Interest on surplus funds was treated as income from other sources, not business income, absent authority for regular money-lending activity.

Interest earned on deposits and advances made from surplus funds was held to be taxable as income from other sources, not as business income. The assessee-corporation's principal object was land development, and the statutory powers to finance projects or assist landholders did not amount to authority to conduct money-lending as a regular commercial business. No board resolution or other material showed an intention to carry on lending as an independent business activity. Because the receipts arose from deployment of funds not required for operations, they fell outside business income treatment under the wider meaning of "business" in the Income-tax Act.

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Issues: Whether interest earned by the assessee on deposits and advances made out of surplus funds was assessable as business income or as income from other sources.

Analysis: The principal object of the assessee-corporation was execution of land development projects. The statutory provisions permitting financing of projects, assistance to landholders in obtaining loans, and grant of special loans did not authorise a general business of money-lending. No board resolution or other authority showed an intention to carry on money-lending as a regular business. On the facts, the interest arose from deployment of surplus funds not required for the business, and such receipts fell within the statutory concept of income from other sources rather than business income under the wider meaning of business in section 2(13) of the Income-tax Act, 1961.

Conclusion: The interest income was taxable as income from other sources and not as business income; the finding of the Tribunal was not justified.

Ratio Decidendi: Interest earned on surplus funds is assessable as business income only where the assessee is shown, from its objects and actual authorisation, to carry on the business of money-lending or lending of money as a regular commercial activity; absent such intention and authority, the receipt is income from other sources.

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