MAMTA ENTERPRISES, MUMBAI V. DY.CIT.,24(3), MUMBAI

CO 158/MUM/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6795 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 06-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P C MAURYA
• Keywords: Reopening of assessment; Business income; Condonation of delay; Reason to believe; Reassessment proceedings
• Section: 147; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI PRAMOD KUMAR (A.M) ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) DCIT 24(3), ROOM NO.701, C-11, 7 TH FLOOR, B.K.C, BANDRA (EAST), MUMBAI 51. (APPELLANT) VS. M/S. MAMTA ENTERPRISES, 141, GUNDECHA HOUSE, JAWAHAR NAGAR, GOREGAON(W), MUMBAI 400 062. PAN: AAAFM 0451 (RESPONDENT) C.O. NO.158/MUM/2011 (ARISING OUT OF ITA 5205/MUM/109(A.Y. 2005-06) M/S. MAMTA ENTERPRISES, 141, GUNDECHA HOUSE, JAWAHAR NAGAR, GOREGAON(W), MUMBAI 400 062. PAN: AAAFM 0451 (CROSS OBJECTOR) VS. DCIT 24(3), ROOM NO.701, C-11, 7 TH FLOOR, B.K.C, BANDRA (EAST), MUMBAI 51. (APPELLANT IN APPEAL) APPELLANT BY : SHRI P.C.MAURYA RESPONDENT BY : SHRI VIMAL PUNMIYA DATE OF HEARING : 21/12/2011 DATE OF PRONOUNCEMENT : 30/1 2/2011 ORDER PER N.V.VASUDEVAN, J.M, ITA NO.5205 & 5206/MUM/2010 ARE APPEALS BY THE RE VENUE AGAINST A COMMON ORDER DATED 23/3/2010 OF CIT(A) 34, MUMBAI R ELATING TO ASSESSMENT YEARS 2005-06 AND 2006-07. CO NO.158/M/ 2011 IS CROSS OBJECTION FILED BY THE ASSESSEE IN ITA NO.5205/M/20 10. ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) C.O. NO.158/MUM/2011 2 2. AS FAR AS THE CROSS OBJECTION IS CONCERNED THE G ROUNDS RAISED IN THE CROSS OBJECTIONS RELATES TO THE VALIDITY OF INITIAT ION OF REASSESSMENT PROCEEDINGS FOR A.Y 2005-06. THIS GROUND WAS NEITH ER RAISED BEFORE THE AO OR THE CIT(A) BY THE ASSESSEE AND IS BEING AGITATED FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE CROSS OBJECTIONS IS DELAYED BY 6 8 DAYS. IT HAS BEEN EXPLAINED THAT THE DELAY IS DUE TO THE FACT THAT MR S. SHAILAJA AGNIHOTRI WORKING WITH THE CHARTERED ACCOUNTANT MISPLACED THE PAPERS OF THE ASSESSEE AND THE SAME WAS FOUND ONLY AFTER THE APPE AL WAS FIXED FOR HEARING ON 25/8/2011. WE ARE SATISFIED WITH THE REASONS GI VEN IN THE PETITION FOR CONDONATION OF DELAY SUPPORTED BY AN AFFIDAVIT OF M RS. SHAILAJA AGNIHOTRI. WE, THEREFORE, CONDONE THE DELAY IN FILING THE APPE AL. 3. THE REASONS FOR REOPENING THE ASSESSMENT AND TH E CIRCUMSTANCES UNDER WHICH THE ASSESSMENT WAS REOPENED WAS AS FOLLOWS: THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. THE RETURN OF INCOME WAS FILED ON 31/10/2005. NO REGULAR ASSESSMENT WAS MADE ON SUCH RETURN OF INCOME. A NO TICE UNDER SECTION 147 WAS ISSUED AND SERVED ON THE ASSESSEE ON 3/9/2007. THE ASSESSEE HAD CLAIMED INTEREST OF FDRS AS INCOME FROM BUSINESS. ACCORDING TO THE AO THE ASSESSEE WAS NOT AN INVESTMENT COMPANY AND INTEREST INCOME OUGHT TO HAVE BEEN CONSIDERED AS INCOME FROM OTHER SOURCES AND, T HEREFORE, THE ASSESSMENT WAS REOPENED. WE ARE OF THE VIEW THAT THE REASONS FOR REOPENING ARE VALID AND IT CANNOT BE SAID THAT THER E WAS NO REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMEN T. THE REOPENING OF ASSESSMENT IS, THEREFORE, HELD TO BE VALID. CONSEQ UENTLY, THE GROUND RAISED IN THE CROSS OBJECTION IS DISMISSED. 