THE HON'BLE SRI JUSTICE DILIP B. BHOSALE AND HON'BLE SRI JUSTICE A.RAMALINGESWARA RAO ITTA Nos.142 and 146 of 2004 COMMON ORDER: (Per Hon ble Sri Justice A.Ramalingeswara Rao) These two appeals are being disposed of by this common order as in both appeals following substantial questions of law were raised for our consideration: a) Whether in facts and circumstances of case, Income Tax Appellate Tribunal was correct in law, in holding that interest obtained by Appellant Company from granting of loans and advances and ICDS etc. constituted income from other sources and not business income? b ) Whether Income Tax Appellate Tribunal was correct in law in holding that interest obtained on ICDS, Loans and Advances made in course of carrying on business did not constitute business income and if not, whether Tribunal was correct in limiting allowance of expenditure while sustaining assessment of income under other sources? 2. appellant was incorporated on 09.12.1994 with main object of setting up of spinning and weaving mill and to carry on business of manufacture and sale of various kinds of cotton and synthetic fibers and machinery equipment and also to invest and to deal in shares. 3. assessee filed its return of income for assessment years 1996-97 and 1997-98 and they were finalized under Section 143(3) of Income Tax Act, by orders dated 31.03.1999 and 31.03.2000 respectively. Challenging said orders, assessee preferred appeals before Commissioner of Income Tax (Appeals)-IV, Hyderabad. Before appellate authority, assessee challenged tax treatment given by Assessing Officer to loss on account of purchase and sale of shares and action of Assessing Officer in restricting claim for deduction of expenditure. appeals were dismissed by appellate authority holding that shares represented investment made by appellant and loss incurred on purchase and sale of shares was correctly treated as short term capital loss by Assessing Officer, and accordingly, confirmed action of Assessing Officer. So far as deduction on account of expenses is concerned, it was observed that interest income, dividend and service charges had been assessed under head Income from other sources and main receipt was on account of interest on inter-corporate deposits and since aforesaid income had been assessed under head Income from other sources , assessee would be entitled to deduction only for that part of expenditure which was necessary for earning income. 4. assessee carried matter in appeal to Income Tax Appellate Tribunal, Hyderabad Bench B , Hyderabad, and Tribunal disposed of appeals bearing ITA Nos.715/Hyd/99 and 523/Hyd/2001 for assessment years 1996-97 and 1997-98 respectively by common order dated 27.10.2003. Tribunal held that loss on sale of shares has to be treated as loss under head business and since there is no appeal against said finding by revenue, we are not concerned with said issue. With regard to other issue of disallowance of proportionate expenses on income received on ICDs, security deposits and service charges and dividends, it was held that only such expenditure which has direct bearing on earning of such income is allowable as deduction. Accordingly, it confirmed orders of Assessing Officer and appellate authority in treating expenditure referable to income declared under head other sources . Against this finding of Tribunal, above appeals are filed by assessee. 5. Learned Counsel for appellant submits that income derived from interest received on ICDs, security deposits and service charges and dividends could not form part of income from other sources, but as business income. Hence, expenses for earning such income should have been allowed as deduction. learned Counsel for Revenue, on other hand, submitted that main object of assessee was to establish spinning and weaving mill, and investment in ICDs and other deposits were made only to make income out of idle funds and it cannot be construed as business income as there was no nexus. 6. Apart from short term capital loss on sale of shares claimed by assessee, income from interest on ICDs, dividends, security deposits and service charges are main sources of income. assessee debited all expenses to profit and loss account and claimed deduction against aforementioned income. Assessing Officer treated above income as income from other sources and allowed deduction only to extent of expenses relatable to earning of other incomes. Out of expenses of Rs.5,91,404/- for assessment year 1996-97, Assessing Officer allowed sum of Rs.1,25,000/-, whereas for assessment year 1997-98, Assessing Officer allowed only Rs.5.00 lakhs as against total claim of Rs.25.31 lakhs towards expenditure. 7. Before Tribunal, treatment of income under head other sources was not assailed, but only deduction of expenditure was challenged. When income was treated under head other sources , it is logical that expenditure incurred for earning such income from other sources alone can be allowed as deduction. Such treatment of expenditure by assessing officer was confirmed by appellate authority as well as by Tribunal. We see no error in order of Tribunal. 8. In facts and circumstances of case, no substantial question of law arises for consideration. Appeals are, accordingly, dismissed. Miscellaneous petitions, if any, pending in these appeals shall stand disposed of. There shall be no order as to costs. (DILIP B. BHOSALE, J) (A.RAMALINGESWARA RAO, J) Date: 31.03.2015 TJMR North East Securities Ltd. v. Deputy Commissioner