M/s. K. Satyanarayana Reddy & Co., Secunderabad V. ACIT, Circle-10(1), Hyderabad

ITA 1227/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66489 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 10-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KALRA
• Assessee Lawyers: J R P GUPTA
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1226/HYD/2012 A.Y. 2008-09 ITA NO. 1227/HYD/2012 A.Y. 2009-10 M/S. K. SATYANARAYANA REDDY & CO., SECUNDERABAD PAN: AAFFK4701M VS. THE ASST. CIT CIRCLE-10(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI J.R.P. GUPTA RESPONDENT BY: SMT. VIDISHA KALRA DATE OF HEARING: 20.11.2012 DATE OF PRONOUNCEMENT: 20.11.2012 O R D E R PER CHANDRA POOJARI, AM: THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST THE COMMON ORDER OF THE CIT(A)-VI, HYDERABAD DATED 25.5.2012 F OR ASSESSMENT YEARS 2008-09 AND 2009-19. 2. THE ONLY ISSUE IN THESE APPEALS IS WITH REGARD TO T REATING INCOME FROM FIXED DEPOSITS IN BANK AS INCOME FROM OTHER SO URCES. 3. ON THIS ISSUE, THE LEARNED AR SUBMITTED THAT THE AS SESSEE HAD OVERDRAFT ACCOUNTS IN TWO BANKS DURING THE ASSESSME NT YEAR VIZ. ANDHRA BANK, BALANAGAR BRANCH, HYDERABAD AND BANK OF BAROD A, BOWENPALLY BRANCH, SECUNDERABAD. THE ANDHRA BANK SANCTIONED AN OVERDRAFT OF RS. 20.00 LAKHS IN JULY, 2007 AGAINST WHICH TWO DEPOSIT S OF RS. 11,14,569/- AND RS. 11,36,198/- DATED 15.06.2007 STOOD OFFERED AS SECURITY. THE OVERDRAFT CONTINUED IN THIS ASSESSMENT YEAR ALSO AN D THE DEPOSITS REMAINED WITH THE BANK AS SECURITY. THE BANK OF BAR ODA HAS SANCTIONED AN OVERDRAFT OF RS. 17.00 LAKHS DURING THIS YEAR ON 30 .09.2008 AGAINST FIXED DEPOSIT OF RS. 20.00 LAKHS OFFERED AS SECURITY. THE OVERDRAFT ACCOUNTS WERE ITA NOS. 1226 & 1227/HYD/2012 M/S.K. SATYANARAYANA REDDY & CO. ========================== 2 OPERATED PURELY FOR BUSINESS PURPOSES, I.E., PURCHA SE OF MATERIALS AND MAKE LABOUR PAYMENTS IN THE EXECUTION OF THE CONTRA CTS. THERE WERE TWO DEPOSITS OF RS. 50.00 LAKHS EACH ON THE LAST DAY OF ACCOUNTING YEAR I.E. 31.03.2009 IN ANDHRA BANK AND NO INTEREST ACCRUED O N THESE DEPOSITS IN THIS YEAR. BESIDES, THE ASSESSEE MADE CERTAIN FIXE D DEPOSITS INTO THE TWO BANKS TO OBTAIN BANK GUARANTEE TO BE OFFERED AS PER FORMANCE GUARANTEE TO THE GOVERNMENT AUTHORITIES AGAINST SANCTION OF THE CONTRACTS. 