3. AS FAR AS THE APPEALS BY THE REVENUE ARE CONCERN ED THE ISSUE RELATES TO WHETHER THE INTEREST EARNED ON FDRS KEPT WITH THE BANK SHOULD BE TREATED ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) C.O. NO.158/MUM/2011 3 AS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCE S. THE INTEREST WAS EARNED ON FDRS WHICH WERE MADE OUT OF SURPLUS NOT R EQUIRED FOR BUSINESS FOR THE TIME BEING AND FUNDS GIVEN TO NEETA ENTERPR ISES, A GROUP CONCERN OF THE ASSESSEE FIRM. ON THE ABOVE FACTS THE AO TREAT ED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES. 4. THE FACTS IN A.Y. 05-06 WERE THAT THE ASSESSEE FILED RETURN OF INCOME DECLARING INCOME FROM BUSINESS OF RS.21,81,074/-. THE ASSESSEE HAD UNABSORBED BUSINESS LOSS OF EARLIER YEARS TO THE TU NE OF RS.41,83,080. AFTER SETTING OF UNABSORBED BUSINESS LOSS, TOTAL INCOME O F NIL WAS FILED. THE AO WHILE GOING THROUGH THE PROFIT AND LOSS ACCOUNT, NO TICED THAT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS EARNED INTE REST ON FDRS TO THE TUNE OF RS. 39,43,346/- AND INTEREST RECEIVED RS. 99,89, 362/- FROM NEETA ENTERPRISES, A GROUP CONCERN OF THE ASSESSEE FIRM. THE INTEREST INCOME SO EARNED WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT AND THEREAFTER PROFIT AS PER PROFIT AND LOSS ACCOUNT WAS ARRIVED AT RS.21,81 ,074/-. THUS INTEREST INCOME HAD BEEN CLAIMED INCOME FROM BUSINESS. ACCO RDING TO THE AO INTEREST INCOME HAD TO BE ASSESSED AS INCOME FROM OTHER SOURCES. IF SO CONSIDERED, THE SAME WOULD BE TAXABLE AS THE ASSESS EE CANNOT AVAIL THE BENEFIT OF SET OFF OF UNABSORBED BUSINESS LOSS CARR IED FORWARD FOR SET OFF AS PER THE PROVISIONS OF SEC.72 OF THE INCOME TAX ACT, 1961 (THE ACT). 5. IN VIEW OF THIS THE AO CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE INCOME EARNED SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES. THE ASSESSEE EXPLAINED THAT FUNDS INVESTED IN FIXED DEP OSIT WITH PUNJAB NATIONAL BANK WAS CAPITAL BROUGHT IN THE BUSINESS B Y THE PARTNERS OF THE FIRM FOR THE CONSTRUCTION WORK. SINCE THE CONSTRUC TION WAS IN A PRELIMINARY STAGE, THE AMOUNT WAS WITHDRAWN. IT WAS ALSO STATE D THAT THE SALE PROCEEDS OF THE BALANCE FLAT CONSTRUCTED AT AVE MARIA, 34, D R. AMBEDKAR ROAD, KHAR ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) C.O. NO.158/MUM/2011 4 (WEST) MUMBAI WERE RECEIVED DURING THE YEAR. THIS SALE PROCEED AND CAPITAL BROUGHT IN BY THE PARTNERS DURING THE YEAR WAS INVE STED IN FIXED DEPOSIT WITH BANK AND LOAN WAS GIVEN TO NEETA ENTERPRISES ( A GR OUP COMPANY) WITH CONDITION TO RECOVER THE MONEY AS AND WHEN REQUIRED IN THE NEW PROJECT. THE FIRMS MAIN BUSINESS IS DEVELOPING PROPERTY. T HEREFORE, THE FUND KEPT IN FIXED DEPOSIT AND ADVANCE TO NEETA ENTERPRISES WAS ONLY A SHORT TERM ARRANGEMENT AND HENCE, INTEREST RECEIVED IS A BUSIN ESS INCOME. 