Interest on compensation bonds was taxable as other sources, with no set-off of prior business losses or depreciation.

Interest on compensation bonds received on nationalisation of a banking undertaking is business income only where the bonds retain a clear nexus with the assessee's trading assets or business activity. On the facts stated, the assessee had not continued banking operations in India and there was no material showing that the bonds were used in any business; the interest was therefore taxable as income from other sources. As the receipt was not business income and the bonds were not trading assets, no basis arose to carry forward or set off earlier business loss or unabsorbed depreciation against that interest income.

---

---

Issues: Whether the interest income from compensation bonds received on nationalisation of the assessee's banking undertaking was assessable as business income and, if not, whether the assessee could carry forward and set off the business loss and unabsorbed depreciation of the earlier year against that income.

Analysis: The compensation bonds were received as consideration for acquisition of the assessee's banking undertaking under the nationalisation legislation. The assessee had not carried on banking business in India after acquisition, and there was no material to show that the bonds formed part of its trading assets or were employed in any business activity. Income arising merely from compensation bonds, in these circumstances, was not income from business but was properly taxable under the head income from other sources. Since the bonds were not trading assets and the interest was not business income, the statutory basis for carrying forward and setting off business loss or unabsorbed depreciation did not arise.

Conclusion: The interest on the compensation bonds was not assessable as business income, and the assessee was not entitled to carry forward or set off the business loss or unabsorbed depreciation against that interest income.

Ratio Decidendi: Interest earned on compensation bonds received on nationalisation is business income only if the bonds form part of the assessee's trading assets and are employed in its business; absent such nexus, the income falls under other sources and business losses or unabsorbed depreciation cannot be set off against it.

---