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TMI Blog1984 (3) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... ant accounting year : Rs. (i) Interest on sale deposits 20,000 (ii) Interest on temporary loans from the surplus funds 14,686 (iii) Interest on fixed deposits 1,200 (iv) Other interest 2,877 (v) Profit on sale of property 6,66,000 ------------------------- 7,04,763 ------------------------- 5. The ITO was of the opinion that the said amounts represented income which had no relationship with the business of the construction of buildings and sale thereof. According to him, those items related to income arising from source other than the business of construction carried on by the assessee. That income was, therefore, not liable to be computed along with business income of construction of buildings which income was offered on completion of construction. He, therefore, with the approval of the IAC, assessed the said income as income from other sources for the relevant year. He did not accept the explanation given by the assessee in letter dated 6-3-1981. 6. The Commissioner (Appeals), before whom the assessee went in appeal, relied on his own earlier order for the assessment years 1974-75 and 1975-76, wherein it had been held that earning of interest by the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease from the State Government. The assessee had to give certain guarantee to the State Government. For that purpose the assessee had to keep certain amounts in fixed deposits. These fixed deposits in the process gave rise to income by way of interest. The interest on item No. (iii) above comes under this category. 12. The question is whether the interest income which was generated in the above process should be treated as business income as contended on behalf of the assessee and held by the Commissioner (Appeals) or it should be treated as income from other sources as held by the ITO. If it is held to be the business income arising in the course of the business of the assessee of the construction of the buildings, it would reduce the cost of the project and would enter into computation at the time of completion of the project. If it is held as income unconnected with the business of the construction of the buildings, it would not be business income and would be liable to be assessed as income from other sources in the year in which it accrued and not in the year in which the project was completed. So the controversy centres on this narrow point. 13. It is well settled that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of business. This aspect is important and cannot be overlooked. 17. It can hardly be gainsaid that the profits and gains of a business have to be arrived at not merely by considering the profits derived by an assessee on the sale of its stock-in-trade but also the profits earned by it as an integral part of its business activities and embedded in the various kinds of trading receipts which are ancillary or incidental to such business. Thus, it was held in R. B. Jodhamal Kuthiala v. CIT [1972] 83 ITR 464 (Punj. & Har.) that the interest which a company receives in respect of refund of tax would be its business income. 18. On the same principle it was laid down in CIT v. Favre-Leuba & Co. Ltd. [1979] 1 Taxman 419 (Bom.) that where a sole selling agent makes advances to its principal and earns interest therefrom, the interest would be assessable as business income where the advances are made in the course of business and with a view to assist the principal in its manufacturing activity particularly where advances are made not out of the idle funds but out of deposits received by it from its sub-distributors or out of overdrafts taken by it from the banks. 19. Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suring 44,400 sq. ft. The said building was under construction at that time. The price was fixed at Rs. 66,60,000 and Rs. 50,00,000 were accepted as part of the said price by way of earnest money. It was specifically mentioned in the agreement that balance of Rs. 1,6,60,000 would be paid by the assessee to the said company at the time of delivery of possession. 23. On the same day, i.e., on 4-1-1977, the said company wrote a letter to the assessee in which the terms of the said agreement were confirmed. Thereafter two further terms were mentioned. The first was that if the said company paid Rs. 50,00,000 to the assessee by 30-7-1977, the said agreement of sale would stand terminated and that at the time of termination the said company would pay Rs. 6,60,000 to the assessee as and by way of compensation on repurchase of the said offices and thereafter the right, title and interest of the assessee would come to an end. The second was that in case the said company failed to make the said payment, the assessee would have the right without making the balance payment of Rs. 16,60,000 to enter upon the aforesaid premises if completed or if incomplete the assessee would become absolute o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end that terms of an agreement were not the same as were incorporated in the document and that in substance the agreement was different from what was incorporated in the document particularly nothing prevented the parties to incorporate the terms according their so-called real intention. 28. In the present case the documents indicate that the relationship that was created between the said company and the assessee was that of vendor and intending purchaser. It is true that the company had option to return the amount by 30-7-1977 along with compensation and terminate the agreement but there was no corresponding right in the assessee to terminate the same and demand the amount. What all the assessees could insist, on failure of the company to repay the amount, was delivery of possession of the premises and call upon the company to convey title. This was, therefore, not a case of loan to the company. It was a transaction of purchase of certain premises coupled with liability to terminate the agreement if the amount was refunded with compensation. The transaction was one of purchase and sale of premises from others and obviously this was not part of the business of the assessee which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in nature from income by way of compensation on purchase of property. Another decision of the Tribunal on which reliance was placed is in the assessee's own case for the assessment year 1974-75 in IT Appeal No. 602 (Bom.) of 1981, dated 7-6-1982. That order deals with the question whether reopening of the assessment under section 147 of the Act was justified. It does not deal with the merits of the question with which we ate at present concerned. 33. The ratio of the decisions of the Supreme Court in CEPT v. Lakshmi Silk Mills Ltd. [1951] 20 ITR 451, Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 and Pandit Narain Dutt Chhimwal v. CIT [1972] 83 ITR 413. S.G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700 and Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 on which the assessee relied is that income from exploitation of commercial assets would be business income whether the exploitation is done directly or through some other agency. What is important in such cases is to scan closely the facts and circumstances of the case and examine the intention and object of the assessee in giving on lease the commercial assets. If the intention is to exploit the commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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