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Income Tax Officervs. Saket Group Of Aawas Nirman - (Income Tax Appellate Tribunal) (01 May 2024)

Interest received on fixed deposits with the bank is business income


Direct Taxation

The assessee is a partnership firm and is carrying on the business of builders and developers. The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue by following the decision of the Hon'ble jurisdictional High Court in CIT v/s Lok Holdings, and held that, interest received on fixed deposits is a business income of the assessee. Accordingly, the addition of Rs.6,70,740 made by the AO was directed to be deleted. Being aggrieved, the Revenue is in appeal. The only grievance of the Revenue is against treating the interest received on fixed deposits as business income of the assessee instead of income from other sources.

For computing the remuneration payable to the partners, which is within the allowable limits as per section 40(b) of the Act, "book profit" means the net profit as shown in the Profit and Loss account computed in the manner laid down in Chapter-IV-D of the Act, which deals with computation of profits and gains of business or profession. Therefore, only receipt which is in the nature of business income can form part of the book profit to compute the remuneration payable to the partners.

In support of its plea that interest received on fixed deposits with the banks is in the nature of business income, the assessee has placed reliance upon the decision of the High Court in Lok Holdings. While deciding the issue in favour of the taxpayer, High Court held that, interest earned on surplus funds deposited with the bank is assessable as business income and not as income from other sources.

Since in the present case also, the assessee earned interest from the deposit of surplus funds of its construction business, present Tribunal is of the considered view that the ratio of the aforesaid decision of the High Court is squarely applicable to the facts of the present case. Accordingly, there is no infirmity in the impugned order in treating the interest received on fixed deposits with the bank as business income and considering the same for the purpose of computation of book profit for calculating the remuneration paid to the partners. The appeal by the Revenue is dismissed.


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