bgp bgp bgp IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION INCOME INCOME INCOME TAX APPEAL NO.272 OF 2006 TAX APPEAL NO.272 OF 2006 TAX APPEAL NO.272 OF 2006 M/s.Lovsons Commercial Agencies ..Appellant Vs. The Deputy Commissioner of Income Tax and Anr. ..Respondents WITH WITH WITH INCOME INCOME INCOME TAX APPEAL NO.315 OF 2006 TAX APPEAL NO.315 OF 2006 TAX APPEAL NO.315 OF 2006 M/s.Lovsons Commercial Agencies ..Appellant Vs. The Asstt. Commissioner of Income Tax and Anr. ..Respondents Mr.F.B.Andhyarujina, Senior Advocate with Mr.P.C.Tripathi i/b. Ms.Pallavi Divekar for the Appellant. Mr.P.S.Sahadevan for the Respondent. CORAM CORAM CORAM :- DR.S.RADHAKRISHNAN & :- DR.S.RADHAKRISHNAN & :- DR.S.RADHAKRISHNAN & V.C.DAGA, V.C.DAGA, V.C.DAGA, JJ. JJ. JJ. DATE DATE DATE : 4TH DECEMBER, 2008 : 4TH DECEMBER, 2008 : 4TH DECEMBER, 2008 P.C. P.C. P.C. . Heard the learned Counsel for the parties. In both the above Appeals, the Appellant is seeking to raise the following substantial questions of law: i. Whether the Tribunal erred in affirming the orders of Respondent No.1 and 2 and in holding that interest income of the Appellant was assessable under the head "Income from other Sources" and not under the head "Income from Business"? ii. Whether the Tribunal was right in holding that the Appellant was not entitled to the deduction u/s.80HHC of the I.T.Act on interest earned by the Appellant from deposits placed with the Bank matching with the borrowings and which were in the nature of business income ? 2. We have perused the judgment of the Income Tax Appellate Tribunal dated 27th October, 2005. In paragraph No.13, the Tribunal has observed as under: 13. The learned Counsel for the Assessee has :2: reiterated that deposits were made to meet the requirement of the Bank and, therefore, interest on deposits be considered as business income and further be set off against the interest paid. He has also raised additional fund for setting off the interest in respect of Assessment Year 1991-92 since by inadvertence, failed in grounds of appeal though contended before the Learned CIT (Appeals). We are unable to uphold the contention of the Learned Counsel for the Assessee. The Assessing officer has given factual finding at Pages 8 and 9 of his order that three, out of four loans were given without any security in form of deposits. These loans were given against other securities like hypothecation of stock, export trust receipts, E.C.G.C. guarantee, shipping documents, etc. Only QIC loan was given against deposits. Assessing Officer further found that only interest of Rs.5,91,372/- was paid against QIC loan. Thus, interest received of Rs.23,41,986/- out of Rs.29,33,388/- had no connection with business of assessee. This finding of fact has not been disputed before us. Therefore, we have no hesitation in holding that interest of Rs.23,41,986/- related to deposits out of surplus fund and consequently assessable as income from other sources. Regarding balance sum of Rs.5,91,372/- we made query from assessee’s Counsel as to how it could be said that deposits were made at the direction of Bank. It was told to him that if FDRs are first purchased without any reference to any requirement and then subsequently merely pledged with Bank, then it cannot be said that such interest income had any nexus with business. Assessee’s Counsel drew our attention to the letters of Bank but could not tell whether such deposits were made at the instance of the Bank. On the other hand, we found from one of the letters that deposits were merely pledged as security. Hence assessee could not demonstrate that deposits were made as per the requirements of Bank sanctioning loan. If deposits are made out of surplus money, then, in our opinion, interest thereon would be assessable as income from other sources and the fact that such deposits were pledged or kept as security subsequently would not change the legal position. It is the intention at the time of making deposit which is relevant and not the subsequent factors. Accordingly, we hold that entire amount was assessable as income from other sources. This finding would apply to all three years as separate arguments for separate :3: years were not made since facts were almost similar. 3. In the above, the Tribunal has categorically given a finding that the interest of Rs.23,41,986/- received out of 29,33,388/- had no connection with the business. Under the aforesaid circumstances and in view of the finding of fact, we do not find any substantial question of law involved in the above Appeals. Hence, both the above Appeals stand dismissed. (V.C.DAGA,J.) (V.C.DAGA,J.) (V.C.DAGA,J.) (DR.S.RADHAKRISHNAN,J.) (DR.S.RADHAKRISHNAN,J.) (DR.S.RADHAKRISHNAN,J.)