2017 (7) TMI 1359 - HC - Income Tax

Income from other source - assessee capitalized the interest income received from the FDRs there by reducing the cost of fixed assets - HELD THAT - Issue is covered by the decision of this court in 2017 (7) TMI 1206 - RAJASTHAN HIGH COURT wherein it has been held as if a person borrows money for business purpose but utilises that money to earn interest, however temporarily, the interest so generated will be his income. This income can be utilised by the assessee whichever way he likes. He may or may not discharge his liability to pay interest with this income. Merely because it was utilised to repay the interest on the loan taken by the assessee, it did not cease to be his income. The interest earned by the assessee could have been used for many other purposes. If the assessee purchased a house or distributed dividend or paid salary of its employees with the money received as interest, will the interest amount be treated as not his income ? This is not a case of diversion of income by overriding title. The assessee was entirely at liberty to deal with the interest amount as he liked. The application of the income for payment of interest could not affect its taxability in any way. - Decided against revenue.

Summary

Issues:
Challenge to Tribunal's judgment partially allowing the appeal of the assessee.

Analysis:
The appellant challenged the judgment and order of the Tribunal, which partly allowed the appeal of the assessee. The counsel for the appellant framed a substantial question of law regarding the deletion of an addition made by the Assessing Officer on account of income from other sources. The issue revolved around whether the ITAT was justified in deleting the addition, considering that the assessee capitalized the interest income received from FDRs, thereby reducing the cost of fixed assets.

The court referred to a previous decision in appeal no. 144/2017, where it was held that the interest income generated by utilizing borrowed money for business purposes remains the assessee's income. The court emphasized that the assessee had the discretion to use the interest income for various purposes, and the application of the income for paying interest did not affect its taxability. The court clarified that this was not a case of diversion of income by overriding title, as the assessee had full freedom to deal with the interest amount as desired. Consequently, the court dismissed the appeal based on the principles established in the previous decision.

In conclusion, the High Court upheld the Tribunal's decision to delete the addition of income from other sources made by the Assessing Officer. The court reiterated that the interest income earned by the assessee, even if used to repay interest on loans, remained taxable income as the assessee had the autonomy to utilize it as per their discretion. The judgment emphasized the principles of taxability concerning interest income and affirmed the decision based on established legal precedents.