decidendi: Where money-lending forms an ancillary object and is carried on as a systematic activity, interest earned therefrom is assessable as business income and the expenditure incurred for such business is allowable accordingly.

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