Investment of amount in fdr only to secure bank guarantee to

Last updated: 07 June 2008

Court :

Brief :
Interest accrued on deposit is business income

Citation :
CIT and Another vs. Chinna Nachimuthu Constructions [2008] 297 ITR 70 (Karn)

The issue before the Hon’ble Karnataka High Court in this case was whether the interest accrued on the deposit made by the assessee to avail of the bank guarantee has to be treated as income from the business or from other sources. Learned Assessing Officer while completing the assessment has treated the interest accrued on the fixed deposits as Income from Other Sources as against Business Income treated by the assessee. The matter was carried over up to the Appellate Tribunal. Tribunal has confirmed the order passed by the Assessing Officer. Hon’ble High Court ruled in favour of the assessee and held that the assessee, being a contractor in order to secure a contract work, was required to offer a bank guarantee to the KPTCL. In order to avail of the bank guarantee, certain amounts were invested in fixed deposits on which interest accrued. The investment of amount in fixed deposits by the assessee was only to secure a bank guarantee to be offered to KPTCL in order to acquire a contract work. Therefore, the interest accrued on the deposit made by the assessee to avail of the bank guarantee had to be treated as income from business and not income from other sources.