Dy. Cit vs Dhanpat Mal Jawala Dass
2003 Latest Caselaw 639 Del

ORDER

Keshaw Prasad, A.M.:

The appeal has been directed by the revenue against the order of the Commissioner (Appeals), dated 20-3-1997, pertaining to assessment year 1992-93.

2. In ground No. 1, the revenue has challenged the finding of the Commissioner (Appeals) to the effect that the interest earned on IDBI Bond was business income instead of income from other sources.

2. In ground No. 1, the revenue has challenged the finding of the Commissioner (Appeals) to the effect that the interest earned on IDBI Bond was business income instead of income from other sources.

3. Briefly, the facts of the case are that the assessed-firm consisting of 4 partners was engaged in the business of running flour mill. It declared the loss of Rs. 2,43,848 from such business. The assessed also earned interest income.of Rs. 18,00,000 on IDBI Bonds. assessed returned such income under the head "Income from other sources". However, subsequently, the assessed raised the claim and requested the assessing officer to treat the interest income from IDBI Bonds as business income. However, the assessing officer held such income to be income from other sources. On appeal, the Commissioner (Appeals) directed to assess the interest income as business income. The revenue is in appeal before us. While relying on the decision reported as CIT v. Govinda Choudhury & Sons (1993) 203 ITR 881 (SC), the learned Departmental Representative argued that the investment in IDBI Bonds was not the business of the assessed. So the interest income has been rightly taxed under the head "Income from other sources".

3. Briefly, the facts of the case are that the assessed-firm consisting of 4 partners was engaged in the business of running flour mill. It declared the loss of Rs. 2,43,848 from such business. The assessed also earned interest income.of Rs. 18,00,000 on IDBI Bonds. assessed returned such income under the head "Income from other sources". However, subsequently, the assessed raised the claim and requested the assessing officer to treat the interest income from IDBI Bonds as business income. However, the assessing officer held such income to be income from other sources. On appeal, the Commissioner (Appeals) directed to assess the interest income as business income. The revenue is in appeal before us. While relying on the decision reported as CIT v. Govinda Choudhury & Sons (1993) 203 ITR 881 (SC), the learned Departmental Representative argued that the investment in IDBI Bonds was not the business of the assessed. So the interest income has been rightly taxed under the head "Income from other sources".

4. On the other hand, learned counsel stated that the assessed has sold certain commercial assets the sale consideration of which was invested in IDBI Bonds. Such investment in the IDBI Bonds was made to claim deduction under section 54E of the Act. He stated that the investment in the Bonds was not with a view to earn any interest income but to avail of the benefit of section 54E. The interest income should be taxed as business income. The reliance was placed on the decision reported as CIT v. Madras Refineries Ltd. (1997) 228 ITR 354 (Mad).

4. On the other hand, learned counsel stated that the assessed has sold certain commercial assets the sale consideration of which was invested in IDBI Bonds. Such investment in the IDBI Bonds was made to claim deduction under section 54E of the Act. He stated that the investment in the Bonds was not with a view to earn any interest income but to avail of the benefit of section 54E. The interest income should be taxed as business income. The reliance was placed on the decision reported as CIT v. Madras Refineries Ltd. (1997) 228 ITR 354 (Mad).

5. We have considered the rival submissions. In order to constitute an activity as business activity, there has to be continuity of the activity. The business is an organized and systematic activity. There has to be frequency of activity. Unless the same is established, it could not be said that the activity constituted a business activity. In the cases reported as CIT v. Motilal Hirabhai Spg. & Wvg. Co. Ltd. (1978) 113 ITR 173 (Guj) and Sole Trustee, Loka Shikshana Trust v. CIT (1975) 101 ITR 234 (SC), the same ratio was laid down by the Hon'ble Courts. As the investment in the IDBI Bond was one time affair, it could not be said to be an organized or systematic activity. Thus, the interest earned on such IDBI Bonds cannot be treated as business income. The investment in the IDBI Bonds was made to avail benefit of section 54E. This fact will not make the interest income earned by the assessed as business income. We also do not find any substance in the submissions of the learned counsel to the effect that because the sale consideration of the commercial asset was invested into IDBI Bond, the income will partake the character of business income. If somebody goes by the logic of the counsel then if an assessed purchases house property from business income and gives the same on rent, the rent will partake the character of business income. But in law it is not so. We, therefore, restore the order of the assessing officer by holding that the interest earned on the IDBI Bonds was taxable under the head "Income from other sources". The ground of appeal raised by the revenue is allowed.

