TaxTMI 
TaxTMI 
2018 (2) TMI 665
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....presentative of the assessee attended and furnished requisite details. During the course of assessment proceedings, AO noticed that the assessee has earned interest income from loans and the same has been treated as receipts from business. The AO further noticed that the assessee has claimed various expenses to the extent of Rs. 15,22,025 which includes administrative and operational expenses against interest income and offered net profit of Rs. 90,25,337 under the head 'Income from business'. Therefore, called upon the assessee to explain as to why interest from loans shall not be treated as income from other sources and also expenses claimed against such interest income shall not be disallowed. In response to show cause notice, the assessee submitted that during the year under consideration its main business activity is money lending to another corporate and earn interest. Therefore, interest earned from loans has been rightly treated as business receipts. The assessee further submitted that though it has treated interest income in the previous financial year under the head "Income from other sources", because of change in facts and circumstances, it changed its business activity....
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....f business of the assessee as financial other relevant services which clearly indicates that its main business activity is earning interest income. Insofar as expenditure claimed against interest income, the assessee submitted that being a company which is an artificial juridical person, required to maintain the place of office to run its commercial activity whether or not business activity is carried out during the year under consideration. The expenditure incurred during the year like office rent, audit fees and other miscellaneous expenses are in the nature of day to day expenses required to keep the corporate status of the assessee and, therefore, it has rightly claimed expenses against interest income. The CIT(A), after considering relevant submissions of the assessee observed that the assessee company has offered interest income as other income in its financial statements for the year under consideration. This implies that the same is not from its business operations. The assessee also failed to prove any kind of business activity conducted during the year so as to treat its interest receipts under the head 'Income from business'. The CIT(A) further observed that the assessee....
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....cutta High Court in the case of CIT vs Ganga Properties Ltd (1993) 199 ITR 94 (Cal). 5. On the other hand, the Ld.DR strongly supported the orders of authorities below. The Ld.DR further submitted that the assessee all along offered interest income under the head 'Income from other sources' and without any material changes in facts considered interest income under the head 'Income from business'. Therefore, the AO was right in treating interest income under the head 'Income from other sources'. As regards expenditure, since the assessee has discontinued its business operations, the AO was right in disallowing expenditure which were not incurred wholly and exclusively for the purpose of business of the assessee. 6. We have heard both the parties and perused the material available on record. The AO treated interest income under the head 'Income from other sources' on the ground that the assessee's main activity was manufacture of fragrance and flavours but not financial services. The AO further observed that the assessee has treated interest income under the head 'Income from other sources' in the earlier years and without any material change in facts, interest income has been trea....
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..... Though the assessee claims that its activity is in accordance with its object clause in memorandum of association, on perusal of the memorandum of association we find that the assessee's main object is to manufacture fragrance and flavours. Though the assessee has financial service as an ancillary object to its main object, such activity is not the main business activity of the assessee. Therefore, we are of the considered view that there is no justification for treating interest income under the head 'Income from business'. Hence, we are of the considered view that the AO was right in treating interest income under the head 'Income from other sources'. Though the assessee has relied upon various judgments, on perusal of the decisions cited by the assessee we find that all are rendered in different facts and are not applicable to the facts of assessee's case. 8. Coming to the disallowance of expenditure claimed against interest income, the assessee has claimed various expenditure including office rent, auditor's remuneration, travelling and conveyance and other miscellaneous expenditure which are in the nature of general administrative and other expenses necessarily to keep the ....
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....ws relied upon by the Ld.DR is in the context of claim u/s 57(iii) whereas the facts of the assessee's case are in relation to expenditure claimed u/s 37(1). Therefore, we are of the considered view that the case law relied upon by the Ld.DR is not applicable to the facts of the present case. The Ld. DR relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Amritaben R Shah (1999) 238 ITR 777 (Bom) to argue that section 57(iii) is liable only of an expenditure laid out or expended wholly or exclusively for the purpose of making or earning the income referred to in that section, i.e. income from other sources. In this case, the assessee has incurred expenditure to keep corporate status which cannot be allowed u/s 57(iii) of the Income-tax Act, 1961. We find that the case before the Hon'ble Bombay High Court is on whether, the assessee could claim general administrative and other expenses which are having no nexus with interest income, u/s 57(iii) of the Act or not. But in this case, the assessee has claimed expenditure u/s 37(1), therefore, the case law relied upon by the Ld.DR is not applicable to the facts of the assessee's case. 11. In this view of the matte....