4. THE AR SUBMITTED THAT THE ABOVE FIXED DEPOSITS WERE MADE IN THE BANK WITH A SPECIFIC BUSINESS PURPOSE, EITHER TO CO VER THE OVERDRAFT LIMITS SANCTIONED BY BANK UTILIZED FOR WORKING CAPITAL OF THE BUSINESS OR TO FACILITATE OBTAINING BANK GUARANTEES TO BE GIVEN AG AINST CONTRACT WORKS SANCTIONED. THE DEPOSITS ARE THUS CLOSELY LINKED TO THE BUSINESS OF THE ASSESSEE AND ARE A PART OF BUSINESS FUNDS AND NOT A N INVESTMENT. THEREFORE, THE INTEREST EARNED ON SUCH FIXED DEPOSI TS HAS TO BE TREATED AS 'BUSINESS INCOME' AND NOT INCOME UNDER 'OTHER SOURC ES'. THE INTEREST RECEIPTS ON DEPOSITS HAVE TO BE SET OFF AGAINST THE INTEREST PAYMENTS OF THE ASSESSEE AND THE NET HAS TO BE CONSIDERED FOR TAX P URPOSES. THIS PROPOSITION IS SUPPORTED BY THE DECISIONS OF THE HO N'BLE KARNATAKA HIGH COURT IN THE FOLLOWING CASES. I) CIT &ANR. VS HAJEE JAFFAR SHARIFF (2010) 40 DTR 81 (KARN.) II) CIT &ANR VS CHINNA NACHIMUTHU CONSTRUCTIONS (2008) 297 ITR 70 (KARN.) 5. THE AR SUBMITTED THAT IN THE ASSESSEE'S CASE, THE A SSESSING OFFICER ESTIMATED THE INCOME OF THE ASSESSEE AT 8% OF THE C ONTRACT RECEIPTS. IT IS, THEREFORE, SUBMITTED THAT THE INTEREST EARNED BY TH E ASSESSEE ON THE FIXED DEPOSITS BEING BUSINESS INCOME, AS SUBMITTED ABOVE, HAS TO BE DEEMED TO HAVE BEEN INCLUDED IN THE INCOME ESTIMATED BY THE A SSESSING OFFICER. NO SEPARATE ADDITION WAS CALLED FOR ON THIS ACCOUNT. T HE AR INVITED ATTENTION OF THE BENCH TO THE DECISION OF THE TRIBUNAL HYDERA BAD 'A' BENCH IN THE CASE OF M/S. M. PRABHAKARA RAO & CO. VS. ACIT, IN IT A NOS. 926/HYD/1988; 1989/HYD/1987; 927/HYD/88 AND 1316/HY D/1990 & ITA NOS. 1226 & 1227/HYD/2012 M/S.K. SATYANARAYANA REDDY & CO. ========================== 3 1317/HYD/1990, DATED 12-11-1991 IN WHICH TELESCOPIN G OF THE INTEREST EARNED ON FIXED DEPOSITS WITH ESTIMATED BUSINESS IN COME WAS ALLOWED. 6. THE AR SUBMITTED THAT THE CIT(A) RELIED ON THE JUDG MENT OF THE SUPREME COURT IN THE CASE OF M/S. TOTGAR'S CO-OP. S ALES SOCIETY LTD. VS ITO (2010) 322 ITR 283 (SC) IN REJECTING THE APPEAL OF THE ASSESSEE ON THIS ISSUE. IT IS SUBMITTED THAT THE FACTS IN THE T WO CASES ARE DISTINGUISHABLE. IN THAT CASE THE SOCIETY RETAINED THE SALE PROCEEDS OF MEMBERS WITH IT AND TOOK FIXED DEPOSITS WITH SUCH R ETAINED FUNDS. THE AMOUNTS RETAINED BY THE SOCIETY WERE SHOWN AS LIABI LITY IN THE BALANCE SHEET OF THE SOCIETY AND THE AMOUNTS WERE DEPOSITED IN THE BANK AND SOCIETY EARNED INTEREST. ON THE FACTS OF THE CASE T HE SUPREME COURT HELD THAT THE ASSESSEE EARNED INTEREST ON THE FUNDS WHIC H WERE NOT REQUIRED FOR BUSINESS AND, THEREFORE, RIGHTLY BROUGHT THE SAME T O TAX UNDER THE HEAD 'OTHER SOURCES'. THE FACTS IN ASSESSEE'S CASE, AS E XPLAINED IN DETAIL ABOVE, ARE TOTALLY DIFFERENT AND THE DECISION IN TOTGAR'S CO-OP. SALES SOCIETY LTD. HAS NO APPLICATION TO THE FACTS OF ASSESSEE'S CASE. IN VIEW OF THE ABOVE SUBMISSIONS, THE AR PRAYED THAT THE ADDITIONS OF RS . 