2015 (1) TMI 95 - AT - Income Tax

Classification of income - Business income or Income from other sources - Held that - Admittedly, it is not the case of the Revenue that the assessee had invested his surplus money in FDR with the bank for earning of interest income. The bid amount was deposited by the assessee for acquisition of business of M/s. Riverdale Foods Ltd. i.e. for business purposes only. Even the FDR was made with Bank of India in the account of M/s. Riverdale Foods Ltd. Hence, under such circumstances it cannot be said that the assessee had invested the money for the purpose of earning of interest income. The FDR was deposited as a prerequisite to be eligible for making bid to acquire business of the sick company, and as such the deposit was made for business purposes only. Under such circumstances, we do not find any infirmity in the order of the Ld. CIT(A) in directing the AO to treat the said interest income received on the bid amount as business income of the assessee - Decided against Revenue.

Summary

Issues:
1. Classification of interest income as 'Business income' or 'Income from other sources'.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning the classification of interest income for the assessment year 2009-10. The Revenue contended that the CIT(A) erred in directing the Assessing Officer to treat the interest income as 'Business income' instead of 'Income from other sources'. The brief facts revealed that the assessee company, engaged in catering services, bid for the acquisition of a sick company, M/s. Riverdale Foods Ltd., by making deposits in the form of an FDR. The bid was unsuccessful, and the assessee received back the invested amount along with interest on the FDR. The AO assessed this interest as income from other sources, which the assessee challenged before the CIT(A).

The CIT(A) analyzed the case and noted that the interest received was related to the FDR, which was part of the bid amount required for the acquisition bid. As the bid was unsuccessful, the amount along with interest was refunded to the assessee. Citing the decision of the Hon'ble Bombay High Court in "CIT vs. Varun Shipping," the CIT(A) directed the AO to compute the income under the head "Profits and Gains of Business." The Tribunal, after hearing both parties and reviewing the records, observed that the bid amount was deposited for business purposes, not for earning interest income. The FDR was made with the bank in the account of the target company, indicating the business intent behind the deposit. Therefore, the Tribunal upheld the CIT(A)'s decision, ruling that the interest income received on the bid amount should be treated as business income of the assessee.

In conclusion, the Tribunal dismissed the Revenue's appeal, finding no merit in the argument presented. The judgment emphasized the business purpose behind the deposit of the bid amount and the nature of the FDR, leading to the classification of the interest income as business income rather than income from other sources. The decision aligned with the business intent of the transaction and the specific circumstances surrounding the deposit, as highlighted during the proceedings.