5. We have considered the rival submissions. In order to constitute an activity as business activity, there has to be continuity of the activity. The business is an organized and systematic activity. There has to be frequency of activity. Unless the same is established, it could not be said that the activity constituted a business activity. In the cases reported as CIT v. Motilal Hirabhai Spg. & Wvg. Co. Ltd. (1978) 113 ITR 173 (Guj) and Sole Trustee, Loka Shikshana Trust v. CIT (1975) 101 ITR 234 (SC), the same ratio was laid down by the Hon'ble Courts. As the investment in the IDBI Bond was one time affair, it could not be said to be an organized or systematic activity. Thus, the interest earned on such IDBI Bonds cannot be treated as business income. The investment in the IDBI Bonds was made to avail benefit of section 54E. This fact will not make the interest income earned by the assessed as business income. We also do not find any substance in the submissions of the learned counsel to the effect that because the sale consideration of the commercial asset was invested into IDBI Bond, the income will partake the character of business income. If somebody goes by the logic of the counsel then if an assessed purchases house property from business income and gives the same on rent, the rent will partake the character of business income. But in law it is not so. We, therefore, restore the order of the assessing officer by holding that the interest earned on the IDBI Bonds was taxable under the head "Income from other sources". The ground of appeal raised by the revenue is allowed.

6. In ground No. 2, the deletion of the disallowance of Rs. 99,623 on account of traveling expenses of the partner has been challenged. The assessing officer held that the visit of the partner has no business connection and, therefore, the expenditure incurred on traveling was not allowable. On appeal, the Commissioner (Appeals) while relying on the decisions reported as Ambica Mills Ltd. v. CIT (1964) 54 ITR 167 (Guj) and CIT v. Flour & Food Ltd. (1988) 170 ITR 469 (MP) allowed deduction. The revenue has challenged the same before us. It is argued by the learned Departmental Representative that the assessed's business had closed in 1989. Thus, the question of visit for business purposes did not arise. He also stated that the expenses have been borne by various associations/confederations who had sponsored the visits. Hence, the deduction of the same was not allowable.

6. In ground No. 2, the deletion of the disallowance of Rs. 99,623 on account of traveling expenses of the partner has been challenged. The assessing officer held that the visit of the partner has no business connection and, therefore, the expenditure incurred on traveling was not allowable. On appeal, the Commissioner (Appeals) while relying on the decisions reported as Ambica Mills Ltd. v. CIT (1964) 54 ITR 167 (Guj) and CIT v. Flour & Food Ltd. (1988) 170 ITR 469 (MP) allowed deduction. The revenue has challenged the same before us. It is argued by the learned Departmental Representative that the assessed's business had closed in 1989. Thus, the question of visit for business purposes did not arise. He also stated that the expenses have been borne by various associations/confederations who had sponsored the visits. Hence, the deduction of the same was not allowable.

7. On the other hand, learned counsel for the assessed while relying on the decisions reported as Delhi Cloth & General Mills Co. Ltd. v. CIT (1986) 158 ITR 64 (Del) and Delhi Cloth & General Mills Co. Ltd. v. CIT (1994) 208 ITR 785 (Del) stated that though the earlier business was closed, the assessed had taken another flour mill and was carrying on the same business. Thus, even if the old flour mill was closed and the new flour mill was purchased, the visit was for the purposes of assessed's business as allowable deduction.

7. On the other hand, learned counsel for the assessed while relying on the decisions reported as Delhi Cloth & General Mills Co. Ltd. v. CIT (1986) 158 ITR 64 (Del) and Delhi Cloth & General Mills Co. Ltd. v. CIT (1994) 208 ITR 785 (Del) stated that though the earlier business was closed, the assessed had taken another flour mill and was carrying on the same business. Thus, even if the old flour mill was closed and the new flour mill was purchased, the visit was for the purposes of assessed's business as allowable deduction.

8. We have considered the rival submissions. The only ground for disallowing the traveling expenses was that as the flour mill has been closed, the question of any traveling in connection with that business did not arise. But while doing so, the assessing officer omitted to consider the fact that the assessed had purchased another flour mill and was running the same. Thus, the visit/traveling by the partner was in connection with business carried on by the assessed and the Commissioner (Appeals) has rightly allowed the expenditure on such traveling. While upholding his finding, we dismiss the ground of appeal raised by the revenue.

8. We have considered the rival submissions. The only ground for disallowing the traveling expenses was that as the flour mill has been closed, the question of any traveling in connection with that business did not arise. But while doing so, the assessing officer omitted to consider the fact that the assessed had purchased another flour mill and was running the same. Thus, the visit/traveling by the partner was in connection with business carried on by the assessed and the Commissioner (Appeals) has rightly allowed the expenditure on such traveling. While upholding his finding, we dismiss the ground of appeal raised by the revenue.

9. In ground No. 3, the deletion of the disallowance on personal user of the car has been challenged.

9. In ground No. 3, the deletion of the disallowance on personal user of the car has been challenged.

10. After hearing the rival submissions, we find that the car expenses have been incurred in Amritsar where none of the partners reside. Thus, the question of any personal expenditure by the partners did not arise and the Commissioner (Appeals) has correctly appreciated the facts in deleting the addition. We uphold his finding and dismiss the ground of appeal raised by the revenue.

10. After hearing the rival submissions, we find that the car expenses have been incurred in Amritsar where none of the partners reside. Thus, the question of any personal expenditure by the partners did not arise and the Commissioner (Appeals) has correctly appreciated the facts in deleting the addition. We uphold his finding and dismiss the ground of appeal raised by the revenue.

11. In the result, appeal directed by the revenue is partly allowed.

11. In the result, appeal directed by the revenue is partly allowed.