Assessment of income from fixed deposits under 'Income from other sources' based on the nature of business and lack of evidence supporting the claim of deposits being made only against liabilities due to foreign shipping principals

BHAGABATI PRASAD BANERJEE, J.

( 1 ) THE Tribunal has referred the following question of law to this court under Section 256 (1) of the Income-tax Act, 1961 :"whether, on the facts and in the circumstances of the case, the income from fixed deposits was rightly ordered to be assessed as the assessee's income under the head ' Income from other sources' ?"

( 2 ) THE assessment year involved is 1977-78 for which the relevant year of account is the year ending December 31, 1976.

( 3 ) THE facts as set out in the statement of case are as follows : the dispute relates to the head of income under which the interest received by the assessee from some fixed deposits was to be assessed. A sum of Rs. 1,25,815 was received by the assessee on account of interest on fixed deposits and investment which the Income-tax Officer assessed under the head " Income from other sources".

( 4 ) ON appeal before the Commissioner (Appeals), it was argued that the deposits were maintained by the assessee for meeting specific liabilities incurred by the assessee to its foreign shipping principals and, therefore, this income should have been assessed under the head " Profits arid gains of business or profession ". This contention was rejected by the Commissioner (Appeals) who was of the opinion that the amount kept in fixed deposits could not be said to be trading assets of the assessee. On second appeal by the assessee, the Tribunal upheld the conclusion of the Commissioner (Appeals) with the following observations :"after due consideration of the rival submissions, the orders of the authorities and the paper book filed, we hold that from the very nature of the business carried on by the assessee, investment in short-term deposits and fixed deposits does not constitute trading asset or circulating capital so as to assess the interest therefrom as business income. A perusal of the balance-sheet as on December 31, 1976, filed along with the paper book shows that as against the liability of Rs. 1. 70 crores due to shipping principals on current account there is a debit of Rs. 25. 5 lakhs in the account of shipping principals' current account and advances to allied concerns in which the director of the company was interested and others amounting in all to Rs. 23. 63 lakhs. Even the investment under the head 'fixed asset' amounted to Rs. 43,430 only. Therefore, the assessee has not successfully made out a case before us that the holding of short-term deposit and fixed deposit was only to facilitate the remittance to the foreign shipping principals by obtaining the permission of the Reserve Bank of India which is said to involve inevitable delay. No policy of the Reserve Bank of India or the terms and conditions of remittance or adjustment to the foreign shipping principals or their accounts were furnished in support of the plea that the deposits were made only against the liabilities due to the foreign shipping principals. Even granting that there is inevitable delay in getting the approval of the Reserve Bank of India, there is no justification for making fixed deposits amounting to one year or so, and thus getting liquid funds locked up. In the absence of any material in support of the claim made by the assessee, the fixed deposit cannot be held to be the trading assets or circulating capital even though shown as current assets in the balance-sheets. On the other hand, it can be presumed that the surplus funds only were invested in the fixed deposits and, therefore, the income arising from such fixed deposit is not to be assessed as income from business. In this view of the matter, therefore, we uphold the decision of the Commissioner (Appeals) on this point. "

( 5 ) THE Tribunal after consideration of relevant facts and submissions found that the assessee had not successfully made out the case before the Tribunal that the holding of short-term deposits and fixed deposits was only to facilitate the remittance to the foreign shipping principals by obtaining

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