M/S VIJAYANAGARA CLUB V. THE DEPUTY COMMISSIONER OF

ITA/459/2013

AI Insights

The case involves M/s. Vijayanagara Club, which appealed against the order of the Income Tax Appellate Tribunal that declined to consider their claim for expenditure incurred in earning interest income, which was taxed. The club had declared a loss in their income tax return for the assessment year 2008-09, which was not accepted by the Assessing Officer. The Tribunal's decision to not allow the deduction of expenditure incurred in earning interest income led to this appeal. The High Court found that the assessing authority did not properly consider the expenditure incurred in earning the interest income when they taxed it separately, and thus remanded the matter back for a detailed examination.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 741564 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 23-09-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: SHANKAR; M LAVA
• Keywords: Assessment Year 2008-09; Expenditure deduction; Income tax appeal; Interest income
• Section: 143(3); 143(2); 260-A

Judgement Text

" - 1 - IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 23RD DAY OF SEPTEMBER 2014 PRESENT THE HON’BLE MR.JUSTICE N.KUMAR AND THE HON’BLE MRS.JUSTICE RATHNAKALA INCOME TAX APPEAL NO.459 OF 2013 BETWEEN: M/S. VIJAYANAGARA CLUB REPRESENTED BY ITS SECRETARY SRI K R RAMACHANDRA NO 1 TO 4, 1ST MAIN 4TH CROSS, 2ND STAGE VIJAYANAGAR HAMPINAGARA BANGALORE-560 104 …APPELLANT (BY SRI SHANKAR A AND M.LAVA, ADVS.) AND: THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2 (1), NO.59, 6TH FLOOR H M T BHAVAN BELLARY ROAD BANGALORE-560032 ...RESPONDENT (BY SRI K V ARAVIND, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961, ARISING OUT OF ORDER DATED - 2 - 26/04/2013 PASSED IN ITA NO.406/BANG/2012, FOR THE ASSESSMENT YEAR 2008-09, PRAYING THIS HON'BLE COURT TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.406/BANG/2012 DATED 26/04/2013, IN THE INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR ADMISSION THIS DAY, N.KUMAR J., DELIVERED THE FOLLOWING: J U D G M E N T This appeal is preferred by the assessee against the order passed by the tribunal, declining to consider his claim for expenditure incurred in earning the interest, which is taxed. 2. The assessee is an Association of Person operating a club. It filed its return of income for the assessment year 2008 – 09 on 29.09.2008, declaring a loss of Rs.22,07,204/-. The case was taken up for scrutiny by issue of notice under Section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the - 3 - Act’) on 17.08.2009. The Assessing Officer completed the assessment by an order under Section 143(3) of the Act on 31.12.2010, determining the income of the assessee at Rs.24,18,672/- and by not only disallowing the loss claimed but also making some additions. Two such additions are ‘interest received from banks’ and another is, ‘interest received on KEB Deposit’. Aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The appeal was partly allowed granting relief only in respect of addition of Rs.6,00,000/- an amount received towards ‘outsourcing income from canteen activity’. However, all other additions made by the assessing officer were sustained by the learned CIT (Appeals). Aggrieved by the said order, the assessee preferred an appeal before the Tribunal. The Tribunal has partly allowed the appeal insofar as the claim of the assessee regarding incurring of expenditure for earning interest and deduction from the income thereof, was not - 4 - allowed. Aggrieved by the said order, the assessee has preferred this appeal. 3. Learned Counsel for the appellant submits that when the assessing officer did not accept the returns filed by the assessee, declaring a loss of Rs.22,07,204/- and taxed ‘interest received from banks’, he ought to have considered the claim of the assessee. The expenditure incurred in earning the said interest to that extent, he should have given deduction. The tribunal failed to appreciate this point by saying that there is no dispute and that all the expenditure incurred by the assessee has been booked in its Income and Expenditure Account and that the assessee has not been able to demonstrate to the contrary and therefore, the said contention was rejected. Factually, it is incorrect. When the assessing authority did not accept the return filed by the assessee showing loss and when they have taken out the interest income separately and - 5 - taxed it, the expenditure incurred in earning the said interest should have been considered for deduction. The said exercise has not been done and therefore, submits that it would be appropriate if the matter is remanded to the assessing authority regarding the expenditure and its deduction from the interest income. 4. Per contra, learned Counsel for the Revenue submitted that when the entire expenditure incurred in earning the interest has been booked in its Income and Expenditure Account, the question of separately giving deduction to the expenditure incurred would not arise and the Tribunal is justified in finding the said contention. 5. From the aforesaid facts and rival contentions, it is clear that the assessing authority did not accept the return filed by the assessee declaring a loss of Rs.22,07,204/-. It has disallowed the loss claimed and has made the additions in respect of Guest Fees, - 6 - Interest received from Banks, Interest received on KEB Deposit, Discount received from liquour manufacturers and Outsourcing income from canteen activity. The First Appellate Court has granted the relief regarding Outsourcing Income from Canteen Activity. However, these additions are made if any expenditure is incurred as contended by the assessee in respect of the Interest Received from Banks. The authorities ought to have considered whether any expenditure is incurred in this regard. If any expenditure is incurred, then the same should have been deducted out of the interest income. The argument that all these expenditure is booked in the Income and Expenditure Account and therefore, it cannot be separately granting, is without any substance because the assessing officer has not accepted the return filed by the assessee declaring loss. Though the assessee declared loss, he has disallowed the same. When the assessing authority has chosen to take out the interest income and levied the income tax, the - 7 - expenditure incurred if any, should have been taken into consideration in arriving at the income. The said exercise has not been done. It is a fit case to be remanded back to the assessing authority only to consider whether the assessee has incurred any expenditure permissible in law in earning Interest Income from Banks, so that it could be given deduction before that income is taxed. In this regard, the following order is passed: ORDER a. The appeal is partly allowed. b. The order of the tribunal insofar as the refusing to consider the claim of the assessee for deducting the expenditure incurred in earning the interest income is set aside. c. All the contentions urged by both parties are kept open to be adjudicated before the assessing authority. - 8 - d. As we are remanding the matter, the substantial questions of law would not arise for our consideration. Sd/- JUDGE Sd/- JUDGE nvj "