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TMI Blog2013 (12) TMI 1251X X X X Extracts X X X X X X X X Extracts X X X X ..... led on 12.10.1989, which consisted of business income of Rs. 1, 62, 77, 017/-; income under the head 'other sources' of Rs. 2, 57, 198/-, and agricultural income of Rs. 5, 46, 407/-. The Deputy Commissioner of Income Tax (Assessment), Special Range, Meerut by her order dated 12.3.1992 assessed the net income of the assessee at Rs. 1, 78, 62, 460/-, with directions to award interest as per the Act. 4. In Appeal No. 57/92-93/MRT filed by the assessee, the Commissioner of Income Tax (Appeals), Meerut by his order dated 23.9.1992 partly allowed the appeal. One of the questions considered by the Appellate Authority was whether the surplus amount of funds invested in Fixed Deposit Receipts (FDRs), should be treated business income and not income from other sources. The Appellate Authority held that in the course of carrying on of the fabrication of wagons, the assessee was required to furnish bank guarantees to the railways. Such bank guarantees were in the form of FDRs. The income generated from the manufacturing activities was business income. When such business income could not be fully ploughed back in the existing business, or in the exigencies of the existing business, and the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. No. 8553/Del of 1992 and I.T.A. No. 3632/Del of 1993 for the assessment years 1989-90 and 1990-91 challenging the order of the CIT (A). By a judgement dated 16.12.1999 under challenge in this appeal, the Tribunal, relying upon the same judgements, held that any income earned by the capital employed would automatically become the business income of the assessee. It could not be treated income earned from other sources. The Tribunal confirmed the findings of the CIT (A) in appeal and relied upon the judgement of Madras High Court reported in 211 ITR 597 which in turn has relied upon the judgement of Rajasthan High Court, in which it was held as follows:- "In CIT v. Rajasthan Land Development Corporation (1995) 211 ITR 597 (Raj), the Rajasthan High Court while considering the provisions of sections 28 and 56 of the Income Tax Act, 1961, held (i) interest on fixed deposits and other deposits before the commencement of business is an income from other sources, (ii) income from interest on deposits of surplus money during the construction period is also to be considered as income from other sources.' (iii) interest income in respect of surplus money, not required for business and dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porary lull in the business or other commercial consideration when the money earned from business could not be utilised for earning income in the existing business, the same was put in the form of fixed deposit receipts to earn some income. It is the prudence of a business man to arrange his financial affairs in the normal course of business carrying on of business to earn profit. The balance sheet does not show that the appellant intended to treat those fixed deposit receipts as a mere investment and not rotation of money in one form or the other. The exploitation of business assets and the income/profit earned there from would constitute income under the head 'business'. It is seen that the appellant had not wound up or discontinued its business and utilised the capital by way of investment. However, it is a case where the business is continuing and during the continuance of business the money as rotated in one from or the other. In my considered opinion such rotation of money was in the normal course of business activity and the income derived in the form of interest would be income under the head 'Business'. In view of the factual and legal position stated above, I am of the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nda Choudhury and Sons 1993 (203) ITR 881 (SC). In this case the Supreme Court held that where the business of the assessee is to enter into contracts, in the execution of which he also faced disputes with the State Government, and also reckoned with delays in payment of amounts due to him, the interest awarded by the arbitrator for such delay is only an accretion to the assessee's receipts from the contracts. The interest was not dehorse the contract business. The Supreme Court thereafter held:- " It is well-settled that interest can be assessed under the head " Income from other sources " only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him dehors the business which is carried on by him. In our view, the interest payable to him certainly partakes of the same character as the receipts for the payment of which he was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts granted to the assessee under the awards and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under Section 28 of the Act? In our view, such interest income would come in the category of "Income from other sources", hence, such interest income would be taxable under Section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze Section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of certain Incomes". The Headnote to Section 80P indicates that the said section deals with deductions in respect of income of cooperative Societies. Section 80P(1), inter alia, states that where the gross total income of a cooperative Society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-Society. An income, which is attributable to any of the specified activities in Section 80P(2) of the Act, would be eligible for dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such interest income. We find no merit in this submission. Section 80P(2)(a)(i) of the Act cannot be placed at par with Explanation (baa) to Section 80HHC, Section 80HHD(3) and Section 80HHE(5) of the Act. Each of the said sections has to be interpreted in the context of its subject-matter. For example, Section 80HHC of the Act, at the relevant time, dealt with deduction in respect of profits retained for export business. The scope of Section 80HHC is, therefore, different from the scope of Section 80P of the Act, which deals with deduction in respect of income of cooperative Societies. Even Explanation (baa) to Section 80HHC was added to restrict the deduction in respect of profits retained for export business. The words used in Explanation (baa) to Section 80HHC, therefore, cannot be compared with the words used in Section 80P of the Act which grants deduction in respect of "the whole of the amount of profits and gains of business". A number of judgements were cited on behalf of the assessee(s) in support of its contention that the source was irrelevant while construing the provisions of Section 80P of the Act. We find no merit because all the judgements cited were cases relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT, 113 ITR 84, followed again in Ashok Leyland Ltd. v. CIT, 224 ITR 122. The words derived from‟ had to be given restricted meaning and income could be said to be derived from an activity only if the said activity was the immediate minimum and effective sources of the income. Profits and gains are well understood to mean only the business income and not any other income. So long as the assessee has no business of lending money and the interest is not earned from the export business, it cannot be business income but income under other sources. (See - Tuticorin Alkali Chemicals & Fertilizers (supra)). In a recent judgment given in the case of Commissioner of Income Tax - XIII v. M/s. S.B. Jain Publishers Overseas, (ITA No. 642/2006 decided on 21.8.2009), the assessee had received interest income of Rs.3,50,000/- from M/s. CBS Publishers, to whom it had made certain advance. This advance was given against the supply of books. Said M/s. CBS Publishers delayed the supply and for the period the publishers kept the advance, they paid interest to the assessee. Since the advance was given for the business purpose, it was held that interest earned thereupon would inextricably treat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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