- (1.) WE have heard Shri Shambhu Chopra, learned counsel appearing for the Income Tax Department. Shri V.B. Upadhyay, Senior Advocate assisted by Shri R.S. Sharma appears for the respondent -assessee.
(2.) THE respondent -assessee is of the status of HUF, with Shri Brij Bhushan Lal Bindal as its Karta. It is engaged in the business of running an industry in the name and style of M/s Modern Industries, Sahibabad. The industry has three units, namely for manufacture of oxygen &nitrogen gas; re -rolling of steel; and fabrication of railway wagons. This appeal arises from the proceedings of assessment of income tax of the assessment year 1989 -90, for which the accounting year ended on 31.3.1989, (the accounting year of the assessee consisted of 21 months due to change in Section 3 of the Income Tax Act, 1961 (in short the Act)). A return declaring income of Rs.1, 70, 80, 622/ - was filed on 12.10.1989, which consisted of business income of Rs. 1, 62, 77, 017/ -; income under the head 'other sources' of Rs. 2, 57, 198/ -, and agricultural income of Rs. 5, 46, 407/ -. The Deputy Commissioner of Income Tax (Assessment), Special Range, Meerut by her order dated 12.3.1992 assessed the net income of the assessee at Rs. 1, 78, 62,460/ -, with directions to award interest as per the Act.
(3.) IN Appeal No. 57/92 -93/MRT filed by the assessee, the Commissioner of Income Tax (Appeals), Meerut by his order dated 23.9.1992 partly allowed the appeal. One of the questions considered by the Appellate Authority was whether the surplus amount of funds invested in Fixed Deposit Receipts (FDRs), should be treated business income and not income from other sources. The Appellate Authority held that in the course of carrying on of the fabrication of wagons, the assessee was required to furnish bank guarantees to the railways. Such bank guarantees were in the form of FDRs. The income generated from the manufacturing activities was business income. When such business income could not be fully ploughed back in the existing business, or in the exigencies of the existing business, and the assessee did not require the use of further capital, the spare capital was put by it in the form of bank deposits. These fixed deposit receipts were encashed, and again used for the purposes of business. The money kept in FDRs was out of earnings from business, and thus the interest on such money was the business income of the assessee.;