4,21,901/- FOR THE ASST. YEAR 2009-10 ON THE FIXED DEPOSITS SUSTAINED BY THE CIT (A) MAY BE DELETED. 7. THE LEARNED DR SUBMITTED THAT THE INTEREST ON FIXED DEPOSITS IS RIGHTLY TREATED AS 'INCOME FROM OTHER SOURCES' AND HE RELIED ON THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF TOTGA R'S COOPERATIVE SALE SOCIETY LTD. VS. ITO (322 ITR 283) WHEREIN THE APEX COURT HELD THAT SUCH INTEREST PARTAKES THE CHARACTER OF 'INCOME FROM OTH ER SOURCES'. IT IS ALSO IRRELEVANT THAT THE ASSESSEE HAS PAID SUBSTANTIAL I NTEREST, OF RS. 14.26 LAKHS, DURING THE YEAR; THE PAYMENT OF INTEREST IS UNDOUBTEDLY PART OF ITS BUSINESS TRANSACTIONS, HAVING BEEN INCURRED FOR THE PURPOSES OF ITS BUSINESS. INTEREST RECEIPTS AND PAYMENTS CANNOT BE SET OFF AGAINST EACH OTHER SINCE THEY PERTAIN TO TWO DIFFERENT HEADS OF INCOME. SINCE THE INTEREST RECEIPTS ARE TREATED AS 'INCOME FROM OTHER SOURCES', THEY CANNOT BE SAID TO BE PART OF THE BUSINESS TURNOVER ON WHICH P ROFIT FROM BUSINESS WAS ESTIMATED. ITA NOS. 1226 & 1227/HYD/2012 M/S.K. SATYANARAYANA REDDY & CO. ========================== 4 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEE RECEIVED INTEREST ON FIXED DEPOSITS. THE CONTENTION OF THE ASSESSEE COUNSEL IS THAT THE DEPOSIT WAS MADE OUT O F SURPLUS FUNDS FOR THE PURPOSE OF AVAILING CREDIT FACILITIES FROM THE BANK AND HAS DIRECT LINK TO THE BUSINESS OF THE ASSESSEE. IN OUR OPINION, THE INTEREST INCOME THAT HAS BEEN RECEIVED BY THE ASSESSEE ON ITS OWN FUNDS KEPT IN DEPOSIT WITH THE BANK DID NOT HAVE ANY DIRECT LINK OR NEXUS WITH THE BUSINESS THAT WAS BEING CARRIED ON BY THE ASSESSEE. THE DEPOSIT WAS MADE WITH THE BANK FOR THE CONVENIENCE AND BENEFIT OF THE ASSESSEE WITH A VIEW TO DERIVE INTEREST INCOME. THUS, THE TRUE CHARACTER OF THE INCOME IS NOT 'BUSINESS INCOME' BUT 'INCOME FROM OTHER SOURCES'. THE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD., VS. C IT (227 ITR 172) HAS HELD THAT IF THE ASSESSEE KEEPS THE SURPLUS FUNDS I N SHORT TERM DEPOSIT IN ORDER TO EARN INTEREST, SUCH INTEREST WOULD BE CHAR GEABLE UNDER SECTION 56. THE LAW LAID DOWN BY THE SUPREME COURT IS NOT CONFI NED TO THE CASES WHERE A COMPANY HAD NOT COMMENCED BUSINESS. THE AP EX COURT PROCEEDED ON THE BASIS THAT IN THE USUAL COURSE, IN TEREST RECEIVED BY THE COMPANY FROM BANK DEPOSIT AND LOANS COULD ONLY BE T HAT AS INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES' U/S. 57 OF THE IT ACT. THE PROPOSITION LAID DOWN BY THE APEX COURT IS THAT THE INTEREST RECEIVED BY A COMPANY, WHICH CARRIES ON BUSINESS, FROM BANK DEPOS IT AND LOANS COULD ONLY BE TAXABLE AS 'INCOME FROM OTHER SOURCES' AND NOT AS 'BUSINESS INCOME'. THE INCOME