6. THE AO WAS OF THE VIEW THAT THE FACTS OF THE CA SE CLEARLY SHOWED THAT INCOME EARNED BY WAY OF INTEREST ON FDR AND LOANS G IVEN TO M/S. NEETA ENTERPRISES CANNOT BE TREATED AS BUSINESS INCOME AS THERE IS NO NEXUS BETWEEN EARNING OF INTEREST INCOME AND BUSINESS CAR RIED ON BY THE ASSESSEE. BESIDES RELIANCE WAS ALSO BEING PLACED BY THE AO ON THE CASE OF SHRI KRISHNA POLYESTER LTD. VS. DCIT 274 ITR 21 (BOM) WHEREIN IT WAS HELD THAT INTEREST ON SHORT TERM DEPOSIT FUNDED FROM THE SURPLUS COLLECTE D IN THE PUBLIC ISSUE OF SHARES COULD NOT BE TREATED AS INCOME FROM BUSINESS . THE AO ALSO OBSERVED THAT WHEN THERE WAS NO BUSINESS CARRIED IN THE FIRM THE PARTNERS HAVE DELIBERATELY CONTRIBUTED MORE THAN THE REQUIRED CAP ITAL IN THE FIRM WITH AN INTENTION TO SET OFF THE INTEREST INCOME AGAINST UN ABSORBED CARRIED FORWARD BUSINESS LOSS IN THE HAND OF THE FIRM BY CLAIMING I NTEREST INCOME AS BUSINESS INCOME. THE AO ALSO OBSERVED THAT HAD THE SURPLUS CAPITAL CONTRIBUTED BY THE RESPECTIVE PARTIES BEEN INVESTED BY THEM IN THEIR NAME THAT WOULD HAVE EARNED THE INTEREST WHICH COULD HAV E BEEN TAXED ON GROSS BASIS IN THEIR RESPECTIVE HANDS AND COULD NOT BE SE T OFF AGAINST ANY LOSS. IN VIEW OF THE ABOVE, THE INCOME OF RS. 21,81,070/- WA S TREATED AS INCOME FROM OTHER SOURCES AND NO EXPENSES WAS ALLOWED AGAINST T HE SAID INCOME. WE MAY MENTION HERE THAT THE INTEREST INCOME CREDITED IN THE PROFIT AND LOSS ACCOUNT IS RS. 39,43,346/- BEING INTEREST RECEIVED ON FDRS RS. 99,89,362/- BEING INTEREST RECEIVED ON LOAN TO NEETA ENTERPRISE S. IF THIS SUM IS EXCLUDED ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) C.O. NO.158/MUM/2011 5 FROM PROFIT AND LOSS ACCOUNT, THE ENTIRE SUM AFTER ALLOWING DEDUCTIONS PERMISSIBLE IN LAW U/S.57 OF THE ACT OUGHT TO HAVE BEEN BROUGHT TO TAX. THE AO HAS HOWEVER TAXED ONLY RS.21,81,070 BEING PROFIT AS PER PROFIT AND LOSS ACCOUNT. THIS ASPECT HAS NOT BEEN NOTICED BY THE C IT(A) AS WELL. WE ARE HOWEVER NOT CONCERNED WITH THAT ASPECT AND WE ARE M AKING A PASSING REFERENCE TO THE FACTS WHICH CAME TO OUR NOTICE. 