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TMI Blog2018 (10) TMI 1226X X X X Extracts X X X X X X X X Extracts X X X X ..... the same against the performance guarantee by the appellant, therefore, had an inextricable nexus with his business of securing civil contracts and integral to his working as civil contractor. The income of interest earned from the interest such FDRs/NSCs by the appellant therefore, in our considered view, cannot be treated as income from other sources and would rather be an income earned from business. The interest income from FDRs and NSCs of the petitioner has to be treated as income from business and not income from other sources as the income is part of the total receipts and not from other sources. Matter is remitted back to the AO for passing fresh order of assessment in accordance with law keeping view the question answered by this Court in THE COMMISSIONER OF INCOME TAX VERSUS M/S BHAWAL SYNTHETICS (INDIA) UDAIPUR [2017 (5) TMI 540 - RAJASTHAN HIGH COURT] - D.B. Income Tax Appeal No. 355/2017, D.B. Income Tax Appeal No. 356/2017 - - - Dated:- 31-8-2018 - Mr. Justice Mohammad Rafiq And Mr. Justice Goverdhan Bardhar For the Appellant(s) : Dr. S.L. Jain Shri Ashok Kumar Gupta For the Respondent(s) : Shri Daksh Pareek on behalf of Shri Sameer Jain JUDGME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late Tribunal was justified in holding the interest income from FDR NSC as income from other sources by not considering the same as business income and part of total receipts? We have heard Dr. S.L. Jain, learned counsel for the appellant-assessee and Shri Daksh Pareek, learned counsel for the respondent-revenue. Dr. S.L. Jain, learned counsel for the appellant-assessee has argued that the Tribunal has erred in law in computing the interest income from FDRs and NSCs as income from other sources, whereas the appellant is a Civil Contractor and is required to furnish the performance guarantee to the various works departments by way of FDRs and NSCs. The furnishing of FDRs and NSCs by the appellant to the Public Works Department is, therefore, incidental to his main business. It has got a nexus with the business and therefore the interest derived from FDRs and NSCs has to be treated as a business income. It is contended that the interest income earned on FDRs/NSCs is part of the business income as they were obtained for the purpose of business for giving bank guarantee to various departments. FDRs were made by utilising the bank overdraft limit on which interest was paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR was not surplus amount but part of amount that was kept to obtain letter of credit for purchase of machinery. It was held by this Court that interest earned thereupon was nothing but income from other source and therefore the Commissioner of Income Tax rightly treated the same as taxable income. Learned counsel for the respondent has also relied on judgement of the Supreme Court in M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. Commissioner of Incometax- 1997 (6) SCC 117. We have given our anxious consideration to the rival submissions and perused the material on record. This Court in M/s. Bhawal Synthetics (India), Udaipur, supra was dealing with a case where the case of the assessee was selected for scrutiny and the Assessing Officer considering the explanation given by the assessee arrived at the conclusion that since no expenditure or depreciation was claimed by the assessee, the addition sought to be made is set off and the returned income be treated as nil. The Commissioner of Income Tax, however, held that interest earned on FDRs amounting to ₹ 9,31,572 had not been brought to tax and was wrongly set off. A show cause notice under Section 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly. This Court in M/s. Bhawal Synthetics, supra where the amount in the FDR was kept for obtaining letter of credit for purchase of machinery has indeed not noticed the judgment of the Supreme Court in Karnal Cooperative Sugar Mills Ltd, supra. In that also, money in FDR was part of the amount that was kept to obtain later of credit for purchase of machinery. Facts were thus identical. The judgement of the Supreme Court in Karnal Cooperative Sugar Mills Ltd., supra thus provides guidance on the point of law involved in this case. It was held therein that income earned would fall in the category of income from other sources, but may come in the category of income earned from business. The Supreme Court in the aforesaid case has considered the judgement in Tuticorn Alkali Chemicals and Fertilizers Ltd., supra and held thus: In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art, the release of such performance security depended upon certain conditions. Thus, it is clearly evincible that the bank guarantee was furnished as a condition precedent to entering the contract and further it was to be kept alive to fulfill the obligations. Quite apart from the above, the release of the same was dependent on the satisfaction of certain conditions. Thus, the present case is not one where the assessee had made the deposit of surplus money lying idle with it in order to earn interest; on the contrary, the amount of interest was earned from fixed deposits which was kept in the bank for furnishing the bank guarantee. It had an inextricable nexus with securing the contract. Therefore, we are disposed to think that the factual matrix is covered by the decisions rendered in Bokaro Steel Ltd. (supra), Karnal Co-operative Sugar Mills Ltd. (supra) and Koshika Telecom Ltd. (supra) and, accordingly, we hold that the view expressed by the tribunal cannot be found fault with. Another judgment on the similar facts is of Madhya Pradesh High Court in Bharat Oman Refineries Ltd., supra. That was a case in which assessee-company filed nil return and along with the return, sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the income was from money deposited in FDRs and NSCs, which was required to be furnished by way of security for securing the contract work and, therefore, it should have been treated as income from business and not from other sources. The Patna High Court relying on the judgement of Karnataka High Court held that the Tribunal as well as the subordinate Revenue authorities erred in holding that interest accrued on security deposits to the extent used for the purpose of securing the contract work would also be assessable as income from other sources. In the present case also, on the facts of the present case, we find that appellant being a civil contractor was required to provide a performance guarantee to the various works departments for obtaining contracts of civil construction. He to keep such performance guarantee alive by way of utilizing the bank overdraft limit against which he had to furnish FDRs/NSC for execution of the contracts. His failure to submit the performance guarantee or inability to keep them alive would have resulted in termination of the contract awarded to him and in that event, the concerned departments/employer could encash the security. Release of such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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