CASE LAWS DETAILS
DECIDED BY: ITAT DELHI BENCH `D’, NEW DELHI, IN THE CASE OF: Lovlesh Jain v. ACIT, APPEAL NO: ITA No. 4725/Del/2009, DECIDED ON April 30, 2010
14. The moot question that arises for our consideration in the present case is whether, on the facts of the present case, the interest earned by the assessee on fixed deposit is assessable as profit of the business of undertaking for the purpose of computing the deduction available to the undertaking under section 10A of the Act.
15. We shall first address ourselves to decide whether the interest on fix deposit, in the present case, is even assessable under the head “profits and gains of business and profession” much less the profit of the business of undertaking. In order to decide this aspect of the matter, we have to dwell upon the nature and source of fixed deposits made by the assessee. In this connection, the ld. counsel for the assessee has invited our attention to the chart of sequence of events depicting the source of the fund for making FDRs with the bank. From the details filed by the assessee and from the audited accounts, it is seen that the assessee is a proprietor of two concerns viz., M/s. Meenakshi International and M/s. Surbhi Enterprises. The profit from M/s. Meenakshi International has been claimed to be eligible for deduction u/s. 10A of the Act. The assessee’s another concern viz., M/s. Surbhi Enterprise’s business is not covered by the exemption provisions of section 10A of the Act. In the return of income filed by the assessee, the net profit determined as per the audited profit & loss account and balance sheet of M/s. Meenakshi International amounting to Rs. 1,01,58,220/- has been claimed to be exempted u/s. 10A of the Act. The assessee’s total turnover is from export of gold jewellery. The net profit in respect of another concern M/s. Surbhi Enterprises is shown at a negative of Rs. 34,050/-. In the profit and loss account at M/s. Meenakshi International, the assessee has shown other income in the nature of bank interest of Rs. 44,36,745/- and exchange rate fluctuation of Rs. 25,54,874/-. In this appeal, we are concerned with the bank interest of Rs. 44,36,745/- whether it is to be included in the profit of the undertaking for the purpose of computing deduction u/s. 10A of the Act. The interest income has been earned on the fixed deposits amounting to Rs. 1,91,00,000/- deposited on 20.09.2002 and 21.09.2002 with maturity dates due on 19.09.2006 and 20.09.2006. These deposits made on 20.09.2002 and 21.09.2002 with Vyas Bank are as under:-
Date Amount Maturity Date
20.09.2002 82,00,000/- 19.09.2006
20.09.2002 21,50,000/- 19.09.2006
21.09.2002 87,50,000/- 20.09.2006
16. Three nos. of fixed deposits aggregating to Rs. 1,91,00,000/- were initially made with the ABN Amro Bank on 07.09.2002, 09.09.2002 and 11.09.2002 with maturity date falls on 20.09.2002 and 21.09.2002 and having maturity amount of Rs. 1,91,29,299/-.
17. The aforesaid fixed deposits with ABN Amro Bank were matured on respective maturity dates falls on 20.09.1992 and 21.09.1992, when the maturity amount was withdrawn. Immediately thereafter, the amount of Rs. 82,00,000/-, Rs 21,50,000/- and Rs. 87,50,000/- were transferred from ABN Amro Bank to Vyas Bank for making FDRs on 20.09.1992 and 21.09.1992. The original fixed deposits made with ABN Amro Bank on 07.09.1992, 09.09.1992 and 11.09.1992 were made out of the funds transferred from bank account standing in the name of assessee’s another concern viz., M/s. Surbhi Enterprises to the assessee’s proprietory concern viz., M/s. Meenakshi International, which makes it clear that the fund available in the assessee’s concern M/s. Surbhi Enterprises was transferred to the assessee’s other concern M/s. Meenakshi International. The assessee has filed the copy of bank account with ABN Amro Bank in the name of M/ . Surbhi Enterprises for the year 2002-03, and on perusal thereof, we find that the money has been transferred from the bank account of M/s. Surbhi Enterprises to the account of M/s. Meenakshi International. It is not the assessee’s case that profit from M/s. Surbhi Enterprises is also eligible for exemption u/s. 10A of the Act. The assessee has tried to make out a case that the fixed deposit were made out of the business fund and not out of surplus fund, and, therefore, the interest earned on fixed deposits is assessable under the head “business”. But, after considering the totality of the facts and circumstances of the case and elucidating the position of law, we find ourselves not to be in agreement with the assessee’s contention that the interest earned on fixed deposit is assessable under the head “business”. In the present case, as already pointed out above, the fixed deposits were made in the name of the assessee’s proprietory concern M/s. Meenakshi International out of the funds transferred from assessee’s another concern M/s. Surbhi Enterprises. The funds available with the assessee in its proprietory concern M/s. Surbhi Enterprises has been transferred to the account of M/s. Meenakshi International for the purpose of creating fixed deposits in the name of M/s. Meenakshi International. The transaction of transferring fund from assessee’s one proprietory concern to another, is not at all connected to the very business of the eligible undertaking carried out by the assessee. Mere because the assessee has been able to accumulate