2016 (2) TMI 795 - AT - Income Tax

Treatment of income from deposits - income from business OR income from other sources - Held that - In this case interest was in the nature of additional source of income to the assessee which was not in any way linked to the business that the assessee was carrying on. The interest income that has been received by the assessee on its own fund kept in deposit with the bank did not have any direct link or nexus with the business that was being carried on. The deposit made with the bank was for the convenience and benefit of the assessee with a view to derive interest income. Thus the true character of the income is not business income but income from other sources only. It is possible to have different sources of income each one of which will be chargeable to income-tax and the assessee can keep the surplus funds which are not immediately required for the purpose of business in deposits in order to earn interest and such interest will be chargeable under section 56. - Decided against assessee

Summary

Issues:
1. Treatment of income from deposits as income from business instead of income from other sources.

Analysis:
The appeal was against the order of the Commissioner of Income Tax (Appeals) regarding the treatment of income from deposits for the assessment year 2007-08. The main issue revolved around whether the interest earned from deposits should be considered as income from business or income from other sources.

The assessee had not conducted any business activity during the relevant financial year and had parked unutilized funds in bank deposits, earning interest income. The Assessing Officer categorized this interest income as income from other sources, following the Supreme Court's decision in a specific case. The Commissioner of Income Tax (Appeals) also relied on the same Supreme Court judgment and confirmed the Assessing Officer's decision.

During the appeal, the assessee argued that the interest income was not directly linked to any business activity and should be treated as income from other sources. The Tribunal analyzed the nature of the income, emphasizing that the interest earned on funds deposited in banks was not related to the business operations. The Tribunal referred to various Supreme Court judgments to support its decision, highlighting that interest income from deposits falls under the category of income from other sources.

Moreover, the Tribunal considered the specific circumstances of the case and concluded that the interest income from fixed deposits should be treated as income from other sources and subjected to taxation accordingly. Therefore, the appeal of the assessee was dismissed, affirming the decision to treat the income from deposits as income from other sources.

In conclusion, the Tribunal's judgment clarified the distinction between income from business and income from other sources in the context of interest earned on deposited funds, providing a detailed analysis based on legal precedents and the specific facts of the case.