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2017 (4) TMI 1603 - AT - Income TaxCorrect head of income - computation of interest income under the head ‘income from other sources’ or income under the head ‘profits and gains of business’ - HELD THAT:- We find the Ld. CIT(A) after appreciating the facts of the present case had concluded that the interest earned by the assessee is only incidental to its business and hence the same is considered as independent receipt /income and not derived from the said business. We find that the judicial authorities have concluded that where out of business necessity, if funds are to be deployed by the assessee in fixed deposits for opening letter of credit/procuring bank guarantee/margin money, etc. as a necessity of business then in that eventuality the interest earned on such funds is to be taxed under the head ‘business income’ and not ‘income from other sources.’ After appreciating the facts of the present case, we are of the considered view that Ld. CIT(A) fell in error while deciding this ground and has wrongly held that the interest receive is an independent receipt of income and not derive from the business of the assessee whereas the factual position is that the interest credited to the P&L account was earned on fixed deposits made with banks as margin money towards bank guarantee taken from business purpose. Hence in such circumstances, the assessee has proved that the fixed deposits have a direct nexus with the working capital facilities availed from the banks. Hence in our view, the interest earned from the such deposits of the money kept apart for the purpose of business is to be taxed under the head ‘income from the business’ and could not be taxed under ‘income from other sources’ Direct the AO to treat the interest income under the head ‘profit and gains of the business’ as declared by the assessee. Therefore, this ground is allowed.
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