7. AS FAR AS AY 06-07 IS CONCERNED, THE FACTS ARE THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS EARNED INTEREST ON FDRS TO THE TUNE OF RS.74,12,720/-. THE FUNDS KEPT IN FDR IN THE BANK E MANATED FROM THE CONTRIBUTION MADE BY THE PARTNERS TO THEIR CAPITAL IN THE FIRM. THE BALANCE SHEET ALSO REVEALS THAT THE CLOSING WIP IS TO THE T UNE OF RS.6.4 CRS WHICH INCLUDES AN AMOUNT OF RS.4.89 CRS TOWARDS COST OF P LOT. AS PER THE FORM 3CD ASSESSEE WAS IN THE BUSINESS OF BUILDER AND DEVELOP ERS AND IT IS PERTINENT TO MENTION THAT DURING THE YEAR ASSESSEE HAS JUST STAR TED A PROJECT AT POWAI NAMELY GUNDECHA HILLS AND THE SAME WAS IN A PRELI MINARY STAGE. IN VIEW OF THIS ASSESSEE WAS SPECIFICALLY ASKED TO EXPLAIN AS TO WHY THE INCOME EARNED BY WAY OF INTEREST FROM FDRS SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES. ON BEING QUERIED, AR STATED THAT AS THE PR OJECT WAS IN A PRELIMINARY STAGE, NOT MUCH OF THE FUNDS WERE REQUIRED AT THAT POINT OF TIME, OWING TO THE FACT THAT ASSESSEE FIRM DID NOT WANT TO KEEP TH E FUNDS IDLE, THEY INVESTED IN FDRS. FOR IDENTICAL REASONS GIVEN IN AY 05-06, T HE AO HELD THAT INTEREST INCOME OF RS. 74,12,720/- WAS BEING TREATED AS INCO ME FROM OTHER SOURCES AND NO EXPENSES ARE BEING ALLOWED AGAINST THE SAID INCOME. 8. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD THAT I NTEREST INCOME WAS INCOME FROM BUSINESS FOR THE FOLLOWING REASONS: 5. I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER AND SUBMISSIONS OF THE APPELLANT FOR BOTH THE YEARS. AF TER CONSIDERING THE SUBMISSIONS OF THE APPELLANT AND VARIOUS CASE LAWS, SPECIALLY DECISION ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) C.O. NO.158/MUM/2011 6 OF KARNATAKA HIGH COURT IN THE CASE OF SATISH CHAND RA & CO V CIT 2341TR70 (KAR) AND DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS LOK HOLDINGS 3081TR356 (BOM) WHICH ARE FULLY APP LICABLE ON THE FACTS OF THIS CASE. I AM OF THE VIEW THAT INTEREST EARNED ON SURPLUS FUNDS OF BUSINESS SHOULD BE ASSESSED AS BUSINESS IN COME AND NOT AS INCOME FROM OTHER SOURCES. FURTHER, THE SET OFF SHO ULD BE ALLOWED ACCORDING TO PROVISIONS OF THE ACT. THUS APPEALS FO R BOTH THE YEARS ARE ALLOWED. 9. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEALS BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED D .R. THE LD. D.R RELIED ON THE ORDERS OF THE AO AND IN PARTICULAR RELIED ON TH E DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SWANI SPIC E MILLS PVT. LTD. (2011) 12 TAXMAN.COM 432(BOM), WHEREIN IT WAS HELD THAT SU RPLUS FUNDS OF AN ASSESSEE UTILIZED FOR DISCOUNTING BILLS ON WHICH AS SESSEE RECEIVES DISCOUNTING CHARGES HAVE TO BE ASSESSED AS INCOME FROM OTHER SO URCES. THE ASSESSEE IN THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT WAS C ARRYING ON BUSINESS OF EXPORT OF SEEDS, SPICES AND SIMILAR GOODS. EXPORT BILLS OF ASSESSEE AGAINST FULFILLMENT OF EXPORT ORDERS WERE SENT FOR COLLECTI ON TO BANKS AND ASSESSE RECEIVED DISCOUNTED VALE OF SALE PROCEEDS. ACCORDI NG TO ASSESSEE, MONEYS WHICH WERE SO RECEIVED WERE UTILIZED FOR REPAYMENT OF ITS LOANS. IF THE ASSESSEE HAD NO EXPORT ORDERS AND IF THERE WAS STIL L BALANCE, THE ASSESSEE USED ITS FUNDS TO DISCOUNT