2017 (12) TMI 1631 - AT - Income Tax

Interest income received on FDRs - whether fixed deposits as purchased on account of business exigencies, therefore the same may be treated as business income? - Held that - Wherever the FDRs are purchased on account of business exigencies, the interest generated thereon would be business income and not income from other sources. But in the instant case, it is not borne out from the orders of lower authorities whether all FDRs are purchased for business exigencies or not. Therefore, we restore the matter to the file of the AO to examine the nature of FDRs and its purpose and to give a specific finding whether the FDRs were purchased for business purposes or not. If it is purchased for business purposes, the interest income earned thereon shall be treated as business income and not income from other sources in the light of aforesaid judgments of jurisdictional High Court. MAT applicability - applicability of provisions of section 115JB to the assessee as engaged in the business of generation of power - Held that - Since it has been repeatedly held by the different Benches of the Tribunal and Hon ble High Court of Kerala that where the assessee is governed by different Acts and Rules, and is not required to prepare its profit & loss account and balance sheet as per Part II & III of Schedule VI to the Companies Act, the provisions of section 115JB cannot be invoked against him. In the light of this legal position, we are of the view that the revenue authorities wrongly invoked the provisions of section 115JB of the Act, therefore the order of the CIT(Appeals) is not sustainable in the eyes of law. Accordingly, we set aside the order of CIT(Appeals) in this regard. Appeal of the assessee is partly allowed for statistical purposes.

Issues Involved:
1. Taxability of Interest Income from Fixed Deposits.
2. Restriction on Deduction under Section 80IA(4)(iv).
3. Applicability of Section 115JB of the Income-tax Act, 1961.
4. Levy of Interest under Sections 234B and 234C.

Detailed Analysis:

1. Taxability of Interest Income from Fixed Deposits:
The primary issue was whether the interest income from Fixed Deposits (FDs) should be classified under "Business Income" or "Other Sources." The assessee argued that the FDs were made out of business exigencies, hence the interest should be treated as business income. The authorities, however, classified it under "Other Sources." The Tribunal referenced multiple judgments, including those from the Hon’ble Apex Court and various High Courts, which established that interest income from FDs made for business exigencies should be treated as business income. However, the Tribunal noted that the lower authorities did not clearly establish whether the FDs were indeed purchased for business purposes. Consequently, the matter was remanded to the Assessing Officer (AO) to examine the nature and purpose of the FDs and determine the appropriate classification of the interest income.

2. Restriction on Deduction under Section 80IA(4)(iv):
The assessee contended that the deduction under Section 80IA(4)(iv) should apply to the entire income, including the interest income classified under "Other Sources." The Tribunal did not provide a separate detailed analysis for this issue, implying that the resolution of the first issue regarding the classification of interest income would inherently address this concern. If the interest income is reclassified as business income, it would naturally be eligible for the deduction under Section 80IA(4)(iv).

3. Applicability of Section 115JB of the Income-tax Act, 1961:
The assessee argued that as an electricity company, it was not required to prepare its accounts in accordance with Parts II and III of Schedule VI of the Companies Act, 1956, and hence, Section 115JB should not apply. The Tribunal reviewed the legislative amendments and judicial precedents, including the Finance Act, 2012, which clarified that companies governed by special statutes, such as those engaged in electricity generation, were not subject to Section 115JB before April 1, 2013. The Tribunal referenced multiple judgments, including those from the Hon’ble Kerala High Court and various ITAT benches, which supported the non-applicability of Section 115JB to such companies. Consequently, the Tribunal held that the provisions of Section 115JB were not applicable to the assessee for the relevant assessment years.

4. Levy of Interest under Sections 234B and 234C:
The assessee denied liability for interest under Sections 234B and 234C, arguing that the levy was unjustified based on the facts and circumstances of the case. The Tribunal did not provide a separate detailed analysis for this issue, implying that the resolution of the primary issues would affect the applicability of interest under these sections. If the primary issues are resolved in favor of the assessee, the interest levies under Sections 234B and 234C may also be reconsidered.

Conclusion:
The Tribunal remanded the matter to the AO to re-examine the nature and purpose of the FDs to determine the correct classification of interest income. It held that Section 115JB was not applicable to the assessee for the relevant assessment years, aligning with judicial precedents and legislative amendments. The resolution of these primary issues would inherently address the concerns related to deductions under Section 80IA(4)(iv) and the levy of interest under Sections 234B and 234C.

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