Income from other sources

[DEV KUMAR KOTHARI]

Any organized activity carried in a systematic manner is regarded as a business activity.Income earned from any business operation in different manner will not necessarily be income from business. Depending on nature of income and manner in which it is earned different type of income can fall under different heads. For example if there is letting out of property to tenants, the rental income will be u/h income from house property, if surplus funds are deployed in FDR interest may fall u/h income from other sources, if a capital asset is sold the gain will fall u/h capital gains.Even sale fo depreciable assets used in business in considered u/h capital gains. When an asset is held in course of business, cost of holdign and carrying asset are allwable as normal business expenese irrespective of head in which particular type of income may fall. Therefore, when investment assets are held as capital assets, the expenses for holdign and carrying assets need to be allowed u/h business income irrespective of heads under which income may fall in due course. Refer definition of business which include adventure in nature of commerce- investmetns are such adventure. View of readers are solicited. Readers may also refer article on this website on this issue .

[Rama Krishana]

You may be that while calculating profits and gains from sale of capital goods, the cost incurred on such capital goods should be deducted. But in my view, from academic prospective it is good concept, but from practical purpose it is not an advisable proportion as well. Why i am saying so, that, would to agree to keep proper records and account for capital goods you have. Whether those books of account would be required to audited et. ect. so may issue would arise. As I remember, there was a query in this fourm regarding the proof of cost of imporvements. The availability of evidence on maintenance of such assets would be a greate difficulty. Yes, I agree with your views that, if he likes to maintain such assets as part of stock in trade (adventure in the nature of trade or commerce) he can claim the benefit. But, who would like to loose the benefit of indexed cost of acquisition. The concept of indexed cost is for the purpose of addressing the issued raised in your query. Since, there are various options available, it is the choice of the assessee.

[DEV KUMAR KOTHARI]

Dear Mr.Rama Krishana,

Claim of cost with  CII benefit is a contingent benefit and then the benefit will be against concessional rate income. If one can get deduction u/h business the beneift will be immediate and it will be against income taxed at normal rate. The benefit of set off, carry forwad and set off is also in a better position then chances of getting CII beneift in an uncertain future. Therefore, I always prefer and advise to claim u/h business as far as possible.

Some courts have allowed interst paid iro capital assets against 'capital gains', however, with due respect I beg to differ, because such costs, in my view are neither cost of acquisition nor cost of improvement. My article on this subject is also webhosted on thes website.

AI Summary

Classification of income determines deductibility of holding expenses and whether immediate business deductions or capital gains treatment apply. Classification of income depends on nature and manner of earning; holding and carrying costs are deductible as business expenses only when assets are held as part of a business or an adventure in the nature of trade. Electing stock-in-trade treatment permits immediate deduction and superior set-off and carry-forward options but entails record-keeping, audit risks, and loss of capital gains benefits such as indexed cost of acquisition. Practical evidentiary difficulties also affect claims like interest attributable to capital assets.