TaxTMI 
TaxTMI 
2015 (10) TMI 2701
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....earned from fixed deposit was to be assessed under the head "Income from other sources " or as "Business Income" . 3. The Brief facts of the case are that the assessee company is a Subsidiary of Canara Bank . The assessee company was Primary Dealer (PD) in government securities accredited by RBI , till February 2007 and diversified into Stock Broking business, consequent upon takeover of the PD business by the Parent Bank. The case of the assessee company was selected for scrutiny for the assessment year 2008-09 and the assessment was framed u/s 143(3) read with Section 143(2) of the Act vide orders dated 08th October 2010 whereby Returned income was accepted as assessed income and income of Rs. 7,97,150/- was assessed under normal provisions of the Act and at Rs. 20,20,44,671/- u/s 115JB of the Act . 4. The CIT observed that in the assessment order dated 08th October 2010, income under the head 'Income from Business' has been computed at Rs. 18,85,06,203/- which was set off against the brought forward business loses pertaining to the assessment year 2005-06. The CIT observed that the assessee company had earned interest income of Rs. 15,18,20,478/- on fixed deposit with bank....
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....08 which created generation of liquid money, which was temporarily parked into Fixed Deposit with banks for short periods, mainly up to 6 months till they are deployed in the new business of stock broking. These liquid money generated during the year from liquidation of stock-in-trade (Government Securities and Treasury Bills ) was part of the assessee company's circulating capital and return on circulating capital is a business income. The FDR with bank being assessee's circulating capital , any interest income generated thereon is 'business income' and not 'income from other sources'. The assessee company relied upon the following decision in support of its contentions : (i) CIT v. Tamilnadu Dairy Development Corporation Ltd., (1995) 216 ITR 535 (Mad.) (ii) CIT v. Cocanda Radhaswami Bank , (1995) 57 ITR 306(SC) (iii) Bihar State Coop Bank v. CIT , (1960) 39 ITR 114(SC) (iv) CIT v. Tirupati Woollen Mills Ltd. , (1992) 193 ITR 252(Cal.) (v) CIT v. Producin P. Ltd. , (2007) 290 ITR 598 (Kar.) (vi) Eveready Industries Ltd. v. CIT , (2010) 323 ITR 312(Cal.) The assessee company further submitted that order of the AO is not erron....
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.... the orders dated 19th March 2013 passed u/s 263 of the Act by the CIT, the assessee company is in appeal before us. 8. The assessee company submitted before us that the CIT has issued notice dated 26th February 2013 u/s 263 of the Act on the ground that the AO has erred in treating interest of Rs. 15,18,20,478/- earned from fixed deposit with Bank by investing surplus funds by the assessee company as 'Income from business' while the same should have been assessed under the head 'Income from other sources' and the AO erred in allowing excess set off of brought forward business to the tune of Rs. 15,18,20,478/- and hence held the assessment orders dated 08th October 2010 passed u/s 143(3) of the Act to be erroneous and prejudicial to the interest of the Revenue . The assessee company submitted that but while passing orders dated 19th March 2013 u/s 263 of the Act , the CIT has held that this issue of is not free from doubt that the income earned by the assessee company from fixed deposits kept with the banks could be assessed as 'Income from other sources' instead of being assessed as 'Business Income' and perusal of assessment records reveals that the AO has not applied his m....
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....rest on Bank Deposits amounting to Rs. 15,18,20,478.73 and it is incomprehensible that the AO has allowed the same amount which is substantial amount to be treated as 'Business Income' and allowed set off of brought forward business loss against this income from interest on FDR without application of mind and hence the order of the AO is neither erroneous nor prejudicial to the interest of Revenue as the AO has taken one view after due application of mind which is a possible view and just because two views are possible, the CIT cannot substitute his view with that of the AO which is impressible under proceedings u/s 263 of the Act. The assessee company relied upon the following decisions to advance and support its contentions: (i) CIT v. Max India Limited 295 ITR 282 (Bom.) (ii) CIT v Gabriel India Limited 203 ITR 108 (Bom.) (iii) Mrs Praveen P Bharucha v. DCIT 348 ITR 325(Bom.) The assessee company also submitted that in the orders dated 19th March 2013 u/s 263 of the Act, the CIT has observed that this issue is not free from doubt that the income earned by the assessee company from fixed deposits kept with the banks could be assessed under the head '....
