Tribunal rules Fixed Deposit interest as business income for assessment year 2009-10

The Tribunal upheld the CIT(A) order directing the Assessing Officer to treat the Fixed Deposit (FD) interest income as business income rather than income from other sources for the assessment year 2009-10. The Tribunal emphasized the connection between the FDs used as security for business operations and the interest income earned, citing precedents from various High Courts. The rule of consistency was also invoked, as previous assessments had treated similar interest income as business income. The Revenue's appeal was dismissed, affirming the treatment of FD interest as business income in line with the Assessee's arguments and past assessments.

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Issues:
1. Classification of FD interest as business income or income from other sources.

Analysis:
The appeal was filed by the Revenue against the order of CIT(A)-XXIV, Kolkata regarding the assessment year 2009-10. The primary issue was the treatment of Fixed Deposit (FD) interest of Rs. 87,54,636/- earned by the Assessee company engaged in manufacturing machinery. The Assessing Officer (AO) considered the interest income as income from other sources, not connected to the business. The AO determined the income of the Assessee accordingly. The Assessee contended before the CIT(A) that the interest income was connected to its business as the FDs were maintained as security for overdraft facilities used in business operations. The Assessee relied on various judicial precedents to support its argument that interest income connected to business activities should be assessed as business income. The CIT(A) agreed with the Assessee's contention, emphasizing the connection between the FDs and business activities. The CIT(A) directed the AO to treat the interest income as business income, not income from other sources.

The Revenue, aggrieved by the CIT(A) order, appealed before the Tribunal. The Revenue argued that there was no business compulsion for the Assessee to invest in FDs and that the interest income should be categorized as income from other sources. However, the Tribunal disagreed with the Revenue's stance. The Tribunal noted that the Assessee had invested in FDs to secure overdraft facilities for business purposes. Citing relevant precedents, including decisions by the Bombay High Court and Delhi High Court, the Tribunal held that interest earned on funds invested for business activities should be treated as business income. The Tribunal upheld the CIT(A) order, dismissing the Revenue's appeal.

Additionally, the Assessee invoked the rule of consistency, highlighting that interest income for other assessment years had been treated as business income by the AO. Referring to a decision of the Calcutta High Court, the Tribunal upheld the CIT(A) order based on the application of the rule of consistency. The Tribunal dismissed the appeal of the Revenue and the Cross Objection of the Assessee, which was not pressed during the hearing. Consequently, the Tribunal upheld the treatment of FD interest as business income, in line with the Assessee's contentions and previous consistent assessments.

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