fund out of profit from business and the amount so accumulated with the assessee from profit of any business is invested in making fixed deposits having no link or connection to the business activity, it is very difficult to accept the view that the fixed deposit, has been made out of the so-called business fund so as to treat any income by way of interest from that fixed deposit as income from business. If any assessee, who is engaged in the business of exporting goods or things or articles and invests the surplus fund generated from his business profit, in any fixed deposit or in any other assets having no link or nexus between the investment so made and business activity of the assessee, it will be an irrational and illogical conclusion to hold that the interest earned on fixed deposits or any income earned from the assets so acquired would be business income. For instance, if any business is carried on by any assessee, and he earns profit there from, and the fund accumulated out of that profit of the business is not re-employed for the purpose of business, but is invested in any fixed deposit or in any house property or in shares, the interest income earned on such fixed deposits or any rental income derived from the house property so acquired or any gain earned on sale of shares, would not by any standard or by any stretch of imagination be categorized as business income unless it is proved and established that the fixed deposits so made, or the house property so acquired, or the shares so purchased, were made or acquired or purchased in the course of any business activity carried on by the assessee Further, merely because the F.D. so made, or the property so acquired, or the shares so purchased are subsequently placed as security against any loan or borrowings obtained for the purpose of business, that would not alter the very original nature of investment earlier made out of fund available with the assessee de-hors any business activity.
18. In order to cover any interest income earned on deposits under the ambit of “business income”, the necessary pre-requisite condition is not the deployment of business funds but the nature of deposits and the purpose for which the deposits is made, which results in such interest income. If the funds of the business are parked for safe keeping or with a view to earn interest income de-hors the business activity, the interest resulting there from cannot assume the character of business income but it would fall under the head “income from other sources”. In the present case, the fixed deposits were initially made on 07.09.2002 to 11.09.2002 with ABN Amro Bank out of the funds transferred from the assessee’s one proprietory concern M/s. Surbhi Enterprises to assessee’s another proprietory concern M/s. Meenakshi International, and on maturity of those fix deposits on 20.09.2002 and 21.09.2002, the amount were transferred from ABN Amro Bank to Vyas Bank, and fresh deposits out of the same maturity proceeds were made on 20.09.2002 and 21.09.2002 with Vyas Bank with maturity date falling due on 19.09.2006 and 20.09.2006. Nothing has been shown or pointed out by the assessee that the fixed deposits initially made with ABN Amro Bank were made in the course of carrying out any business activity. Nothing has also been shown that when these fixed deposits were transferred from ABN Amro Bank to Vyas Bank, the same were made in the course of business activity of eligible undertaking. The assessee subsequently obtained overdraft facility on 23.11.2002, and at the time of availing overdraft facility, the assessee had chosen to place the fixed deposits, which were already created out of the funds transferred from M/s. Surbhi Enterprises to M/s. Meenakshi International, as security against the overdraft facility. From the certificate dated 23.11.2002 given by the Vysya Bank Ltd., it is seen that the Bank sanctioned overdraft credit facilities of Rs. 1,70,00,000/- and accepted the fixed/term deposits of Rs. 1,91,00,000/- as security in pursuance to assessee’s loan application dated 23.11.2002. The assessee has availed overdraft facilities against security of fixed deposits/term deposits of Rs. 1,91,00,000/-, which were already crated or made prior to availing overdraft facilities. Thus, the amount which was deposited by way of fixed deposits has no relation or nexus with the loan facilities availed by the assessee except that the fixed deposits were merely chosen to be placed as security against loans. It is, thus, not a case where the fixed deposits were required to be made by the assessee for the purpose of effecting any business activity of the eligible unit. It is the case of simple parking of surplus funds withdrawn from the assessee’s one proprietory concern and transferred to the assessee’s another proprietory concern. The fixed deposits so made by the assessee initially with ABN Amro Bank and then transferred to Vyas Bank have no relation or nexus with the assessee’s business of undertaking from the export of gold jewellery, the profit of which is claimed as deduction under section 10A of the Act. Even in a broad sense of the matter, the fixed deposits so made cannot be said to have any relation or nexus with any business activity of the assessee. Therefore, the interest income earned on such fixed deposits has been rightly taxed under the head “income from other sources” by the authorities below.