- (1.) THIS appeal under Section 260 -A of the Income Tax Act, 1961 has been filed against the judgment and order dated 7th July, 2005 of the Income Tax Appellate Tribunal in Income Tax Appeal No. 397/Allahabad/2000. The appeal has been admitted on following questions of law: i.)"Whether the Income Tax Appellate Tribunal was justified in law in directing the Assessing Officer to assess the rental income from the properties as 'income from business' relying on the judgment of Apex Court in the case of M/s Universal Plast Ltd. vs. CIT, 1999 103 Taxman 493), without appreciating that the facts of the case as mentioned above were different from the assessee's case? ii.)Whether the Income Tax Appellate Tribunal was justified in law in dismissing the appeal of the Department confirming the order of the CIT(A), Kanpur directing the Assessing Officer to assess the rental income of Rs. 3 lakhs from letting out of City Centre, the Mall, Kanpur as 'income from business' instead of income from 'House Property' without properly appreciating the facts of the case? iii.)Whether the Income Tax Appellate Tribunal was justified in law in dismissing the appeal of the Department confirming the order of the CIT(A), Kanpur deleting the addition of Rs. 5,26,213/ - on account of disallowance of interest on borrowed capital without properly appreciating the facts of the case -
(2.) THE brief facts of the case giving rise to this appeal are; the assessee owns the properties namely, 12/483, Mac Robertganj, Kanpur and City Centre, the Mall, Kanpur. The assessee was receiving yearly rent of Rs. 3 lakhs from the above properties. The above receiving was claimed as business income against which the depreciation was also claimed. The return was filed by the assessee for the assessment year 1996 -97 showing rental income of Rs. 3 lakhs from the aforesaid two properties. In the return of the assessee, the above amount was reflected as 'business income' against which assessee claimed depreciation. During the assessment year, assessee had taken interest bearing unsecured loans of Rs. 39,27,645/ - and secured loan of Rs. 3,45,343/ - and has paid interest of Rs. 5,26,213/ - which was claimed as revenue expenditure. The assessee had made investment of Rs. 88,90,354/ - in the shape of purchase of shares of its sister concern, namely, M/s Society Motors Ltd.
(3.) THE assessee claimed that loans are part of the working capital of business. The assessee claimed the interest as revenue expenditure. The Assessing Officer vide his order dated 7.7.2005 rejected the claim of the assessee that income of Rs. 3 lakh from the aforesaid two properties is a business income. The Assessing Officer held that the said income as "income from house property". The claim that interest is revenue expenditure was denied and the interest of Rs. 5,26,213/ - was added back to the income of assessee. Against the order of Assessing Authority, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Appellate Authority vide its order dated 12.1.2000 allowed the appeal of the assessee. The Appellate Authority held that the income received from the two properties is business income. It was further held that interest was an allowable expenditure under Section 57(iii) of the Income Tax Act. Against the order of appellate Authority, the department filed an appeal before the Income Tax Appellate Tribunal which appeal was dismissed by the Tribunal by its order dated 7th July, 2005 against which order this appeal has been filed by the revenue.;