2013 (12) TMI 1713 - AT - Income Tax

Summary

Issues Involved:
The judgment deals with the taxation of interest earned on deposits kept with banks by a cooperative society before the commencement of its business activities.

Issue 1:
The first issue pertains to the justification of the Commissioner of Income Tax (Appeals) in taxing the interest earned on bank deposits under Section 56 of the Income Tax Act, even when the business of the assessee was not set up.

The Appellate Tribunal upheld the decision of the CIT(A) based on the precedent set by the Hon'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. case, stating that interest earned on surplus funds deposited in banks is taxable as income from other sources.

Issue 2:
The second issue questions the correctness of taxing the interest income as income from other sources, despite the deposits having a direct link with the establishment of the business and no intention to earn income at that stage.

The Assessing Officer held that only interest received from cooperative banks is exempt under Section 80(p), while interest from nationalized banks is taxable. The Tribunal agreed with this interpretation and upheld the taxability of the interest earned on bank deposits.

Issue 3:
The third issue challenges the decision of the CIT(A) in following the judgment of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. case, which was later practically overruled by the Supreme Court in subsequent cases.

The Tribunal found that the interest earned during the construction period on deposits kept with nationalized banks is assessable as income from other sources, as per the decisions of the Supreme Court in similar cases. Therefore, the appeal of the assessee was dismissed.

In conclusion, the Appellate Tribunal upheld the decision of the CIT(A) to tax the interest earned on bank deposits under Section 56 of the Income Tax Act, dismissing the appeal filed by the assessee.