TaxTMI 
TaxTMI 
2001 (8) TMI 271
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....n the future years. 3. In ITA 293 /Bang./1996 filed by the assessee and ITA No. 283 /Bang./1996, filed by the Revenue, the order impugned is that of the CIT(A)-I, Bangalore, dated 3-1-1996 for the assessment year 1991-92 and in these appeals also, the main dispute is as to whether the assessee is entitled to claim loss under the head 'business' for the purpose of carry forward and set off for the future years and also for set off of earlier years' losses against the current year's income which, according to the assessee, is to be computed under the head 'business' and not under the head 'other sources'. The Revenue is aggrieved only by that part of the CIT(A)'s order, wherein he has directed the Assessing Officer to allow deduction of expenses towards interest while computing the income under the head ,other sources'. 4. ITAs 1057 & 1058/Bang./96 are appeals filed by the assessee and are directed against the consolidated order of the CIT(A)-I, dated 10-10-1996 for the assessment years 1992-93 and 1993-94 respectively. Here also the only dispute involved is whether the assessee's income is to be computed under the head 'business' or 'other sources'. 5. From the above, it is....
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....sment year it claimed a loss of Rs. 2,05,945 under the head 'Profits and gains of business' and this was allowed to be carried forward. For the assessment year 1988-89 also (previous year ended 30-6-1987) the company's share capital and investment remained the same. There was neither any dividend nor interest receipts during this year as well. However, in the assessment the assessee claimed loss of Rs. 4,59,871 under the head 'Profits and gains of business'. The claim was allowed. There was no change either in the share capital or the investments made during the periods relevant to the assessment years 1989-90 and 1990-91. On 2-6-1988 the assessee advanced an amount of Rs. 2,70,000 to M/s. Khoday Finance (P.) Ltd., a sister concern. During the previous year relevant to the assessment year 1990-91, there was however, no fresh advance. The interests accrued on the said advance to M/s. Khoday Finance (P.) Ltd., amounted to Rs. 30,375 and Rs. 40,500 respectively for the assessment years 1989-90 and 1990-91. Deducting substantial interest payments and other expenses like bank charges, audit fees etc., loss for these years was returned at Rs. 9,36,180 and Rs. 7,67,990 respectively. The A....
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.... Rs. 40,500 Expenditure Professional charges Rs. 300 Interest Rs. 6,19,966 Audit fees Rs. 1,000 Preliminary expenses Rs. 935 Filing fees Rs. 260 Bank charges Rs. 1,270 ---------------- &nb....
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....ve of income, expenses and losses in the assessment order. 3. It is admitted that the assessee company was incorporated on 21-6-1986 with a paid up share capital of Rs. 10,01,980. There was initial investment of Rs. 29,75,980 in shares of 7 groups companies whose names are given below: (a) M/s. Vyjayanthi Investments P. Ltd., (b) M/s. Macdonald Investments P. Ltd., (c) M/s. Panchaganga Investments P. Ltd., (a) M/s. Panchakalyanni Investments P. Ltd., (e) M/s. Honeywell Investments P. Ltd., (f) M/s. Sri Gurunath Investments P. Ltd., (g) M/s. Peterscot Investments P. Ltd., For the purpose of investments, the assessee availed a loan from Vijaya Bank, which stood at Rs. 24,66,752 as on 30-6-1986, including interest. The assessee gave a loan of Rs. 2,70,000 to Khoday Finance (P.) Ltd., a company in the same group, on 2-6-1988 on account of which interest is credited to the account of the assessee. The investment by way of loan and liability to bank increased due to the interest factor. Otherwise, it remained unaltered till the previous year relevant to assessment year 1991-92 in which the assessee increased the share capital by Rs. 16.18 lakhs to Rs. 26,19,980....
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....ance sheets and schedules are as follows: ------------------------------------------------------------------------- As on Share Unsecured Investment Loans & advances capital loan from in shares (other than current banks a/c balance in banks) ------------------------------------------------------------------------- 30-6-1986 10,0....
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....5,82,500 ----------------------------------------------------- Note (3): The interest payment is interest charged by Vijaya Bank and debited to the accounts of the assessee on cumulative interest basis." 10. The learned CIT(A) thereupon observed as under: "(i) It can be seen that the bank loan was taken. (ii) For investment in group companies from which no dividend [Other than the dividend under section 2(22)(e) admitted for the current assessment year i.e., 1991-92] has been received. (iii) To give loan to Khoday Finance Pvt. Ltd., a company in the same group, and perhaps interest free loan to Elkay Finance and Investment Ltd., and some directors. (iv) There was no income receipt whatsoever for the assessment years1986-87 and 1987-88. The only source of income [other than the income attributed to the legal fiction (for loan taken by the assessee as shareholder) under section 2(22)(e)] admitted for the current assessment years i.e., 1990-91 and 1991-92 are small sums of interest credit attributed to loan given to Khoday Finance Pvt. Ltd. (v) The interest payment has been much higher than the interest payment. (vi) The only interest charged, at 15% (simple....
