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TMI Blog2004 (9) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO treating the interest income from fixed deposit under the head 'Income from other sources'. 3. The assessee has received interest on bank deposits for the asst. yrs. 1997-98, 1998-99 and 1999-2000, and the assessee has treated this interest as income from business for the reason that the FD was made in the bank for the purpose of obtaining letter of credit as the main business of the assessee was import of timber and allied products and for obtaining .a letter of credit, the bankers of the assessee, viz., Bank of Baroda, have insisted on margin money for which the assessee was required to make short-term deposit. On assessment, the AO treated the interest received from the bank deposit as income from other sources instead of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is placed at p. 32 of paper book-I and submitted that the bank has insisted on deposit of 25 per cent cash margin. 5. He further submitted that the case law relied on by the AO in the case of Tuticorin Alkali Chemicals Fertilisers Ltd. (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC) is not applicable to the facts of the case of the assessee. In the case before the Hon'ble Supreme Court, it was held that the interest income earned by the assessee from the deposit of surplus funds before commencement of the business should be treated as income from other sources instead as business income and cannot be set off against interest paid. In the case before us, no surplus fund was deposited in the bank and the deposit was made due to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f credit. Even the letter bearing No. IBB/IMP/17/27, dt. 1st June, 2004, does not indicate that the bank has compelled the assessee to make FD for grant of letter of credit. In our opinion, there was no compulsion or insistence from the bank for making any FD towards opening of letter of credit. The condition for sanction was hypothecation of stock of timber including stock-in-transit and 25 per cent of cash margin and commission at fixed rate and the letter of credit for a period of 180 days. The letter of credit was sanctioned on the basis of the business of the assessee, creditworthiness and security offered. Hence, the interest received from the deposit cannot be treated as earned from business as there was no nexus between the FD and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only profit but also loss will have to be taken into consideration. Respectfully following the ratio laid down by the Hon'ble apex Court, we reject this ground. 10. The next ground in ITA No. 894/Mds/2003 relates to treating of interest income received from M/s Sudarshan Metal Caps and M/s Srikar Metal Caps as income from other sources instead of income from business. 11. The assessee has received interest from the above two companies towards amounts advanced. On assessment, the AO added this as income from other sources. Aggrieved by this, the assessee went in appeal before the CIT(A) who has confirmed the order of the AO. 12. The learned counsel for the assessee submitted that the amount earned by the assessee as interest was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts advanced were short-term advances and they were advanced to only two parties. There is no document stipulating the repayment or payment of interest and even in the object clause, there is no mention of money-lending business. The business implies "continuous" activity in carrying on a particular trade or vocation. It may also include an activity which may be called 'quiescent'. It is essential for the assessee to prove that the activity was carried on continuously, systematically by application of his labour, skill and money to earn the income. There must be a proof of continuous activity in carrying on a particular trade. On the facts of this case, it is clearly found that the activity indulged by the assessee was one-time transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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