RECEIVED BY AN ASSESSEE HAS TO BE FITTED UNDER ONE HEAD OR THE OTHER HAVING REGARD TO THE SOURCES FROM WHICH THAT INCOME IS DERIVED. THE FACT THAT A PERSON CARRIES ON BUSINES S DOES NOT LEAD TO THE INFERENCE THAT ALL INCOME RECEIVED BY SUCH A PERSON IS BUSINESS INCOME. THE SAME ASSESSEE CAN HAVE INCOME WHICH MAY BE REQU IRED TO BE SPECIFIED, UNDER MORE THAN ONE HEAD. IT IS THE MAN NER IN WHICH THE INCOME IS DERIVED THAT IS RELEVANT AND NOT MERELY T HE FACT THAT THE PERSON IS ENGAGED IN A BUSINESS OR IN A PROFESSION. INTER EST RECEIVED BY ASSESSEE, WHICH CARRIES ON BUSINESS, FROM BANK DEPOSIT AND LO ANS, COULD ONLY BE TAXABLE AS 'INCOME FROM OTHER SOURCES' AND NOT THAT OF 'BUSINESS INCOME'. ITA NOS. 1226 & 1227/HYD/2012 M/S.K. SATYANARAYANA REDDY & CO. ========================== 5 9. FURTHER, THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DERCO COOLING COILS LTD., 198 ITR 375 (AP) HELD AS FOLLOW S: 'HELD, THAT THE AMOUNT OF EXPENDITURE OUT OF WHICH THE INTEREST RECEIVED WAS SOUGHT TO BE DEDUCTED RELATED TO TERM LOANS USED FOR CONSTRUCTION AND SETTING UP OF THE P LANT. THE RECEIPT IN QUESTION AROSE OUT OF SHARE CAPITAL DEPO SITED WITH THE BANK WHICH MIGHT OR MIGHT NOT BE UTILISED FOR T HE PURPOSE OF SETTING UP OF THE PLANT. SECTION 57 (II I) WAS ALSO NOT APPLICABLE BECAUSE THE PROVISION ENVISAGES THAT DEDUCTION OF EXPENDITURE (NOT BEING CAPITAL EXPENDI TURE) COULD BE CLAIMED ONLY IF IT IS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING TH E INCOME FROM OTHER SOURCES. THE AMOUNT OF RS. 18,913 WAS ASSESSABLE AS INCOME FROM OTHER SOURCES.' 10. FURTHER, PLACING RELIANCE ON THE JUDGEMENT OF SUPRE ME COURT IN THE CASE OF CIT VS. BOKORO STEEL LTD. (236 ITR 315), M/ S. TOTGAR'S CO-OP. SALES SOCIETY LTD. (SUPRA) AND CIT VS. MADHYA BHARAT ENER GY CORPORATION LTD. (337 ITR 389) (DELHI), WE ARE OF THE OPINION THAT I NTEREST ON FIXED DEPOSITS MADE OUT OF SURPLUS MONEY NOT REQUIRED FOR BUSINESS DEPOSITED IN BANK WOULD BE ASSESSABLE AS 'INCOME FROM OTHER S OURCES'. BEING SO, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A ) ON THIS ISSUE AND THE SAME IS CONFIRMED. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER, 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 20 TH NOVEMBER, 2012 COPY FORWARDED TO: 1. M/S. K. SATYANARAYANA REDDY & CO., H. NO. 8 - 5 - 210/31 TO 37, FLAT NO. 102, SRI SRINIVASA HOMES, VYSYA BANK COLON Y, NEAR DUBAI GATE, OLD BOWENPALLY, SECUNDERABAD-500 011. 2. THE ASST. CIT, CIRCLE - 10(1), IT TOWERS, AC GUARDS, HYDERABAD. 3. THE CIT(A) - VI, HYDERABAD. 4. THE CIT - V, HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD. TPRAO