PURCHASE BILLS OF PRIVAT E PARTIES FOR SHORT PERIODS OF THREE TO FIVE WEEKS. ON SUCH ACTIVITY BY UTILIZ ING SURPLUS FUNDS, THE ASSESSEE RECEIVED INTEREST. THE QUESTION BEFORE TH E HONBLE BOMBAY HIGH COURT WAS WHETHER THE INTEREST INCOME WAS INCOME F ROM BUSINESS OR INCOME FROM OTHER SOURCES. THE HONBLE BOMBAY HI GH COURT HELD THAT THE INTEREST INCOME DID NOT HAVE A DIRECT AND PROXIMATE RELATIONSHIP WITH EXPORT ACTIVITY AND HELD THAT THE INTEREST INCOME WAS INCO ME FROM OTHER SOURCES. ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) C.O. NO.158/MUM/2011 7 THE HONBLE BOMBAY HIGH COURT IN THE AFORESAID CONS IDERED THE FOLLOWING DECISIONS: CIT VS. ASIAN STAR CO.LTD. 326 ITR 56 (BOM), TUTICO RIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT 227 ITR 172 (SC), CIT VS. BOKARO STEEL LTD. 236 ITR 315 (SC), CIT VS. KARNATAKA POWER CORPN. 247 ITR 26 8 (KARN), BONGAIGAON REFINERY & PETROCHEMICALS LTD. VS. CIT 251 ITR 329( SC), CIT VS. GOVINDA CHOUDHURY & SONS 203 ITR 881(SC), CIT VS. KARNAL CO -OPERATIVE SUGAR MILLS LTD. 243 ITR 2 (SC), CIT VS. AUTOKAST LTD. 24 8 ITR 110 (SC), CIT VS. PARAMOUNT PREMISES (P) LTD. 190 ITR 259, SHREE KRIS HNA POLYESTER LTD. VS. DCIT 274 ITR 21 (BOM), COMMISSIONER OF INCOME-TAX V S. INDO SWISS JEWELS LTD. 284 ITR 389 (BOM), CIT VS. LOK HOLDINGS LTD. 3 08 ITR 356 (BOM), SOUTH INDIA SHIPPIN CORPN. LTD. VS. CIT 240 ITR 24 (BOM), MURLI INVESTMENT CO. VS. CIT 167 ITR 368 (RAJ), K.RAVINDRANATHAN NAIR VS . DCIT 262 ITR 669 (KER), SOUTHERN CASHEW EXPORTERS VS. DCIT 130 TAXMA N 203 (KER), URBAN STANISLAUS CO. VS. CIT 263 ITR 10 (KER), CIT VS. SH RI RAM HONDA POWER EQUIP 275 ITR 475 (DEL)CIT VS. GOLDTEX FURNISHING I NDUSTRIES 174 TAXMAN 187 (DEL), CIT VS. COSMOS INTERNATIONAL 318 ITR 314 (DEL), KASHMIR ARTS VS. CIT 166 TAXMAN 237 (DEL) CIT VS. RAVI RATNA EXPORTS (P) LTD. 246 ITR 443(BOM) AND PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 (SC). AFTER CONSIDERING THE AFORESAID DECISIONS THE HONB LE BOMBAY HIGH COURT OBSERVED IN PARA-10 AS FOLLOWS: 10.THE TOTAL INCOME OF AN ASSESSEE WHICH IS CHARGA BLE TO TAX UNDER SECTION 4 HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. SEC.14 PROVIDES THAT ALL INCOME SHALL, FOR TH E PURPOSES OF THE CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOM E, BE CLASSIFIED UNDER THE FOLLOWING HEADS OF INCOME: (I)SALARIES; ( II) INCOME FROM HOUSE PROPERY; (III) PROFITS AND GAINS OF BUSINESS OR PRO FESSION; (IV) CAPITAL GAINS; AND (V) INCOME FROM OTHER SOURCES. THE HEAD INTEREST ON SECURITIES HAS BEEN OMITTED WITH EFFECT FROM 1-4-1 989. SECTION 28 DEFINES INCOME WHICH IS CHARGEABLE TO INCOME TAX UN DER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. SEC TION 56 STIPULATES THAT INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUD ED FROM THE TOTAL INCOME UNDER THE ACT SHALL BE CHARGEABLE