By TIOL News Service

JAIPUR, NOVEMBER 07, 2017: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether income earned out of interest on FDR can be considered as part of business income, when investment in FDR itself was never part of Assessee's business. NO is the verdict of HC

Facts of the case:

The Revenue Department preferred present appeal challenging the action of ITAT in considering the 'interest' as part of 'book profit', in contravention of Section 40(b). The Department had also challenged the action of ITAT in deleting the disallowance of Rs.2,30,00,796/- made on account of remuneration to partners by taking the interest earned on FDRs as part of book profit and business income under Section 28 specifically when it was "Income form other sources" and contrary to Section 40(b), Explanation 3 and Section 40(b)(v)(2).

High Court held that,

++ the FDR which was invested by Assessee was never the part of business, in that view of the matter, the income which has been earned out of FDR cannot be considered as part of the income of the business. In that view of the matter, the contention raised by Assessee's counsel that Section 40(b)(v) of Explanation, the Tribunal and the CIT have seriously committed error and the view taken by the AO required to be allowed is not sustainable. It was never intention of the legislation to differentiate Section 40(b) falling under Chapter IV-D which income is to be considered as business income taking into consideration the purpose of Section 115J and granting benefit for initiation of entries, it is investment of surplus funds of the Assessee which is not part of the business income. Therefore, the same proviso will not apply in the facts of the case.

(See 2017-TIOL-2323-HC-RAJ-IT)