THANIKKACHALAM, J. - (1.)AT the instance of the Department, the Tribunal referred the following question, for the opinion of this Court, under S. 256(1) of the IT Act, 1961, hereinafter referred to as the "Act" :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest on term deposits should be treated as 'business income'?"

(2.)THE assessee, M/s Madras Refineries Ltd., is a public limited company, carrying on business in refining of petroleum products. The assessment year involved in this case is 1974 -75 in respect of which the previous year ended on 30th June, 1973. During the course of the assessment, the assessee claimed relief under S. 80J of the IT Act, 1961. During the course of the assessment proceedings, for the asst. year 1974 -75, the assessee received a total sum of Rs. 29,73,601 as interest in the following manner : The assessee claimed that this interest income is to be regarded as part of its business income. The ITO treated it as income from 'other sources'. According to the ITO, interest received was directly relatable to deposits made in the banks and such interest must be taken as income under the head 'other sources' and there was no scope to consider it as profit derived from industrial undertaking.
On appeal, the AAC confirmed the order passed by the ITO. The assessee filed a second appeal before the Tribunal. Before the Tribunal, it was argued that the deposit of these moneys in the banks was so inter -linked with the carrying on of the business that it could not be regarded de hors the carrying on of the business and was incidental to and directly sprang from the carrying on of the business, and therefore, the income should be regarded only as income from 'business' and not otherwise. The Tribunal held that the investing of the surplus moneys in term deposits was indisputably inter -connected with the carrying on of the assessee's business that it is very difficult to see its activity as a separate and distinct activity. In the course of the assessee's business, the assessee received money on several counts. The money not immediately required is always deposited with the banks, which would serve two objectives; one was easy accessibility of the money when needed and the other was earning of an interest, which would reduce the cost of borrowing. The Tribunal also observed that this interest could be linked to the interest that the assessee -company charges from its customers on overdue payments, which would also be regarded as business income and never treated as income from 'other sources'. The Tribunal also found on an analysis of S. 56 of the IT Act, 1961, which alone permits taxation of income from 'other sources' that the language used in that section also supports the view that the income earned by the assessee from deposits could only be taxed as income from 'business' because the deposits sprang directly from the carrying on of the business and not de hors it and it was good cash management to produce the income. Accordingly, the Tribunal reversed the view taken by the authorities below and directed the ITO to treat the interest income as 'business income'.

(3.)BEFORE us, the learned junior standing counsel appearing for the Department submitted that the assessee is doing business in refining of petroleum products. Moneylending or financing is not the . . Rs.
(a) Interest on term deposits with banks in India, Rs. 29,30,573 (b) Interest on time deposits with FNCB, New York 31,844 (c) Interest on trade deposits with Government securities 11,184 . Total 29,73,601
business of the assessee. Business is not the source for deposit, which earned the interest income. The interest income is relatable to the deposit made in the bank. Only the profits earned in carrying on the business can be treated as 'business income'. The Tribunal was not correct in stating that earning interest from the bank deposit is the income earned from the business of the assessee. According to the learned standing counsel merely because the bank deposit is treated as capital employed, it does not follow interest earned should be treated as income from business, since the assessee is not doing business in moneylending or financing. Therefore, according to the learned standing counsel for the Department, the provisions of S. 28 of the Act will not apply to the facts of this case and the provisions of S. 56 of the Act alone would apply. In order to support his contention, the learned standing counsel for the Department relied upon the following decisions :
(1) Murli Investment Co. vs. CIT (1987) 65 CTR (Raj) 5 : (1987) 167 ITR 368 (Raj), (2) CIT vs. Rajasthan Land Development Corpn. (1995) 125 CTR (Raj) 261 : (1995) 211 ITR 597 (Raj) : TC 41R.545, (3) Bokaro Steel Ltd. vs. CIT (1988) 67 CTR (Pat) 281 : (1988) 170 ITR 545 (Pat) : TC 41R.535; (4) Collis Line Pvt. Ltd. vs. ITO (1982) 29 CTR (Ker) 135 : (1982) 135 ITR 390 (Ker) : TC 41R.532.