TO INCOME- TAX UNDER THE ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) C.O. NO.158/MUM/2011 8 HEAD INCOME FROM OTHER SOURCES, IF IT IS NOT CHAR GEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN ITEMS A TO E OF SECTION 14. HENCE, INCOME CAN FALL FOR CLASSIFICATION UNDER THE HEAD INCOME FROM OTHER SOURCES IF THE INCOME IS OF A KIND WHICH IS NOT TO BE EXCLUDED FROM TOTAL INCOME AND IF IT IS NOT CHARGEABLE TO INCOME- TAX UNDER ANY OF THE HEADS SPECIFICALLY ENUMERATED IN ITEMS A TO E OF SE CTION 14. THE QUESTION OF CLASSIFYING A HEAD OF INCOME UNDER SECT ION 56 CAN, THEREFORE ARISE WHERE IT DOES NOT FORM PART OF ANY OF THE SPECIFICALLY ENUMERATED HEADS. IN PARA 27 THE HONBLE COURT OBSERVED AS FOLLOWS: 27. ORDINARILY, WHERE AN ASSESSEE INVESTS FUNDS S URPLUS TO THE BUSINESS AND EARNS INTEREST, SUCH INCOME DOES NOT C ONSTITUTE BUSINESS INCOME BUT FALLS UNDER THE HEAD INCOME FROM OTHER SOURCES. MERELY BECAUSE AN ASSESSEE CARRIES ON BUSINESS AND THE INC OME OF THE BUSINESS IS INVESTED IN DEPOSITS, THAT WOULD NOT RE SULT IN AN INFERENCE THAT THE RETURN ON THE INVESTMENTS MUST PARTAKE OF THE CHARACTER OF BUSINESS INCOME. EVERY INCOME WHICH IS EARNED BY A N ASSESSEE WHO CARRIES ON BUSINESS IS NOT BUSINESS INCOME. ON THE CONTRARY, THE POSITION IN LAW IS THAT IT IS ONLY WHERE INCOME EAR NED ON ACCOUNT OF INTEREST SPRINGS OUT OF OR EMANATES FROM THE BUSINE SS ACTIVITY OF THE ASSESSE, THAT THIS INCOME CAN BE REGARDED AS BEING OF THE NATURE AND CHARACTER OF BUSINESS INCOME. IN PARA-35 THE HONBLE COURT OBSERVED AS FOLLOWS: 35. THE CONSISTENT LINE OF REASONING WHICH EMERGES FROM THE DECISION OF SEVERAL HIGH COURTS ADVERTED TO EARLIER IS THAT THE MERE FACT THAT AN ASSESSEE CARRIES ON BUSINESS WOULD NOT RESULT IN AN INFERENCE THAT THE INCOME WHICH IS EARNED BY WAY OF INTEREST WOULD FAL L FOR CLASSIFICATION AS BUSINESS INCOME. WHERE AN ASSESSEE INVESTS ITS S URPLUS FUNDS IN ORDER TO EARN INTEREST AND TO OBVIATE ITS FUNDS LYI NG IDLE, SUCH INCOME WOULD NOT FALL FOR CLASSIFICATION AS BUSINESS INCOM E. THIS IS PARTICULARLY SO IN A SITUATION WHERE THE BUSINESS OF THE ASSESSE E DOES NOT CONSIST IN THE INVESTMENT OF FUNDS. WHERE THE ASSESSEE ENGA GES IN AN INDEPENDENT LINE OF BUSINESS, INTEREST EARNED ON DE POSITS CANNOT BE REGARDED AS FALLING UNDER THE HEAD OF PROFITS AND G AINS OF BUSINESS OR PROFESSION. SUCH INCOME WOULD FALL FOR CLASSIFICATI ON AS INCOME FROM OTHER SOURCES. REFERENCE WAS ALSO MADE TO THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF SHREE KRISHNA POLYESTER VS. DCIT 144 TAXMANN 41` (BOM) IT ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) C.O. NO.158/MUM/2011 9 WAS HELD INTEREST ON DEPOSITS MADE OF SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE IS TO BE ASSESSED AS INCOME FROM OTHER SOU RCES AND NOT INCOME FROM BUSINESS. 11. