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Issues: Whether interest earned on fixed deposits made out of share capital kept for future use in the business was assessable as income under the head 'Income from other sources' or could be treated as a capital receipt.
Analysis: The Court applied the scheme of sections 14, 56 and 57 of the Income-tax Act, 1961 and held that income not falling under the specific heads of income and not exempt under section 10 is chargeable under the residuary head. Interest is an income, and there is no provision permitting its exclusion merely because the funds were temporarily parked in fixed deposits pending use for the business. The Court relied on the distinction drawn in the case law between interest that forms part of capitalisation in a construction setting and interest actually earned on surplus funds kept in deposit. Since the share capital was invested in fixed deposits and yielded interest, the receipt was not a capital receipt.
Conclusion: The interest on fixed deposits was assessable as income from other sources and not as a capital receipt; the finding of the Tribunal was incorrect and the answer was against the assessee and in favour of the Revenue.
Ratio Decidendi: Interest earned on temporary investment of surplus funds or share capital in fixed deposits is taxable as income from other sources unless the Act provides a specific exclusion or adjustment.
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