Treatment of Interest received from debtors.

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Shefali Bajpai (Querist)
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28 December 2008 Z Ltd., a running concern, received interest on the loans/advances made by it to its debtors. It contended that such interest was to be treated as business income. Is the contention of Z ltd., correct, if such interest was not on account of delayed payment towards sales or compensation/damages or an item relatable to its business.

K V Subba Rao

K V Subba Rao (Expert)
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28 December 2008 It is desirable to establish nexus with business; otherwise complications may arise

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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28 December 2008 If a going concern receives interest,in the situation referrred above,it is to be assessed under the head Income From Business/Profession. Pl refer the following cases:-
1) CIT Vs. Govinda Choudhury & Sons (1993) 203 ITR 881 (SC).

2)CIT Vs.Haribhai Estate (P) Ltd (2000) 242 ITR 706 (SC).

Thus, the contention of Z Ltd, according to me, is correct.

Jairam

Jairam (Expert)
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28 December 2008 The main purpose of business is not earning interest on delayed payments by debtors, thus I feel that it should not be regarded as business income.

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