Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income derived from the letting out of sheds owned by the assessee should be assessed as income from business ?

High Court Of Andhra Pradesh

CIT vs. A.P. Industrial Infrastructure Corporation Ltd.

Sections 28, 22, 56

B.P. Jeevan Reddy & Upendralal Waghray, JJ.

Case Ref. No. 286 of 1982

19th November, 1987

Counsel Appeared

M.S.N. Murthy, for the Revenue : Y. Ratnakar,for the Assessee

JEEVAN REDDY, J. :

Two questions are stated for our opinion under s. 256(1) of the IT Act, 1961, viz. :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income derived from the letting out of sheds owned by the assessee should be assessed as income from business ?

2. Whether, on the facts in the circumstances of the case, the Tribunal was justified in holding that the interest income derived from banks should be assessed as income from business ?”

2. The assessee is a public limited company set up by the Government of Andhra Pradesh to encourage and stimulate industrial development in the State. It was formed with the object of developing infrastructural facilities for industries in the State which aspect was earlier looked after by the Industrial Department of the Government. After its formation, the assessee developed further industrial areas and industrial estates at several places in the State. The normal practice for the assessee is to take up a large area divide it into plots, lay roads, provide water and power facilities and all other infrastructural facilities and invite industrialists to come and start their business there. In some cases, plots or sheds put up by the Corporation are sold and in some cases, they are given out on hire basis and in yet some other cases, they are leased out. The assessee is also given subsidy by the State Government. In the course of its activities, it receives and disburses funds and it normally keeps its funds in a bank. Here, we are concerned only with two aspects of its activities, viz. : (1) Whether the lease amount received by the assessee by leasing out its sheds is to taxed as income from property, as contended by the Revenue, or it should be taxed as income from business as contended by the assessee; and (2) whether the interest earned on deposits kept by the assessee in a bank should be taxed as income from other sources, as contended by the Revenue, or as income from business as contended by the assessee. So far as the first question is concerned, it is fairly conceded by learned standing counsel for the Revenue that, in a similar matter relating to the Andhra Pradesh Small Scale Industrial Development Corporation, this Court has answered a similar question in favour of the assessee (vide judgment in CIT vs. A. P. Small Scale Industrial Development Corporation [1989] 175 ITR 352 (AP) -R. C. No. 287 of 1980, dated March 5, 1987). Indeed, in the present case, the Tribunal has followed its own earlier judgment relating to the other corporation and held in favour of the assessee herein. Following the said decision, we answer the first question referred in the affirmative, that is, in favour of the assessee and against the Revenue.

So far as the second question is concerned, it must be noticed that in the course of its business activities, the assessee was receiving and disbursing funds including Government funds. Necessarily, there is a certain interval between the receipt of funds and their disbursement. Instead of keeping the amount in its own custody, the assessee kept it in a bank. Evidently, the object was not to earn interest. It was only a mode of keeping the funds. The Tribunal was, therefore, justifiedin the circumstance of this particular case in holding that the income from such deposits should not be taxed as income from other sources, but should be treated as income from business. On this question, reference may be had to an earlier decision of this Court in Andhra Pradesh State Financial Corporation Ltd. vs. CIT (1981) 44 CTR (AP) 1 : [1984] 150 ITR 533 (AP). There, the assessee, the Andhra Pradesh State Financial Corporation, which was engaged in lending moneys to industries in the interest of industrial progress, kept some of its surplus funds in the form of Andhra pradesh State Development Loan, which could be easily converted into cash as and when the assessee required funds for carrying on its business. Later, the securities were sold and a profit was made by assessee. The Corporation claimed it as a capital gain and not as income. The said argument was rejected holding that the assessee had invested them in securities, which were easily convertible into cash, instead of keeping the moneys idle, with the idea that as and when moneys were required for the purpose of lending, it could encash the securities and lend money. Indeed, the present case is a more straight forward case than the one considered in that case.

For the above reasons, question No. 2 also is answered in the affirmative, that is, in favour of the assessee and against the Revenue.

No costs.

[Citation : 175 ITR 361]

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