Nilesh Shah writes:
Cell: 92246-59941
E mail: nilesh63@vsnl.
Interest on fixed deposit with bank-when business income.
Where the assessee makes an investment by way of fixed deposit with a
bank as a condition for getting bank guarantee for purposes of his
contract business, such interest income can only be considered as
business income. It was so decided in CIT v. Chinna Nachimuthu
Constructions [2008] 297 ITR 70 (Karn). In coming to the conclusion,
the High Court followed the decision in another contractor's case in
CIT v. Govinda Choudhury and Sons [1993] 203 ITR 881 (SC). It is
often overlooked that section 56 providing for income from other
sources is a residuary one. It is only where an income does not fall
under any of the other regular sources of income, there should be
need for invoking section 56. Where a person has only one source of
income and that is business, there could hardly be any other
inference. In Snam Progetti S. P. A. v. Addl. CIT [1981] 132 ITR 70,
the Delhi High Court took a broad view and considered interest income
as incidental to and, therefore, business income, because it cannot
be presumed that the assessee had come all the way from Italy to make
bank deposits in India, when it was clear that the company was
established for carrying on business. In CIT v. Tamil Nadu Dairy
Development Corporation Ltd. [1995] 216 ITR 535, the Madras High
Court has held following the decision of the Supreme Court in CIT v.
Calcutta National Bank Ltd. [1959] 37 ITR 171, that 'business' is a
word of very wide connotation with the result, that it should
ordinarily be treated as business income. Except where the
investments are independent of business made out of surplus funds in
long term deposits, there is no possibility of assessing such income
under 'other sources'.
Your's Sincerely,
Nilesh Shah.
CAclubindia
