2007 (12) TMI 271 - SC - Income Tax

Business income and income from other sources under section 28, 56 interest The assessee is an exporter. The issue is that whether the interest income received by the assessee on short term fixed deposit constituted part of the total turnover of the assessee s business and also whether it formed part of the total business income of the assessee. Held that- the matter has not examined the factual basis, as according to the department it was the case of surplus being invested in FDR while according to assessee it was the case of advance having been received from the exporter which was invested in FDR for short duration. Thus the matter is remitted to the tribunal for fresh decision.

Summary

Issues:
Whether interest income from short-term fixed deposits is part of total turnover and business income.

Analysis:
The primary issue in this case was whether the interest income received by the assessee on short-term fixed deposits should be considered as part of the total turnover of the assessee's business and whether it formed part of the total business income. The Tribunal had to determine the nature of the receipt and its relation to the assessee's business activities. However, the Tribunal lacked factual data to make an informed decision on this issue. The Tribunal noted that the interest income was generated from "advances" received by the assessee in the course of its regular business activity. Yet, it was unclear on what basis this observation was made, as there was no discussion on the contract between the parties. The High Court also did not examine the factual basis before disposing of the matter. The Department contended that the surplus was invested in fixed deposits, while the assessee argued that the amount was an advance received from the exporter and then invested. Due to the absence of a clear factual matrix, the Supreme Court decided to remit the matter back to the Tribunal for fresh consideration in accordance with the law.

The Supreme Court granted the assessee liberty to file additional documents before the Tribunal for further clarification and consideration. Consequently, the impugned judgment was set aside, and the matter was remitted to the Tribunal for a fresh decision based on a proper factual analysis and legal considerations. The civil appeals were disposed of with no order as to costs, indicating that each party would bear its own legal expenses in the proceedings.