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Issues Involved:
1. Classification of interest income. 2. Classification of profit on the sale of property. Detailed Analysis: 1. Classification of Interest Income: The primary issue was whether the interest income earned by the assessee should be classified as business income or income from other sources. The interest income in question included: - Interest on sale deposits. - Interest on temporary loans from surplus funds. - Interest on fixed deposits. - Other interest. The assessee, a private limited company involved in the construction of buildings, received deposits from prospective purchasers. These deposits were not required immediately for construction and were thus temporarily invested or loaned out, generating interest income. The Commissioner (Appeals) held that such interest was a trading receipt arising directly from the business activity of construction and should be considered business income. This view was based on the principle that the interest income had a direct nexus with the business activity and was not derived from any independent activity. The Tribunal upheld the Commissioner (Appeals)'s decision, emphasizing that the interest income was not from idle capital but from deposits received in the course of business. The Tribunal noted that the profits and gains of a business include not just the profits from the sale of stock-in-trade but also ancillary or incidental trading receipts. Citing relevant case law, the Tribunal concluded that the interest income should be treated as business income and included in the computation of business income upon the project's completion. 2. Classification of Profit on Sale of Property: The second issue involved the classification of Rs. 6,66,000, described by the assessee as 'profit on sale of property.' The amount arose from a transaction where the assessee paid Rs. 50,00,000 to another company under the same management to purchase certain floors of a building under construction. The agreement allowed the other company to terminate the sale by repaying Rs. 50,00,000 plus Rs. 6,60,000 as compensation by a specified date. The other company exercised this option, leading to the receipt of Rs. 6,60,000 by the assessee. The assessee contended that this amount should be treated as business income, arguing it was essentially interest earned on deposits. However, the Tribunal disagreed, noting that the transaction was structured as a purchase and sale of property, not a loan. The Tribunal emphasized that the legal character of the transaction should not be ignored, and the relationship created was that of vendor and intending purchaser. The Tribunal concluded that the Rs. 6,60,000 was not interest income but a gain from a distinct activity unrelated to the business of constructing buildings. Thus, it should be assessed as income from other sources in the relevant assessment year. Conclusion: The Tribunal's judgment resulted in a partial allowance of the appeal. The interest income was classified as business income, to be considered upon project completion. However, the Rs. 6,60,000 received as compensation was classified as income from other sources, to be assessed separately in the relevant assessment year.
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