Whether a company which has no business activity/income except interest income on loans and advances provided, can claim expenses such as director remuneration, rent and other misc exp.
10 September 2014
Actually that interest income is taxed under the head other sources in computation of income and under business head loss is showing due to these expenses
10 September 2014
Section 56 of the Act speaks of income from other sources. It is the residuary head of income, which takes within its ambit any income, which does not specifically fall under any other head of income. When any receipt is in the nature of income, which cannot be specifically allocated to any of the heads of income such as salaries, income from house property, profits and gains of business or profession, capital gains, the same is brought to tax under the residuary head "Income from other sources".
Depositing portion of the MONEY in the bank under Rule 3A of the Companies (Acceptance of Deposits) Rules, 1975, the interest earned is assessable as business income under the provisions of the Income-tax Act. 26. In CIT v. Tirupati Woollen Mills Ltd. [1992] 193 ITR 252, the Calcutta High Court has held that theFUNDS utilised by the assessee in making fixed deposits with banks were businessFUNDS lying temporarily surplus with the assessee and therefore, assessable as business income and revenue expenditure could be deducted from it. 27. Now, coming to the decision relied on by learned Counsel for the Revenue, that was a case, where the company was incorporated on December 3, 1971, with the object of manufacturing heavy chemicals. For the purpose of setting up of the factory, the company had taken loans from various FINANCIAL INSTITUTIONS and a part of the borrowedFUNDS which were not immediately required by the company was kept invested in short-term deposits with banks and the Tamil Nadu Electricity Board. It had also given interest bearing loans to its employees to purchase vehicles. 28. The question for consideration before the court was that the interest derived
33. It is now a well-settled position in law that what is business income and what is not business income has to be determined on the facts of each case. In the instant case, the main activity of the assessee is export business and not that of earning interest on short-term fixed deposits. If the earning of interest is connected with the carrying on of the assessee's business and if the fixed deposits are utilised in such a manner so as to provide a sufficiently perceptible link with the business activities of the assessee, there should be no objection to the treatment of the interest as business income. In the instant case, the deposits in the bank were made with theMONEY received as advance in the export business. The amount so deposited is the amount paid by the foreign buyer by way of advance amount to the assessee for the part performance of the agreement for export of the goods. The assessee, instead of keeping that amount idle, since it did not require the same for its immediate business activity