2013 (6) TMI 598 - AT - Income Tax

Interest receipt - whether it is a business receipt or income from other sources - Held that - As decided in CIT V/s. Sponge Iron India Ltd. 1992 (10) TMI 67 - ANDHRA PRADESH High Court that since the business had not commenced, the interest income could not be treated as business income & CIT V/s. Rassi Cement Ltd.(1998 (4) TMI 132 - ANDHRA PRADESH High Court) the interest earned on surplus funds deposited in banks during the installation of a company prior to the commencement of the business is assessable as income from other sources. Thus in the light of the foregoing discussion interest income is assessable as income under the head other sources as during the year under consideration was the pre-commencement period of the assessee. Against assessee.

Summary

Issues:
1. Nature of interest income received on fixed deposits - whether business receipt of capital nature or income from other sources.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT Hyderabad concerned the treatment of interest income received on fixed deposits by the assessee for the assessment year 2009-10. The primary issue was whether the interest income should be considered as income from other sources, as determined by the Assessing Officer and confirmed by the Commissioner of Income-tax(Appeals), or if it was inextricably linked with setting up the infrastructure for the project and thus a capital receipt eligible to be set off against pre-operative expenses.

The Assessing Officer treated the interest income as income from other sources based on the Apex Court's decision in Tuticorin Alkali Chemicals & Fertilisers Ltd. The assessee argued that the interest income was connected to the project's infrastructure setup and should be adjusted against pre-operative expenses, citing the Delhi High Court's decision in Indian Oil Panipat Power Consortium V/s. ITO. However, the Assessing Officer found the assessee's evidence lacking and considered the interest income as income from other sources due to surplus funds in fixed deposits.

On appeal, the CIT(A) upheld the Assessing Officer's decision, leading the assessee to appeal to the ITAT. The ITAT heard arguments from both sides. The assessee's representative emphasized that the interest income was linked to the plant's setup and should be considered a capital receipt. In contrast, the Departmental Representative supported the lower authorities' decision, citing the Tuticorin Alkali Chemicals case.

The ITAT analyzed the case law presented by both parties. It noted the jurisdictional High Court's decisions in similar cases, such as CIT V/s. Sponge Iron India Ltd. and CIT V/s. Rassi Cement Ltd., where interest income during the pre-operative period was considered income from other sources. The ITAT distinguished the case law relied upon by the assessee, particularly the Delhi High Court decisions, stating that they were not applicable due to conflicting decisions by the jurisdictional High Court.

Ultimately, the ITAT upheld the orders of the Revenue authorities, considering the interest income as assessable income under the head 'other sources.' It dismissed the assessee's appeal based on the precedents set by the jurisdictional High Court and the specific circumstances of the case.

In conclusion, the ITAT ruled in favor of treating the interest income as income from other sources, following the precedents and legal principles established by the jurisdictional High Court.