Kochu Thommen, J.
1. The petitioner is a shipping company. During the accounting year relevant to the assessment year 1975-76, the petitioner earned interest on money invested in bank. The question is whether that interest is income from profits and gains of business or income from other sources. If it is the former, the petitioner is entitled to set off the unabsorbed development rebate against that income as provided under Section 33 of the I. T. Act, 1961. On the other hand, if such interest is income from other sources as held by the respondent-Commissioner in the impugned order, Ex. P-3, then the set-off is not permissible. Section 33(1)(a) reads :
'(a) In respect of new ship... which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of Section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired...or, if the ship...is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in Clause (b).
(b) The sum referred to in Clause (a) shall be-
(A) In the case of a ship, forty per cent. of the actual cost thereof to the assessee;...'
The Commissioner in Ex. P-3 held :
'On the facts there is no nexus between the company's business of plying strips and the deposits in the bank which led to the earning of the interest income. The argument that the surplus funds were kept by the company for purposes of remittance to London towards the half yearly repayment of the loan, does not confer the stamp of business income on the interest income on the deposits. In substance what has happened is that the surplus funds available with the company, instead of being kept idle were kept in short-term deposits with the bank earning interest income. This does not convert the funds available with the company into stock-in-trade and the ITO's action in treating such interest as income under the head 'Other sources' is quite justified. No interference in this regard is accordingly called for.'
The petitioner's counsel points out that one of the objects of the company was to lend money and to invest and deal with money. He reads paras. 10 and 13 of the memorandum of association.
'10. To lend money to such persons on such terms as may seem expedient with security, and in particular to tenants, customers of and other persons having dealings with the company.'
'13. To invest and deal with the moneys of the company not immediately required on such securities and in such manner as may from time to time be determined upon.'
It is true that the company had the power to lend money as stated in para. 10. But it has never been the contention of the assessee that money was lent in the course of business. All that the assessee stated was that money was invested in the bank. That investment, as found by the Commissioner, was only to secure the money which was lying idle. An income earned from that source is, therefore, not an income earned in the course of business so as to make it a part of the profits and gains of the assessee's business. That is an income which has been found to be traceable to other sources. This was precisely the situation that was considered in Madhya Pradesh State Industries Corporation Ltd. v. CIT : 69ITR824(MP) , where Dixit C. J., speaking for the court, stated that deposit of share capital in a bank could not be said to be an act of money-lending. Interest earned from such deposit, he said, was assessable as income from other sources and not as business income. See also the decision of this court in Traco Cable Company Ltd. v. CIT : 72ITR503(Ker) to the same effect.
2. The petitioner's counsel, however, refers to the decision of the Punjab and Haryana High Court in R.B. Jodhamal Kulhiala v. CIT , where it was held that interest paid by the department under Section 14A(7) of the Excess Profits Tax Act, 1940, was not income from other sources but it was business income. That was a case where the tax was originally paid under a provisional assessment under Section 14A of the Excess Profits Tax Act out of the business profits of the assessee. When a portion of that amount was refunded with the statutory accretion, namely, the interest calculated at the prescribed rate, the total amount of refund was one consolidated amount bearing the same character, although paid in parts, and it retained its integral identity. The payment of the excess profits tax was not an investment by the taxpayer at his own volition, and was, therefore, not comparable to a voluntary deposit of money in bank with a view to its safety and incidentally with a view to the interest thereon.
3. The court said (p. 469):
'If the amount deposited and subsequently refunded under Section 14A(7) continues to retain its original character of a business profit, it seems to follow that a statutory accretion to the same must necessarily partake of the same character,'
That principle has no application to the facts of this case. The schemes of the two enactments are different. The term 'business' had a wider connotation under the Excess Profits Tax Act, 1940, than what it is under the I.T. Act. [See CIT v. Calcutta National Hank Ltd. : 37ITR171(SC) ]
4. In the present case the facts are not in dispute. The assessee is not a banking company. Money was not deposited by it by way of money-lending as a business. That was not its object. The interest arose from amounts deposited in bank otherwise than by way of business. The amount was deposited because money was lying idle and it was safer and wiser to put it in the bank. The interest thereby earned was incidental to the main purpose of the deposit, which was safe keeping and not earning profits. Such income is rightly found to be income from other sources. In the circumstances, the challenge against Ex. P-3 fails. The O.P. is dismissed. No costs.