2014 (3) TMI 728 - HC - Income Tax

Interest accrued on fixed deposits - interest earned on the Central Government grant - Whether the ITAT was right in not treating the interest accrued on Fixed Deposits as income of the assessee Held that - What is important is whether the interest earned on the Central Government grant is to be treated as the income earned or not, and not what the assessee claimed - in the letter of the Central Government releasing the grant, which provides a condition that the interest earned on the central grant already released would form part of the central grant limit of ₹ 50 crore, the amount of ₹ 21,22,253 being interest earned on the fixed deposit of ₹ 16.70 crore which was the grant received by the assessee from the Central Government cannot be said to be its income - as per the condition of release of grant, the interest earned on the Central Government grant ie., ₹ 21,22,253 in the present case is to be included as a part of the grant received from the Central Government there is no error has been committed by the Tribunal in deleting the addition of ₹ 21,22,253 made by the Assessing Officer, treating it as the income of the assessee there is no substantial question of law arises for consideration Decided against Revenue.

Summary

Issues:
- Whether the interest accrued on Fixed Deposits should be treated as income of the assessee?

Analysis:
The case involved a Tax Appeal by the Revenue challenging the order passed by the Income Tax Appellate Tribunal (Tribunal) for the assessment year 2005-06. The main issue was whether the interest of Rs. 21,22,253 accrued on Fixed Deposits should be considered as income of the assessee. The assessee received a grant from the Central Government, deposited it in a fixed deposit, and earned interest on it. The Assessing Officer treated this interest as income and made an addition to the total income of the assessee. The CIT [A] confirmed this addition, leading to an appeal before the Tribunal.

The Tribunal, after considering the conditions of the grant provided by the Central Government, relevant case laws, and the nature of the interest earned, decided to delete the addition made by the Assessing Officer. The Tribunal held that the interest earned on the fixed deposit of the grant amount cannot be considered as income of the assessee based on the conditions imposed by the Central Government. The Tribunal's decision was supported by the judgments of the Gujarat High Court in similar cases.

The Revenue argued that since the assessee claimed a refund of TDS deducted on the interest amount, it should be considered as income. However, the Court emphasized that the crucial factor was whether the interest earned on the grant should be treated as income, irrespective of the assessee's claim for a refund. The conditions set by the Central Government regarding the treatment of interest earned on the grant were decisive in determining that the interest amount should not be considered as the income of the assessee.

In conclusion, the Court found no error in the Tribunal's decision to delete the addition of the interest amount in question. As there was no substantial question of law arising, the Tax Appeal was dismissed with no costs incurred.