Fixed deposit interest from surplus funds is not business income for partners' remuneration computation under Section 40(b)(v).

Interest earned on fixed deposits created from surplus funds was held to lack a direct nexus with the assessee's business activity and therefore could not be treated as business income for computing book profit under Section 40(b)(v) for partners' remuneration. Because the deposits were not made out of business necessity, the interest was excluded from book profit. The reference to Section 115J did not alter the position, as the computation issue fell to be decided under the specific scheme governing partners' remuneration in Chapter IV-D. The Revenue's view was upheld and the assessee's claim failed.

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Issues: Whether interest earned on fixed deposits made out of surplus funds could be treated as part of book profit for computing allowable partners' remuneration under Section 40(b)(v), and whether such interest could be regarded as business income for that purpose.

Analysis: The interest income from fixed deposits was held not to arise from the assessee's business operations and had no direct nexus with the business activity. Since the deposits were made out of surplus funds and were not a business necessity, the income could not be treated as business income for the purpose of calculating book profit under Section 40(b)(v). The reference to Section 115J did not assist the assessee because the issue concerned computation of partners' remuneration under the specific statutory scheme of Chapter IV-D.

Conclusion: The issue was decided against the assessee and in favour of the Revenue; the interest on fixed deposits was excluded from book profit for the purpose of Section 40(b)(v).

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