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....ith bank on deployment of surplus funds and hence it clearly shows that the AO has not applied his mind to the treatment of interest income from FDR on deployment of surplus funds to be treated as 'income from business' or 'income from other sources' before passing the assessment order dated 08th October 2010 u/s 143(3) of the Act and the contentions of the assessee company that it should be deemed that the AO has applied his mind to this issue before passing the assessment order dated 08th October 2010 u/s 143(3) of the Act by the AO is to be rejected at the thresh-hold itself . The Ld. DR relied upon the orders dated 19th March 2013 passed u/s 263 of the Act by the CIT. 10. We have considered the rival contentions, perused the material on record and case laws relied upon by both the parties. We have observed from the facts as emerging from the orders of the authorities below that the assessee company is a Subsidiary of Canara Bank . The assessee company was Primary Dealer (PD) in government securities accredited by RBI , till February 2007 and diversified into Stock Broking business, consequent upon takeover of the PD business by the Parent Bank. The assessee company business ....
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....capital of the assessee company and in-fact funds so generated on liquidation of government securities and treasury bills in the interim period before deployment in stock broking business itself is circulating capital being arisen from business itself and cannot be categorised as surplus funds as the funds are merely in the switchover mode from one business i.e PD business which has just ceased to a new venture which has just commenced i.e. stock broking business. Thus, the assessee company has liquidated its 'stock- in- trade' being circulating capital held in the form of government securities and treasury bills and in the interim deployed the said liquid funds so arising from liquidation of government securities and treasury bills in FDR's with banks before deployment of the funds for stock broking business and in our view the same cannot be said to be deployment of surplus funds as held by the CIT rather it is effective use of the funds in the interim before its deployment in new business of stock broking and more so the assessee company was dealer in Primary deposit which primarily dealt with deployment of money/ funds in government securities and treasury bills and income aris....
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....n from the business activity of the assessee company which is deployment of funds/money. (ii) Ferro Concrete Construction (India) Pvt. Ltd. v. CIT, 290 ITR 713 (MP) - The tax payer in this case was engaged in the business of civil work contract and the object clause of Memorandum of Association did not show that the tax payer is in money lending business, the interest on short term deposit was held to be assessable as income from other sources while in the instant case , the assessee company was in the business of deployment of funds/money into government securities and treasury bills and stock market. (iv) Shipping Corporation Limited v. CIT, 240 ITR 24(Mad.) wherein Hon'ble Madras High Court following the decision of Hon'ble Supreme Court in Tuticorin Alkali Chemicals and Fertilizer Limited v. CIT, (1997) 227 ITR 172 has held that interest on short term deposit from bank is to be assessed under the head 'Income from other sources'. In the instant case , we have held that these funds placed by the assessee company are circulating capital of the company and is not a surplus funds rather the funds are in the mode of switchover from the business of PD which has ceas....
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....s 'Business Income' and allowed set off of brought forward business loss against this income from interest on FDR without application of mind and hence we hold that the order of the AO is neither erroneous nor prejudicial to the interest of Revenue as the AO has taken one view which is a possible view after due application of mind and just because two views are possible, the CIT cannot substitute his view with that of the AO even though view of CIT may be a better view which is impressible in proceedings u/s 263 of the Act. Merely because , the AO has not written elaborately in the assessment order about holding the interest income from FDR as 'Business Income' does not mean that the order of the AO is erroneous and prejudicial to the interest of revenue, reference may be drawn to Hon'ble jurisdictional High Court of Bombay in CIT v. Gabriel India Limited 203 ITR 108 (Bom.) More-so , we have observed that the CIT in his order dated 19th March 2013 passed u/s 263 of the Act has held that the issue is not free from doubt that the income earned by the assessee company from fixed deposits kept with the banks could be assessed as 'Income from other sources' and the AO to re-decide the i....