TMI Blog2009 (6) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... ome in respect of its business in cold storage, disclosing nil income after partly setting off the brought forward losses for the assessment year 1996-97 to an extent of Rs. 42,09,522. The assessee however, worked out tax liability under the provisions of section 115JB of the Income-tax Act, 1961 (in brief the Act) at Rs. 3,22,028 and claimed refund of Rs. 19,72,791 out of the prepaid taxes amounting to Rs. 22,94,819. 4. During the course of assessment proceedings, the Assessing Officer observed that the assessee has shown income of Rs. 91,92,306 in the P L a/c comprising of Rs. 68,96,429 by way of income from investments and services and Rs. 22,95,877 towards other income. The components comprising the said income have been elaborated in Schs. 10 and 11 in the audited final account forming the part of annual report of the company for the impugned assessment year. From the details in the Sch. 11, the Assessing Officer has observed that except the lease rental of Rs. 2,40,000 as elaborated in the Sch. 10, other income i.e., interest received from banks and others amounting to Rs. 66,43,343 and dividend received from mutual funds Rs. 13,086 cannot be treated to be the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim the interest earned on fixed deposits with banks and mutual funds as income from business and therefore the said income was treated as income from other sources by the Assessing Officer. 5. The assessee preferred an appeal before the CIT(A) and placed a heavy reliance upon the following judgments in support of his contentions that even where the business funds are invested in short-term deposits before they are actually used for the business, the interest accrued thereon should be treated as business income of the assessee : (1) CIT v. Tamil Nadu Dairy Development Corp. Ltd. [1995] 216 ITR 535 (Mad.); (2) CIT v. Tirupati Woollen Mills Ltd. [1992] 193 ITR 252 (Cal.). 6. The CIT(A) re-examined the issue but was not convinced with the contentions of the assessee and confirmed the action of the Assessing Officer in treating the interest income as income from other sources. 7. Now the assessee has preferred an appeal before the Tribunal with the submission that the lower authorities have not properly appreciated the facts of the case that the assessee has closed down its earlier business and has switched over to new business of investment and deposits. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess income of the assessee : (1) Tamil Nadu Dairy Development Corpn. Ltd. ( supra ); (2) Tirupati Woollen Mills Ltd. ( supra ); (3) CIT v. R.M. Meenakshisundaram [1995] 212 ITR 220 (Mad.); (4) CIT v. Lok Holdings [2009] 308 ITR 356 (Bom.), (5) CIT v. Excellent Commercial Enterprises Investments Ltd. [2006] 282 ITR 423 (Delhi). 9. The learned Departmental Representative on the other hand, besides placing reliance upon the order of the CIT(A), has emphatically argued that after selling its own industrial unit, the surplus sale proceeds were placed in FDR which has no connection with the business activities of the assessee. As such the revenue has rightly treated this interest received as an income from other sources. The learned Departmental Representative further contended that on this interest, TDS was deducted by the banks and in support of his contention he has filed the balance sheet and schedules and the copies of TDS certificate. 10. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record. Undisputedly, the assessee was engaged in the bottling and manufacturing of chemicals and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in term deposits in accordance with the conscious decision taken in the general body meeting, and by the board of directors. Since this nature of activities has been inserted as one of the business objects of the assessee, the income generated therefrom can only be the business income of the assessee. 12. Our attention was also invited to the various judgments of different High Courts in which it has been held that when the surplus funds available with the assessee are not readily required and if invested in FDRs in bank, interest income generated thereon can only be termed to be the business income and not the income from other sources. 13. In the case of Lok Holdings ( supra ), their Lordship s of the Bombay High Court have held that interest earned by the assessee, a property developer, by making a temporary deposit of surplus money out of advances received by it from intending purchasers is a business income and cannot be termed as income from other sources. While dealing with the issue, their Lordships of the Bombay High Court have examined the impact of the Supreme Court judgment in the cases of Tuttcorin Alkali Chemicals Fertilizers Ltd. v. CIT [1997] 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, the interest earned on such deposits is out of commercial assets of his business and therefore is assessable as business income and not as income from Other sources. 17. From a careful perusal of the aforesaid judgments of different High Courts, we are of the view that the legal position is very clear even in those cases, where the surplus funds, which are not readily required by the assessee for its business purpose, if placed in FDRs or in term deposits, the interest generated thereon is certainly business income being income out of the commercial assets of the business and not an income from other sources. If the facts of the instant case are viewed in the light of legal preposition laid down in the aforesaid judgments, we will find that the case in hand is on stronger footings. In the instant case, the assessee has modified its objects in the memorandum of association by passing a proper resolution in the extraordinary general body meeting. The object of the company was modified in order to make the investment of the sale proceeds received by the assessee on its sale of 2 divisions and accordingly investment was made. Hence, in the light of these facts, we are of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant submits that the CIT(A)-2, Visakhaptnam, is not justified in confirming the action of Assessing Officer in assessing income from lease rentals under the head "Income from house property" instead of under the head "Income from business". 5. Appellant submits that the CIT(A)-2, Visakhapatnam, is not justified in confirming the action of the Assessing Officer in disallowing the entire expenditure incurred under the various heads aggregating to Rs. 49,69,698 while computing the total income." 19. During the course of hearing of the appeal, the learned counsel for the assessee has opted not to press ground No. 1 and accordingly the same is dismissed being not pressed. 20. Before proceeding on merit of this case, certain salient features are placed on record. The original assessment was framed under section 143(3) on 29-3-2005. In that assessment, assessing authorities had rejected the assessee s claim of Rs. 53,27,136 as income from business and treated the same as income from other sources. While holding so Assessing Officer however, allowed the set off of brought forward unabsorbed losses relating to assessment year 1996-97 and arrived at a taxable income as per regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund of excess electricity and provisions no longer required are concerned same are debited to the accounts of the assessee in earlier years on account of the business activities of the assessee and if they are received or credit entries are made in this year, they are certainly business receipts of the assessee and by no stretch of imagination it can be termed to be the income from other sources. So far as miscellaneous receipts of Rs. 87,700 are concerned, complete details are not available with us and therefore we are not in a position to hold that these miscellaneous receipts also accrued out of business activities of the assessee. We therefore, accordingly hold that duty drawback claim of earlier years of Rs. 2,20,886, refund of electricity charges of Rs. 10,36,198 and provisions no longer required of Rs. 9,51,093 are the business income of the assessee. 24. Now the next issue arises with regard to set off of brought forward business losses of the previous years. In this regard we are of the view that these business losses can be set off against the business income of the assessee. Since we have already held in the foregoing para that the interest income and other income a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
