2015 (4) TMI 1293 - AT - Income Tax

Netting off interest received u/s 244A - Interest received on refund of taxes u/s 244A - taxable income as against an amount offered by the assessee which was after netting of the interest paid to the Department u/S 220(2) and 234B - HELD THAT - As decided in case of Bank of America NT and SA 2014 (12) TMI 551 - BOMBAY HIGH COURT The Assessee sought to set off the interest paid against the interest received and offered the net interest received to tax - in the case of the Assessee simply because the exercise carried out by it does not result in loss of revenue and there could not be any prohibition for the same allowed it - assessee claimed that this was business expenditure and this should have been allowed - the Tribunal in permitting this exercise not violated any of the provisions of the Income Tax Act 1961 - the Tribunal has followed the similar exercise in the case of very Assessee on the prior occasion as well thus as such no substantial question of law. - Decided in favour of the assessee

Summary

Issues:
1. Inclusion of interest received on refund of taxes in taxable income.
2. Allowability of set-off of interest paid against interest income.

Analysis:

Issue 1: Inclusion of interest received on refund of taxes in taxable income
The appeal was against the inclusion of a sum representing interest received on tax refunds under section 244A of the Income Tax Act, 1961 in the taxable income. The assessee argued that only the net interest income should be taxed after deducting the interest paid to the Department under sections 220(2) and 234B of the Act. The Assessing Officer (A.O.) and the ld. CIT(A) upheld the inclusion of the gross amount of interest in the taxable income. The assessee contended that the interest received was after netting off the interest paid. The Tribunal examined the facts and legal provisions related to the inclusion of interest income in taxable income.

Issue 2: Allowability of set-off of interest paid against interest income
The crucial point of contention was whether the interest paid by the assessee under sections 220(2) and 234B of the Act could be set off against the interest income received on the refund of taxes under section 244A. The assessee relied on precedents, specifically citing the decision of the Mumbai Bench of the Tribunal in the case of DCIT vs. Bank of America NT & SA, where the claim for netting off interest was allowed. The assessee also referenced the decision of the Hon'ble Bombay High Court in the same case, which approved the Tribunal's decision. The Departmental Representative (D.R.) argued that the interest paid was in the nature of 'income tax' and not an allowable deduction under the Act, hence the claim for set-off was rightly denied. The Tribunal considered the arguments and precedents cited by both sides to determine the allowability of set-off of interest paid against interest income.

In conclusion, the Tribunal, following the precedent set by the Hon'ble Bombay High Court and the Tribunal's decision in similar cases, allowed the appeal in favor of the assessee. The Tribunal held that the interest paid and received from the same party, the Government of India, should be considered together for tax purposes. The decision emphasized that the Tribunal's actions did not violate any provisions of the Income Tax Act, 1961, and the exercise of setting off interest paid against interest received was permissible.