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....----------------------------------------------- Asst. year Asst. year 1992-93 1993-94 Rs. Rs. ------------------------------------------------------------------------------------- Income: Dividend income &n....
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....nbsp; 22,56,133 14,497 ------------------------------------------------------------------------------------- In the statement of total income filed with the returns, the following adjustments were made by the appellant: ------------------------------------------------------------------------------------- Asst. Year 1992-93 : Rs. ------------------------------------------------------------------------------------- Net profit as per P&L A/c 22,56,133 Add.- Share of loss from M/s. Thiruvonam Wines ....
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....; ------------- 3,25,217 ------------- Less: Loss carried forward and set off against business income from assessment 2,53,217 year 1990-91 Gross total income &....
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.... ------------ Rounded off to Rs. 2,580" ------------------------------------------------------------------------------------- 13. After noting the above facts, the learned CIT(A) broadly followed the reasoning as given in his appellate order for assessment year 1991-92 for deciding the appeal in respect of the assessment years 1992-93 and 1993-94. Accordingly, he held that the assessee's income has to be assessed under the head income from 'other sources' and the assessee's claim of loss could not be allowed to be carried forward and set off in the subsequent years. 14. We have heard Shri Sukumar, the learned counsel for the assessee and Shri N.S. Raghavendra, the learned DR. Shri. Sukumar reiterated the arguments advanced before the lower authorities. He referred to the details of statement of income/loss supported by the profit and loss account of the assessee company for the various years. He also referre....
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....e up of 1,00,198 shares of Rs. 10 each. Besides its own funds the company availed of loans from banks. It acquired shares of other investment companies amounting to Rs. 29,75,980 during the year ended 30-6-1986. The balance of monies together with the share capital funds were advanced as loans to group concerns. In the initial years viz., assessment years 1987-88,1988-89,1989-90 and 1990-91 the company derived income from interest on the advances made but did not derive any income from dividends. The payment of interest was claimed against the interest income and all of them were treated as income from business for all the assessment years i.e., assessment years 1987-88, 1988-89, 1989-90 and 1990-91. During the previous year relevant for assessment year 1991-92 share application money to the value of Rs. 16,18,000 was also received by the company during the year utilizing such funds it further subscribed shares in other comprising viz., Rs. 5 lakhs in Biotech Consortium and Rs. 5,000 as advance for purchase of shares and Rs. 4,73,100 in equity shares of Omar Khayyam Wineries P. Ltd. During the year ended 31-3-1992 it became a partner in Thiruvonam Wines by investing a capital of Rs....
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....nbsp; Rs. 29,50,475 1996-97 Rs. 28,80,233 1997-98 Rs. 22,40,488 ------------------------------------------------- In the later years they also entered into leasing transactions and earned considerable sums as lease income. They are as follows: ------------------------------------------------- Asst. year Lease Rent 1994-95 Rs. 64,000 1995-96 Rs. 7,84,000 1996-97 ....
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....the case of United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 the Hon'ble Supreme Court considered the fact that even though interest on securities fell under section 8 of the IT Act, 1922, as a separate head of income and could not be assessed under a different head of income under section 10 of the said Act under the head 'Profit and gains from business' Even then, the Court found merit in the contention raised by the assessee that purchase and sale of securities was as much the assessee's business as receiving deposits from clients and withdrawals by them and the securities were held by the assessee as part of its trading assets in the course of its banking business. If that was so, the assessee would be entitled to set off of loss in banking business of earlier years against income from interest on securities in the year of account. It is true that in that case, the appeal of the assessee was treated as allowed but the matter was referred to the High Court for a fresh decision, after getting from the Tribunal a fuller statement of facts as to whether the securities in question were part of the trading assets held by the assessee in the course of its business as a banker. Nev....
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....ended merely to indicate the classes of income; the heads do not exhaustively delimit sources from which income arises. This is made clear in the judgment of this court in the United Commercial Bank Ltd.'s case, that business income is broken up under different heads only for the purpose of computation of the total income; by that break up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Indian Income-tax Act for computation of income" The same principle applies to the present case. We, therefore, hold that under section 24(2) of the Act the income from the securities which formed part of the assessee's trading assets was part of its income in the business and, therefore, the loss incurred in the business in the earlier year could be set off against that income also in the succeeding years." 21. A similar decision was taken by the Hon'ble Supreme Court in the case of Western States Trading Co. (P.) Ltd. v. CIT [1971] 80 ITR 21, wherein it was held loss in business in earlier years would be set off against dividends from shares held as stock-in-trade. The Court was interpreting the prov....