Commissioner of Income Tax vs Paramount Premises (P.) Ltd.

Mrs. Sujata V. Manohar, J.—This is an application by the Department praying that the following question should be directed to be referred to us u/s 256(2) of the Income Tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that (1) interest on sale deposits of Rs. 20,000, (2) interest on temporary loan from surplus funds of Rs. 14,686 and (3) interest on fixed deposits of Rs. 1,200 and other interest of Rs. 2,877, are business receipts and not to be assessed as "income from other sources" during the assessment year 1978-79 ?"

The Tribunal has given the following findings of fact. The assessee was engaged in the business of building construction. For the assessment year 1978-79, the assessee was engaged in the construction of three buildings. The assessee received deposits in installments from prospective purchasers while the work of construction was in progress. If purchasers failed to make deposits by stipulated dates, they had to pay interest. Secondly, the authorised capital of the assessee was small but the amounts received as deposits were large. 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 this 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.

In view of this finding given by the Tribunal, the answer to the question referred to us is obvious. We, therefore, discharge the rule which was issued in this case and dismiss the application.