Law:

Section:

Section 28(i), read with section 56 of the Income-tax Act, 1961 - Business income - Chargeable as - Assessment year 2003-04 - Assessee had furnished performance guarantee in favour of NHAI to get contract awarded in its favour and to procure said guarantee, it had kept certain amount in a fixed deposit in bank - Assessee treated interest income from fixed deposits as a business income and set off same against project expenses - Assessing Officer held that interest received by company on bank deposit was taxable as income under head 'Income from other sources' and, thus, project expenses could not be allowed to be set off against interest income - On second appeal, Tribunal allowed assessee's claim - It was apparent from records that bank guarantee was furnished as a condition precedent to entering into contract and further it was to be kept alive to fulfil certain obligations - Moreover, release of fixed deposit was dependent on satisfaction of certain conditions - Whether on facts, furnishing of bank guarantee had an inextricable nexus with securing contract and, therefore, Tribunal was justified in allowing assessee's claim - Held, yes [In favour of assessee] FACTS The assessee filed its return of income for the relevant assessment year declaring nil income. It had furnished performance guarantee in favour of NHAI to get the contract awarded in its favour and to procure the said guarantee, it had kept the amount in a fixed deposit in the bank. The amount of interest income from fixed deposits was set off against the project expenses. The assessee's case was that the furnishing of bank guarantee had a direct nexus with the carrying on of the project and, therefore, the said set off deserved to be allowed. The Assessing Officer held that interest received by the company on the bank deposit was taxable as income under the head 'Income from other sources'. According to the Assessing Officer, project expenses did not have even remote proximity with the earning of interest and, thus, the same could not be allowed to be set off against the interest income. On second appeal, the Tribunal, however, allowed the assessee's claim. On revenue's appeal : HELD As is…

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