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of <h1>Interest income from fixed deposits deemed part of business profits, not separate revenue receipt.</h1> <h3>Commissioner of Income Tax Versus Panem Coal Mines Ltd.</h3> Commissioner of Income Tax Versus Panem Coal Mines Ltd. - TMI Issues involved: The main issue in this case is whether interest income earned by the assessee company on fixed deposits kept with a bank should be treated as a revenue receipt or a capital receipt, and whether it can be adjusted against the cost of a project being set up by the company.Judgment Summary:Interest Income Treatment:The assessee company earned interest on fixed deposits amounting to Rs. 3.5 crores kept in Canara Bank, which totaled Rs. 29,51,512/-. The company capitalized this interest income and reduced it from the cost of the project. The Assessing Officer treated this interest income as a revenue receipt, but the CIT(A) reversed this decision, which was upheld by the ITAT. The appellant argued that the interest was earned from surplus funds with the bank and should not be treated as a capital receipt. The appellant relied on the Supreme Court judgment in Bongai Gaon Refinery Petro Chemicals Vs. CIT 251 ITR 329, which clarified that interest received from surplus funds should not be adjusted against project cost. However, it was found that the FDR amount kept with the bank was from capital generated by the company through share capital, not from unsecured loans. The CIT(A) and ITAT both found that the interest income was linked to setting up the business, and the case law supported this view.Legal Analysis:The court referred to the judgment in Indian Oil Panipat Power Consortium Ltd. Vs. ITO and discussed the connection between funds garnered for setting up a business and the nature of income. The court emphasized that income connected with business activities should be taxed under the head 'profit and gains of business or profession,' and not as 'income from other sources.' The court concluded that the interest earned from fixed deposits was linked to the business setup and should not be taxed separately under a different head of income. Therefore, the court dismissed the appeal, stating that no question of law arose in this case.
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