2018 (6) TMI 1725 - AT - Income Tax

Correct head of income - fixed deposit interest income - Income from Business Profession or Income from Other Sources - FAA had allowed the claim made by the assessee on the grounds that it was in the business of production of films that the completion of films would take time that during the intervening period the advances were deposited with bank resulting in accrual of interest income - HELD THAT - We find that these basic finding of the FAA have not been challenged by the Department. It is also a fact that Government of India was 100% shareholder of the assessee-company and the deposit of advances with the banks was directly and inextricably linked with the business of the assessee,so the interest earned by it had to be treated as income earned from business and cannot not be treated as income from other sources - interest earned by the assessee was obviously attributable and incidental to the business carried on by it that it would not be correct to say that this interest was totally de hors the business carried on by it. Interest can be assessed under the head Income from other sources only if it cannot be brought within one or the other of the specific heads of charge.In the case before us the interest income is clearly and justifiably assessed as business income - case under consideration is not a case of depositing unutilized and surplus money by the assessee to earn interest and therefore the interest earned by the assessee cannot be assessed as Income from other sources. Thus we hold that the order of the FAA does not suffer from any legal or factual infirmity and that it does not require any interference from our side - Decided against revenue.

Summary

Issues:
1. Addition of interest income under the head income from other sources.

Analysis:
1. The Assessing Officer (AO) added the interest income earned by the assessee from fixed deposits under the head income from other sources, separate from the business income. The AO argued that the interest income was not directly related to the core business activities of the assessee, which included film production and distribution. The AO contended that the surplus funds deposited in fixed deposits had to be taxed separately.

2. The First Appellate Authority (FAA) considered the detailed submissions made by the assessee and various case laws cited. The FAA observed that the assessee, being an enterprise of the government of India, received advances from government ministries for film production and related activities. The FAA noted that the advances were deposited in fixed deposits temporarily to safeguard them, as the production of films required time and involved complex processes. The FAA concluded that the interest income earned was directly linked to the business activities of the assessee and allowed the appeal.

3. During the hearing before the Appellate Tribunal, the Departmental Representative (DR) supported the AO's order, arguing that the interest income should be assessed separately as income from other sources. However, the Authorized Representative (AR) reiterated the FAA's decision, emphasizing the connection between the interest income and the business activities of the assessee, supported by relevant case laws.

4. The Tribunal analyzed the facts and held that the interest income earned by the assessee was attributable to its film production business. The Tribunal noted the direct link between the advances received for film production and the interest income accrued during the production period. The Tribunal emphasized that the interest income was not unrelated to the business carried out by the assessee and could not be categorized as income from other sources. The Tribunal referred to the case of Lok Holdings to support its decision and distinguished it from other cases cited by the DR.

5. Ultimately, the Tribunal upheld the FAA's decision, stating that the interest income was rightly assessed as business income and not as income from other sources. The Tribunal emphasized that the interest earned was directly linked to the business activities of the assessee and dismissed the appeal filed by the AO. The Tribunal concluded that the interest income was not earned from unutilized or surplus funds but was an integral part of the business operations of the assessee.

6. The Tribunal's decision was based on the specific facts and circumstances of the case, highlighting the essential connection between the interest income earned and the film production business of the assessee. The Tribunal's analysis focused on the nature of the advances received, the temporary deposit of funds, and the accrual of interest during the film production process, leading to the conclusion that the interest income was rightly classified as business income.