Law:

Section:

Section 28(i), read with section 256 of the Income-tax Act, 1961 - Business income - Chargeable as - Assessment year 1978-79 - Assessee was engaged in business of construction of buildings - It received deposits in instalments from prospective buyers which were deposited with bank or given on temporary loans on which interest was received - Assessee was also required to give guarantee to bank in respect of land taken on lease for construction work - For that purpose certain amounts were kept in fixed deposits which earned interest - Whether findings of Tribunal that entire interest sprang from business activity of assessee and did not arise out of any independent activity were pure findings of fact and, no referable question of law arose from its order - Held, yes FACTS The assessee was engaged in the business of building construction. For the assessment year 1978-79, the assessee was engaged in the construction of three buildings. The assessee received deposits in instalments from prospective purchasers while the work of construction was in progress. If the purchasers failed to make deposits by stipulated dates, they had to pay interest. The authorised capital of the assessee was small but the amounts received as deposits were large. Idle amounts were deposited with the bank or given on temporary loans until such time as they were required for construction. Thus, interest was earned on those amounts. The assessee was also required to give a guarantee to the Bank in respect of the land taken on lease for construction work. For that purpose, certain amounts were kept in fixed deposits on which the assessee earned interest. In these circumstances, the Tribunal had given a finding of fact to the effect that the entire interest sprang from the business activity of the assessee and did not arise out of any independent activity. Accordingly, interest income was considered as the business income of the assessee. The reference application of the revenue was rejected. On an application under section 256(2) : HELD In view of aforesaid finding given by the Tribunal, no referable question of law arose from its order. Note : The case has been decided in favour of the…

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