Interest on sale and fixed deposit proceeds from surplus project funds taxable as business receipts, not income from other sources

HC held interest on sale deposits and fixed deposits earned from surplus project funds constituted business receipts, not income from other sources. The court accepted the Tribunal's factual finding that deposits arose from the assessee's construction activity, were often large relative to authorised capital, and were temporarily invested or lent until used for construction or to secure bank guarantees; therefore the interest was integrally connected to the business and taxable as business income.

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Issues involved: Application by Department for reference under section 256(2) of the Income-tax Act, 1961 regarding classification of interest income as business receipts or income from other sources for assessment year 1978-79.

Summary:
The Tribunal found that the assessee, engaged in building construction, received deposits from purchasers and earned interest on idle amounts deposited with banks or given on temporary loans. Additionally, interest was earned on fixed deposits kept as guarantee for construction work. The Tribunal concluded that all interest income arose from the business activity of the assessee and was considered as business income. Consequently, the High Court discharged the rule and dismissed the application as the finding by the Tribunal was decisive.

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