Orissa High Court
Orissa Tyres Limited vs Commissioner Of Income-Tax on 7 August, 1990
Equivalent citations: [1991]188ITR342(ORISSA)
JUDGMENT S.C. Mohapatra, J.
1. The assessee is a company registered under the Companies Act, 1956. Its main business is to manufacture tyres and sell them. It is not disputed that the company has not yet started its business. It is incurring expenses for the purpose of construction of a factory to start the business. The company is prohibited from investing funds except by depositing in scheduled banks. As per Article 24 of the memorandum of association, the company has made some fixed deposits from out of which it receives interest. For assessment for the four years in dispute, the Income-tax Officer accepted the claim of the company that interest received is not business income. The Commissioner, however, in exercise of his power of revision, set aside the order and directed the Income-tax Officer to assess the company by considering the interest received as income from other sources as provided under Section 56 of the Income-tax Act. Aggrieved by the revisional order, the assessee preferred appeal before the Income-tax Appellate Tribunal. The Tribunal has held that it is not income from business. Against the said finding the assessee sought reference to this court under Section 256(1) of the Act and the Tribunal has referred the following question :
"Whether, on the circumstances of the case, the income earned by the assessee amounts to business income when investment of the money of the company not immediately required is one of the objects of the company ?"
2. Investment in banks of the amounts is not the main business of the assessee. It is on account of the fact that there is a direction that funds of the company cannot be taken anywhere else other than being deposited in scheduled banks. Clause 24 of the memorandum of association has been incorporated. In the circumstances, on the facts as available, it can only be said that the Tribunal is correct in saying that it is not income from business.
3. However, this answer to the question shall not affect either the assessee or the Revenue since it is stated that, after the Commissioner directed reconsideration of the matter by the Income-tax Officer, the Income-tax Officer treated it as income from other sources and the appeals are now pending before the Income-tax Appellate Tribunal where the question of liability to pay tax on interest on the amounts deposited shall be considered. Our answer, affirming the finding of the Tribunal, that interest, in the circumstances of the case, is not income from business, will not, in any manner, influence the Tribunal while adjudicating the real dispute now pending before it.
4. In view of the discussions made above, the answer to the question referred to us shall be in the affirmative. There shall be no order as to costs. "
J.M. Mahapatra, J.
5. I agree.