Case: Commissioner of Income-Tax, Goa Vs. V.S. Dempo &amp; Company Limited

earlier assessment years, there must be a material change in the fact situation. There is no gainsaying that the previous view will have no applicable even in cases where the law itself has undergone a change but before an earlier view can be upset or digressed from, one of the two must be demonstrated, namely, a change in the fact situation or a material change in law whether enacted or declared by the Supreme Court. The Delhi High Court has therefore, held that the amount received from the co-developers and investments of such amount in fixed deposit is directly related to business activities and the interest income earned on deposits held to be the business income for earlier Assessment Years. The Revenue accepting the Appellate orders and there was no material change in facts in subsequent years, the view taken for earlier years would continue on principles of consistency.(iv) Next judgment relied upon by Shri Naniwadekar is in the case of Tamil Nadu Dairy Development Corpn. Ltd. (supra) wherein the Division Bench of Madras High Court has held that the interest accrued on short term deposits of the assessee -company which were made out of the business funds available with the assessee -company before the same were utilized for actual business and, and as such, the same is incidental to the business activity of the assessee- company and as such, the interest on the short term deposits should be treated as business income.(v) The last judgment relied upon by the learned counsel appearing for the Respondent/Assessee is in the case of Paramount Premises (P) Ltd. (supra), wherein the Division Bench of the Bombay High Court has held that " idle amounts were deposited with the bank or given on temporary loans until such time as they were required for construction. Thus, interest was earned on these amounts. The assessee was also required to give a guarantee to the State Bank in respect of the land taken on lease for construction work. For this purpose, certain amounts were kept in fixed deposits on which the assessee earned interest. In these circumstances, the Tribunal has given a finding of fact to the effect that the entire interest sprang from the business activity of the assessee and did not arise out of any independent activity. Accordingly, interest income was considered as the business income of the assessee.14. Thus, after taking into consideration the settled legal position as enumerated from the aforesaid citations and as stated earlier, in the present case also as per the own findings of the Assessing Officer, the Assessee is utilizing deposits for giving security to the banks and opening Letters of Credit etc. As per the records, investing surplus funds in the call money market or short term deposit in favour of the banks for providing security for obtaining short term loans or as a deposit towards LC opening is one of the business activities of the Assessee and this had come for the scrutiny of the Tribunal for the Assessment Years 1967-68 to 1972-1973 and it was held in favour of the Assessee that the interest income accrued therefrom is a business income. The record is very clear that there is no material to demonstrate the substantial change in the said view for years which were followed thereafter. It was after substantial consistent following of the said view, it appears that the Assessing Officer took a distinct and separate view thereby treating the interest income as income from other sources in the year 1991-92 and thereafter. The department has not established in any case that the said interest has been spent for any other purpose except the business purpose. The important aspect which is to be considered here is that the Respondent/Assessee is earning this interest income for last many years and it was always treated as business income. In view of the ratio laid down by the Supreme Court in the case of Radhasoami Satsang (supra) and by applying the said rule of consistency, we hold that, in the absence of any material change justifying the Department/Assessing Officer to take a different view from that taken in earlier proceedings, the question of the exemption of Respondent/Assessee should not have been reopened.15. The Respondent/Assessee has utilized the surplus money for making investments in the bank deposits or call money market or inter-corporate deposits and it always retained its character as business assets. In our opinion the interest income earned by the Assessee has direct nexus with its business activity, as the said amounts were invested by the Respondent/Assessee for availing short term loans or for taking out LC opening. The object clauses of the Memorandum and Articles of Association particularly clauses (55) and (82) permit the company to lend, advance or deposit money as part of the business activity and the Assessee company carries out money market which is one of its business activities. Therefore, it can be safely said that the interest income earned by the Respondent/ Assessee is an earning out of its business activity only, as it has direct nexus with the said amount of business activity. The interest received by the Respondent/Assessee is having direct or proximate relationship with their main business activity and as such, the same has to be treated as "business income". As stated earlier, the money of the company was used for making investment in the bank deposits or call money market or inter-corporate deposits with the objective for availing short term loans or for keeping deposits for the purpose of LCs and said money had always retained its character as business assets. In our opinion, the surplus money, unless and until it is pulled out totally from the business and having absolutely no nexus with the amount or ancillary business activity and thereby the same is deposited with the bank only and solely with a view of earning interest by keeping the said funds idle, then it can be treated as non-business income or income from the other sources.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. The record reveals that the Assessee has received interest in the respective previous years on FDR in the banks anddeposits. The Assessing Officer treated the interest income under the head "income from other sources" and excluded from the head " profits and gains of business or profession". The Assessing Officer was of the view that the Assessee is having surplus funds available which Assessee was investing in the call money deposit/short term deposit in various banks and only as and when it is required for providing security, the Assessee is availing/furnishing the said deposit as security for obtaining short term loans or as a deposit towards LC opening. That the entire deposits to a large extent were being renewed period after period and year after year and the Assessee is earning interest for years together on the said deposits. That the Assessing Officer has further held that as the Assessee was having surplus money, which has not been used for business purpose, the money was kept for earning interest and the interest earned by the Assessee cannot be treated as a business income.Thus, after taking into consideration the settled legal position as enumerated from the aforesaid citations and as stated earlier, in the present case also as per the own findings of the Assessing Officer, the Assessee is utilizing deposits for giving security to the banks and opening Letters of Credit etc. As per the records, investing surplus funds in the call money market or short term deposit in favour of the banks for providing security for obtaining short term loans or as a deposit towards LC opening is one of the business activities of the Assessee and this had come for the scrutiny of the Tribunal for the Assessment Years73 and it was held in favour of the Assessee that the interest income accrued therefrom is a business income. The record is very clear that there is no material to demonstrate the substantial change in the said view for years which were followed thereafter. It was after substantial consistent following of the said view, it appears that the Assessing Officer took a distinct and separate view thereby treating the interest income as income from other sources in the yearand thereafter. The department has not established in any case that the said interest has been spent for any other purpose except the business purpose. The important aspect which is to be considered here is that the Respondent/Assessee is earning this interest income for last many years and it was always treated as business income. In view of the ratio laid down by the Supreme Court in the case of Radhasoami Satsang (supra) and by applying the said rule of consistency, we hold that, in the absence of any material change justifying the Department/Assessing Officer to take a different view from that taken in earlier proceedings, the question of the exemption of Respondent/Assessee should not have been reopened.15. The Respondent/Assessee has utilized the surplus money for making investments in the bank deposits or call money market ordeposits and it always retained its character as business assets. In our opinion the interest income earned by the Assessee has direct nexus with its business activity, as the said amounts were invested by the Respondent/Assessee for availing short term loans or for taking out LC opening. The object clauses of the Memorandum and Articles of Association particularly clauses (55) and (82) permit the company to lend, advance or deposit money as part of the business activity and the Assessee company carries out money market which is one of its business activities. Therefore, it can be safely said that the interest income earned by the Respondent/ Assessee is an earning out of its business activity only, as it has direct nexus with the said amount of business activity. The interest received by the Respondent/Assessee is having direct or proximate relationship with their main business activity and as such, the same has to be treated as "business income". As stated earlier, the money of the company was used for making investment in the bank deposits or call money market ordeposits with the objective for availing short term loans or for keeping deposits for the purpose of LCs and said money had always retained its character as business assets. In our opinion, the surplus money, unless and until it is pulled out totally from the business and having absolutely no nexus with the amount or ancillary business activity and thereby the same is deposited with the bank only and solely with a view of earning interest by keeping the said funds idle, then it can be treated asincome or income from the other sources.