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

2. The present appeals are pertaining to Assessment Years96 of the Respondent/Assessee Company. The Respondent/ Assessee Company is engaged in the business of export of iron ore, cashew kernels and marine products and also deals in auto accessories and general merchandise. As per the record, the companys Memorandum and Articles of Association in its object clauses (55) and (82) permit the Company to lend, advance or deposit the money as part of the business activities. The Assessee contended that, in pursuance to the object clauses of the Memorandum and Articles of Association, the Assessee carries out money market operation as one of its business activities.3. The record discloses that, the Assessment Officer by its orders of different dates relating to the Assessment Years96 has held that the interest income earned by the Assessee as the "income from other sources" and not as "income from business" and thereby declined to give benefit for the purpose of computing deduction as contemplated under Section 80HHC of the Income Tax Act, to and in favour of the Assessee.4. The Respondent/Assessee feeling dissatisfied by the Assessment Orders passed by the Assessment Officer preferred appeals before the Commissioner of Income Tax (Appeals) who in turn held that the "income from the interest" earned by the Assessee is the " business income" and not the "income from other sources" and gave the necessary statutory benefits to the Respondent/Assessee.5. The Revenue Department feeling aggrieved by the said orders passed by the Commissioner of Income Tax ( Appeals ) preferred different appeals before the Income Tax Appellate Tribunal, which in turn held that the income from the interest earned by the Respondent/Assessee is a " income from business" i.e. business income and not "income from other sources". The Income Tax Appellate Tribunal upheld the orders of the Commissioner of Income Tax (Appeals ) on that point.6. The Revenue Department feeling aggrieved and dissatisfied by the said orders precisely dated 21.12.2005 and 30.12.2005 passed by the Income Tax Appellate Tribunal has preferred the present appeals. As stated herein above, the present appeals are admitted on the aforesaid substantial questions of law mentioned in para 1 herein above.

Court's reasoning:
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.