AJIT K.SENGUPTA, J. - (1.) IN this reference under s. 256(2) of the IT Act, 1961, for the asst. yr. 1976-77, the following question of law has been referred to this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in treating income from interest on fixed and other deposits as income from 'Business' and not as income from 'Other sources' and, in that view, was correct in directing that the revenue expenditure made in setting up of a plant at Sonepat should be deducted from the same in computing the income/loss for the asst. yr. 1976-77 ?"
(2.) SHORTLY stated, the facts are that the assessee being aggrieved, challenged the order before the CIT(A). The CIT(A), however, rejected the assessee's claim with the following observations: "The only activity which the assessee-company had in the Calcutta office during the relevant previous year consisted of deriving some interest on fixed deposits. It could not be said that this activity was in the nature of a business activity. Considering the nature of loans, the frequency of transactions as well as the irregularity, it is held that this amount had to be assessed as income from other sources. The appellant company, therefore, was entitled only to such expenditure which was incurred in connection with earning of income from other sources. On the facts of the case, it cannot be said that the disallowance made by the ITO was unjustified particularly keeping in view the fact that a major portion of the expenditure is on account of interest on loans which have been utilised for setting up the new factory which had not started during the year. The claim of the appellant is, therefore, disallowed." Aggrieved by the order of the CIT(A), the assessee went up in appeal before the Tribunal. The Tribunal observed that the business activities may consist of purchase and sale resulting in profit or loss. The absence of such activities during the year may not necessarily mean that the business activities have come to a standstill. The erection of the plant at Sonepat in Haryana is nothing but a business activity and the assessee is busy in the said activity during the year under consideration. The Tribunal further found that the company utilised its commercial assets which were lying in the form of surplus cash earning interest. Such earning, according to the Tribunal, arising from utilisation of commercial assets would be business income and it would not be correct to say that the income in question was "income from other sources". The Tribunal, in that view, was of the opinion that the income derived from the utilisation of commercial assets would be income from business. The Tribunal, on the question of business loss, found that, for the assessment year under consideration, there was income from commercial assets and, therefore, the question of not allowing expenses did not arise. The expenses were business expenses and should have been allowed. Since, according to the Tribunal, the assessee was carrying on business during the year, the Tribunal, on that basis, observed that it would be more appropriate to say that the assessee's income from business was less than the expenditure incurred by it. Business loss results precisely for such reason and to disallow business loss merely because the income is less than the expenditure makes little sense. The Tribunal for that reason, allowed the assessee's claim of business loss.
(3.) THE only question is whether the Tribunal was justified in holding that interest income should be assessed under the head "Business". From the narration of facts, it will be evident that the findings of the Tribunal that the assessee in fact was carrying on business has not been challenged by the Revenue. That apart, the fact remains that although the income was earned by way of interest from the fixed deposits, the ITO allowed the expenditure incurred by the assessee to the extent of the interest income which would go to show that the ITO must consider the expenditure in connection with carrying on business, otherwise, he would have allowed only the expenditure which was incurred in connection with earning of the interest income. Thirdly, the Tribunal found as a fact that earning of the interest income arose from the utilisation of commercial assets. The Tribunal found that the funds utilised in making fixed deposits with the bank were the business funds lying temporarily in surplus with the assessee. On these facts, the income derived from the utilisation of the commercial assets would be income from business. In our view, on these facts as found by the Tribunal, the conclusion is inevitable that the interest income from fixed deposits was properly directed to be assessed under the head "Business". For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the assessee. There will be no order as to costs.;