Case: Shree Krishna Polyster Limited Vs. Deputy Commissioner of Income-Tax

4.The Tribunal found as a fact that the assessee is engaged in the business of manufacture of synthetic yam andhas never been the business activity of the assessee. The assessee received surplus money in public issue and the said money was invested in bank deposits for a period of 45 days. The assessee who carries on business does not mean that all income received by him is business income since he may have income that may be classified under the different heads as set out in section 14 of theAct. Need we emphasise that the mode and manner in which the income is derived helps in determining under which head the income received by the assessee would fall. The facts which have been found by the Tribunal lead to the conclusion that the interest that the assessee earned frominvestment of surplus money received in public issue did not spring or emanate from the business activity of the assessee. The interest income in respect of the surplus money not required for business immediately and deposited in banks as idle money, in our opinion, would be assessable as income from other sources" in the facts and circumstances of the present case.

Court's reasoning:
9.Similarly, in the case of Snam Progetti S.P.A. 1981 (132) ITR 70  , before the Delhi High Court, the interest income was earned from the funds received from business activity and it was held that the income from interest from bank deposits is business income for the purpose ofTamil Nadu Dairy Development Corporation Ltd. 1995 (216) ITR 535 (Mad) and Snam Progetti S.P.A. 1981 (132) ITR 70 (Delhi) do not apply to the facts of the presentTuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT 1997 (227) ITR 172  , theBench of the Supreme Court held that the surplus funds indeposits in order to earn interest in a company that has not commenced business will be chargeable under section 56. In other words, such income cannot be charged under the head "Profits and gains ofwhat we have discussed above, in the facts and circumstances of the present case, it cannot be said that the surplus funds available with the assessee acquired in public issue were funds acquired from the business activity and when it is not so, the interest earned thereon indeposit cannot be treated as business income and has to be treated as income from other sources.13.We, accordingly, hold that the income of interest earned by the assessee by investing surplus money received in public issue in bank deposits for a period of 45 days was assessable as income under the head "Income from other sources". The finding recorded by the Tribunal in this regard is upheld.