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A) AND THE FOLLOWING DECISIONS. 1. CIT VS. MADRAS REFINERIES LTD. 227 ITR 354 (MAD ) WHEREIN IT WAS HELD THAT INTEREST INCOME FROM DEPOSITS MADE IN THE COURSE OF BUSINESS IS INCOME FROM BUSINESS. 2. SATISHCHANDRA AND CO. VS. CIT 234 ITR 70 (KAR) WHEREIN IT WAS HELD THAT INTEREST INCOME FROM DEPLOYMENT OF SPARE FUNDS WAS INCOME FROM BUSINESS. 3. CIT VS. LOK HOLDINGS LTD. 308 ITR 356 (BOM). THE ASSESSEE, A FIRM, WAS ENGAGED IN CONSTRUCTION B USINESS AND RECEIVED MONIES FROM THE PURCHASERS OF FLATS WHICH IT DEPOSITED WITH THE BANK. THE ASSESSING OFFICER ASSESSED THE INTERE ST INCOME EARNED ON MONEY DEPOSITED WITH THE BANK AS INCOME FROM OTH ER SOURCES AND THUS MADE AN ADDITION UNDER THE HEAD INCOME FROM O THER SOURCES FOR THE ASSESSMENT YEAR 1992-93. THE COMMISSIONER (APPE ALS) DELETED THE ADDITION. THE TRIBUNAL ON FINDING THAT THE ENTIRE I NTEREST SPRANG FROM THE BUSINESS ACTIVITY OF THE ASSESSEE AND NOT OUT O F ANY INDEPENDENT ACTIVITY, HELD THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE WAS BUSINESS INCOME. ON FURTHER APPEAL, THE HONBLE BOM BAY HIGH COURT HELD THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THA T THE INTEREST INCOME RECEIVED BY THE ASSESSEE WAS ASSESSABLE AS BUSINESS INCOME. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT THE AFORESAID DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SWANI SPICE MILLS (P) LTD. (SUPRA) RELIED UPON BY THE LEA RNED D.R. SUPPORTS THE CASE ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) C.O. NO.158/MUM/2011 10 OF THE REVENUE AND ARE DIRECTLY APPLICABLE TO THE F ACTS OF THE ASSESSEES CASE. THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FO R THE ASSESSEE BESIDES SEVERAL OTHER DECISION HAVE ALL BEEN CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SWANI SPICE MILLS (P) LTD. (SU PRA). WE ARE THEREFORE OF THE VIEW THAT THE CIT(A) ERRED IN DIRECTING THE AO TO CONSIDER INTEREST INCOME AS INCOME FROM BUSINESS. RESPECTFULLY FOLLOWING TH E DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SWANI SPICE MILLS (P) LTD. (SUPRA), WE REVERSE THE ORDER OF THE CIT(A) AND RESTORE THE ORD ER OF THE AO. THE APPEALS OF THE REVENUE ARE ALLOWED. 13. IN THE RESULT THE APPEALS BY THE REVENUE ARE A LLOWED WHILE THE C.O. OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH DAY OF DEC. 2011. SD/- SD/- (PRAMOD KUMAR ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 30 TH DEC.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RB BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.5205/MUM/2010(A.Y. 2005-06) ITA NO.5206/MUM/2010(A.Y.2006-7) C.O. NO.158/MUM/2011 11 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 21/12/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 22/12/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER