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TMI Blog1997 (1) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... 75, the assessee received a total sum of Rs. 29,73,601 as interest in the following manner : Rs. (a) Interest on term deposits with banks in India 29,30,573 (b) Interest on time deposits with FNCB, New York 31,844 (c) Interest on trade deposits with Government securities 11,184 ------------------------ Total 29,73,601. ------------------------- The assessee claimed that its interest income is to be regarded as part of its business income. The Income-tax Officer treated it as income from " other sources ". According to the Income-tax Officer, interest received was directly relatable to deposits made in the banks and such interest must be taken as income under the head " Other sources " and there was no scope to consider it as profit derived from industrial undertaking. On appeal, the Appellate Assistant Commissioner confirmed the order passed by the Income-tax Officer. The assessee filed a second appeal before the Appellate Tribunal. Before the Tribunal it was argued that the deposit of these moneys in the banks was so interlinked with the carrying on of the business that it could not be regarded de hors the carrying on of the business and was incidental to and dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing business in money-lending or financing. Therefore, according to learned standing counsel for the Department, the provisions of section 28 of the Act will not apply to the facts of this case and the provisions of section 56 of the Act alone would apply. In order to support his contention, learned standing counsel for the Department relied upon the following decisions : (1) Murli Investment Co. v. CIT [1987] 167 ITR 368 (Raj). (2) CIT v. Rajasthan Land Development Corporation [1995] 211 ITR 597, (Raj). (3) Bokaro Steel Ltd. v. CIT (No. 2) [1988] 170 ITR 545 (Patna). (4) Collis Line Pvt. Ltd. v. ITO [1982] 135 ITR 390 (Ker). On the other hand, learned counsel appearing for the assessee submitted as under : This interest income is in the nature of business income, because it was realised by depositing the cash relating to business, but not immediately required. The term deposits were made in the course of the assessee's business activities and it was nothing but good cash management, which would otherwise remain idle. By investing the money in fixed deposits for a brief period, the assessee-company was able to reduce its financial burden. The amount of interest realised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, a shipping company, because the money was lying idle and it was safer and wiser to put it in a bank, the interest earned on the deposit would be incidental to the main purpose of the deposit, which was safe keeping and not earning of profits. Therefore, the interest earned cannot be said to be received in the course of business so as to make it part of the profits and gains of the assessee's business. It should be assessed as income from " other sources ". In Bokaro Steel Ltd. v. CIT (No. 2) [1988] 170 ITR 545, the Patna High Court while considering the provisions of section 56 of the Income-tax Act, 1961, held that the surplus money not required for business had been kept in short-term deposits in banks. The bank deposits were not incidental to the business of the assessee, nor were they incidental to the construction of the factory of the assessee. The interest on short-term deposits constituted income of the assessee and it was assessable under section 56 of the Income-tax Act, 1961, as income from " other sources ". In Murli Investment Co. v. CIT [1987] 167 ITR 368, the Rajasthan High Court, while considering the provisions of sections 28, 56 and 57 of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind of activity and occupation of the person concerned. Upon the peculiar facts of this case, we are of the opinion that the interest accrued on short-term deposits of the assessee's company, which were made out of the business funds available with the assessee-company before the same were utilised for actual business and as such the same is incidental to the business activity of the assessee-company and as such the interest on the short-term deposits should be treated as business income. According to learned counsel appearing for the assessee the abovesaid decision would be applicable to the facts of this case on all fours. However, learned standing counsel appearing for the Department submitted that the Supreme Court in CIT v. Calcutta National Bank Ltd. [1959] 37 ITR 171, is concerned with the proviso to section 2(5) of the Excess Profits Tax Act, 1940. The definition of " business " under the Excess Profits Tax Act is wider than the definition of that term under the Income-tax Act (section 2(4), section 2(19) of the Act). According to learned standing counsel, the proviso to section 2(5) of the Excess Profits Tax Act is concerned with deemed business. Therefore, according to le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital base for the purpose of claiming relief under section 80J of the Act. This claim of the assessee was accepted by the Department. According to the assessee, the deposits have been treated as capital employed in the business for the purpose of section 80J of the Act in the assessment order under appeal. The assessee, therefore, submits that it would be a contradiction in terms to treat the income earned from these deposits as income from other sources, while the deposits, which have earned income have thus been treated as business assets. In fact, the assessee has requested to treat the interest income as part of business income in the assessment covering the first year of operation. The assessee's request was allowed and interest income was treated as part of the business income. The Appellate Assistant Commissioner in I. T. A. No. 177 of 1975-76, in his order, dated January 11, 1977, for the assessment year 1972-73, has held that the moneys kept in term deposits by the company represent moneys required for the assessee's business. Therefore, it was requested that the income should be taxed under the head " Business " as returned by the assessee. However, it is the case of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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