The Tribunal further noted that the circumstances in which the interest was earned had absolutely no relation with the business of the company. The surplus amount available at its disposal was deposited in the bank in the FDRs and later it was withdrawn and invested at the appropriate time. So the interest was earned on the parking of its idle funds in the bank during the period in which they were not required to be utilized.
And wondered, “How such interest income can be held to be falling under the head ‘business income’ is anybody’s guess.”
So the Tribunal held that since the funds not immediately required by the assessee company for its business purpose were invested in FDRs, the interest thereon cannot be put to tax under the
head ‘business income as held by the CIT(A) thus allowing the Revenue appeal.
The Revenue was also aggrieved by the CIT(A)’s orderdeleting the disallowance made by the Assessing Officer under section 14A of the Act.
The assessee claimed the deduction of administrative and other expenses to the tune of Rs.2.69 crores and the Assessing Officer, after considering the provisions of section 14A, came to hold that the assessee’s business activities were confined to the share investments, income from which, being dividends, qualified for exemption under section 10(33) and hence, the expenses so incurred were not eligible for deduction. However, the CIT(A) came to the conclusion that there was no exempt income earned by the assessee in this year and hence the provisions of Section 14A were not applicable.
The Tribunal observed that Section 14A provides that for the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.
Three conditions should be satisfied before invoking the provisions of this section which are as under:-
(i) the assessee should have incurred expenditure;
(ii) such expenditure should be in relation to income; &
(iii) such income does not form part of the total income under this Act.
It is only if these conditions are cumulatively satisfied, the provisions of Section 14A are attracted.
In the present case the Tribunal noted that
1. The assessee had incurred expenditure which fact has not been disputed by the Assessing Officer. The claim of the Revenue is that this expenditure is in relation to income which is exempt under section 10(33) of the Act. The only income is interest on fixed deposits with the bank. As against this income, the assessee had claimed expenditure of Rs.2,69,85,000/ -. Thus, it is seen that in the year in question there is no income of the assessee which is exempt under section 10(33) of the Act.
2. the opinion of the Assessing Officer that the assessee was not carrying on any business since there was no activity leading to the earning of income, becomes erroneous and unsustainable. When the assessee company has been set up with an object of making strategic investment in the shares of companies involved in the cement business, it cannot be held that the assessee is not carrying on any business.
3. In these circumstances, the natural consequence that follows is that expenses claimed by the assessee are deductible in full under the head “profit and gains from business or profession”.
So Revenue won partially.