Law:

Section:

Section 56 of the Income-tax Act, 1961 - Income from other sources - Chargeability Of - One of the objects of assessee - Shipping company was to lend money and to invest and deal with money - Assessee deposited its surplus funds with bank on short-term deposits - Whether impugned investment was made only to secure money lying idle with assessee and could not be said to have been made in course of assessee's money-lending business - Held, on facts, yes - Whether income derived from such investment was assessable under the head "income from other sources" rather than as assessee's business income - Held, on facts, yes FACTS One of the objects of the assessee, a shipping company, was to lend money and to invest and deal with money. During the accounting year relevant for the assessment year 1975-76, the assessee placed the surplus funds, which were kept by it for purposes of remittance to London towards the half yearly repayment of a loan, on short-term deposits with the bank and derived interest thereon. The assessee claimed that the income from interest was part of the profits and gains of its business and as such it was entitled to set off the unabsorbed development rebate against that income. The ITO, however, disallowed the claim and treated the said income as income from other sources. On revision application by the assessee under section 264, the Commissioner upheld the ITO's order. On writ: HELD Although the assessee had the power to lend money, but it had never contended that money was lent in the course of business. All that the assessee stated was that money was invested in the bank. Hence, that investment was only to secure the money which was lying idle. An income earned from that source was not an income earned in the course of business so as to make it part of the profits and gains of the assessee's business. Even otherwise, the assessee was not a banking company and the money was not deposited by it by way of money-lending as a business. The amount was deposited because money was lying idle and it was safer and wiser to put it in bank. Hence, the interest thereby earned was incidental to the main purpose of the deposit, which was safe keeping and…

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