ORDER
Sapre, J.
This is an Income-Tax Reference made at the instance of assessee under section 256(1) of the Income Tax Act in R.A. Nos. 48,49 and 50/Ind./97 which arise out of ITA Nos. 902 and 221/Ind./95 and 570/Ind./94 decided by Tribunal on 11-3-1997 to answer the following questions of law:-
”1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of sale proceeds of empty bags and containers, drums, etc., and interest on F.D. has not nexus for calculation of profit of the assessee’s business at the estimated rate of net profit adopted for the purpose?
2. Whether the Tribunal was justified in confirming the order of the authorities below in holding that the receipt of the sale-proceeds of empty bags and interest on F.D. do not form part and parcel of the contract business and thus the amount so received at Rs. 3,85,578 is to be assessed separately under the head, ‘Income from other sources’
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the interest on F.D. and misc. receipts on account of sale of empty bags, drums, etc., should be assessed separately as income under the head Income from other sources’ ?”
2. In order to answer the questions referred, few facts as mentioned in statement of facts need mention in brief.
3. The assessee is a private limited company. It is engaged in the business of works contract such as grouting, drilling and allied engineering, job works. The assessee is also engaged in business of manufacture of pipes.
4. For the assessment years in question, i.e., 1990-91, 1991-92 and 1992-93, the question arose before assessing officer as to what is the true nature/character of Rs. 3,85,578, Rs. 4,09,583 and Rs. 3,69,608 received by assessee in respective assessment years. It was not disputed that this amount was received by the assessee by way of interest earned on F.D. Rs., i.e., Bank deposits and by sale of empty bags, containers and drums.
5. The contention of assessee was that the entire income be treated as income from business whereas the assessing officer was of the view that it is liable to be taxed as income from other sources. The view taken by assessing officer was upset by CIT (Appeals) when he held that it is a business income. However, in appeal filed by revenue, the Tribunal reversed the view of the CIT (Appeals) and restored that of assessing officer. In other words, the Tribunal was of the view that it is an income from other sources. It is against this view, the assessee prayed for the reference to this court. This request having been acceded to the Tribunal made the reference to this court to answer the afore-mentioned questions.
6. Heard Shri S.C. Bagadia, learned Senior counsel with Shri D.K. Chhabra, learned counsel for the assessee and Shri R.L. Jain, learned senior counsel with Ku. V. Mandlik, learned counsel for the revenue.
7. Having heard learned counsel for the parties and having perused record of the case, we are inclined to answer the reference in favour of assessee in part as indicated infra.
8. In our opinion, the income earned by way of interest on short-term deposit (FDR) by an assessee has to be taxed as an income chargeable under section 56 of the Act, i.e., income from other sources in view of the facts emerging from statement of facts. Though the issue before the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT was slightly different, yet some of the observations made by Supreme Court while deciding the said case cannot be ignored by this court as being even obiter. Since even the obiter of Supreme Court is binding on us, we are inclined to rely upon the said observations of Supreme Court for answering the question regarding income earned out of interest against an assessee. These observations read as under:-
.. . . In the usual course, interest received by the company from bank deposits and loans would be taxable as income under the head ”Income from other sources” under section 56 of the Income Tax Act….” (p. 178)
Further down:-
“… Likewise, a company may have income from other sources. It may buy shares and get dividends. Such dividends will be taxable under section 56 of the Act. The company may also, as in this case, keep the surplus funds in short-term deposits. In order to earn interest, such interest will be chargeable under section 56 of the Act….” (p. 179)
9. In view of the aforesaid observations which are subtle in their expression, we cannot hold that interest earned by an assessee is their business income. In the first place, it is not their main or ancillary business. Secondly, no memorandum of association is filed or relied upon to show that assessee in addition to its main business of civil construction etc. are also engaged in some kind of money-lending or deposit business with their surplus funds. We cannot ignore the pointed observations and/or findings of Supreme Court quoted supra on the ground that it was made in altogether different context and, hence, the same is liable to be ignored. On the other hand, we are inclined to respectfully follow being a law laid down by Supreme Court on the subject holding the field.
10. Learned counsel for the assessee no doubt cited some of the authorities of various High Courts which to some extent can be construed as supporting his submissions. These authorities are- CIT v. Madras Refineries Ltd. (1997) 228 ITR 354 (Mad.), Snam Progetti S.P.A. v. CIT (1981) 132 ITR 70 (Del), CIT v. Triupati Woollen Mills Ltd. (1992) 193 ITR 252 (Cal.). However in view of the decision of Supreme Court relied on by us supra, we cannot place reliance on the decisions rendered by High Courts.
11. In this view of the matter, we hold that income earned by assessee on their funds invested in short-term deposits in order to earn interest is not to be treated as their business income but it is chargeable to tax under section 56 of the Act as an income from other sources.
12. Then comes the income earned by assessee by sale of empty bags, containers and drums. It is not in dispute that these goods are used by the assessee in their day-to-day main business activities – they being engaged in the civil works contract. In order to dispose of these goods after the commodity kept in these goods are used in the construction activity, one cannot say that it is not connected with business. In other words, it is incidental to the business activity and, hence, in our view any income earned by sale of these empty bags/ containers/ drums cannot be said to be an income from other sources but it is an income from business activity of the assessee.
13. Accordingly and in view of aforesaid discussion, we answer the questions referred to this court by holding that the income earned by way of interest from FDR is chargeable as income from other sources under section 56 of the Act whereas income earned by sale of empty bags/ containers /drums is a business income and, hence, liable to be taxed as such. So the reference is answered partly in favour of assessee and partly in favour of revenue i.e. partly against the assessee and partly against the revenue as indicated supra.
No costs.