Business income classification fails where pre-commencement fixed deposit interest arises incidentally from surplus funds.

Interest earned on fixed deposits made from surplus funds before commencement of the manufacturing business was held not to be business income. Because the deposits were made only as an interim placement of funds not immediately required for business, and the deposit activity was not the assessee's main business, the receipt was treated as incidental rather than as profits arising from business operations. The reference was answered in favour of the Revenue's view.

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Issues: Whether interest earned on fixed deposits made out of funds not immediately required for business, where such investment was permitted by the company's memorandum and the business had not yet commenced, constituted business income.

Analysis: The company had not commenced its manufacturing business and had placed surplus funds in scheduled bank deposits because it was restricted from investing the funds elsewhere. The activity of making bank deposits was not the assessee's main business, and the interest arose only incidentally from such deposits. On these facts, the receipt could not be treated as income from business and fell outside the character of business profits.

Conclusion: The interest was not business income. The answer to the reference was therefore in the affirmative, in effect supporting the Revenue's view.

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