2018 (7) TMI 2216 - AT - Income Tax

Applicability of MAT applicability u/s 115JB - company engaged in the generation and supply of electricity power - HELD THAT - Identical issue had come up for consideration in the assessee s own case for the AY 2010-11 2017 (12) TMI 1631 - ITAT BANGALORE and this Tribunal by its order upheld the order of CIT(Appeals) in coming to the conclusion that the provisions of section 115JB of the Act are not applicable to assessee company because it was a company engaged in generation and supply of electricity power. As far as amendment to provisions of section 115JB(2) of the Act w.e.f. 01.04.2013 is concerned, this issue has also been dealt with by the Tribunal in assessee s own case for AY 2010-11 by placing reliance on a similar decision rendered on the very same amendment to law in the case of Karnataka Power Corporation Ltd. v. ACIT 2013 (10) TMI 1505 - ITAT BANGALORE wherein the Tribunal took the view that amendment to law w.e.f. 01.04.2013 was only prospective. In view of the order of Tribunal on an identical issue in assessee s own case, we are of the view that there is no merit in this appeal by the revenue and the same is dismissed. Interest earned from fixed deposits has to be regarded as business income on which deduction u/s. u/s.80IA 4 iv or the same should be treated as income from other sources - HELD THAT - This aspect was also considered by the Tribunal in assessee s own case in AY 2010-11 2017 (12) TMI 1631 - ITAT BANGALORE 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, not income from other sources.

Summary

Issues Involved:
1. Applicability of Section 115JB of the Income-Tax Act, 1961 to a company engaged in the generation and supply of electricity.
2. Classification of interest income from fixed deposits as "Business Income" or "Income from Other Sources."
3. Eligibility for deduction under Section 80IA(4)(iv) of the Income-Tax Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 115JB of the Income-Tax Act, 1961:
The primary issue in the revenue's appeal was whether the provisions of Section 115JB of the Income-Tax Act, 1961, are applicable to a company engaged in the generation and supply of electricity. The Tribunal noted that this issue had already been addressed in the assessee's own case for the assessment year (AY) 2010-11, where it was held that Section 115JB does not apply to companies engaged in the generation and supply of electricity. The Tribunal cited the relevant observations from the previous judgment, highlighting that prior to the amendment by the Finance Act, 2012, companies not required to prepare their profit and loss account as per Part II & III of Schedule VI to the Companies Act, 1956, were not covered by Section 115JB. The amendment effective from 01.04.2013 clarified that such companies would be included under Section 115JB. However, this amendment was deemed prospective, not retrospective. Consequently, the Tribunal dismissed the revenue's appeal, affirming that Section 115JB was not applicable to the assessee for AY 2011-12.

2. Classification of Interest Income from Fixed Deposits:
In the cross-objection filed by the assessee, the issue was whether interest income from fixed deposits should be classified as "Business Income" or "Income from Other Sources." The Tribunal referred to its decision in the assessee's case for AY 2010-11, where it was noted that interest income from fixed deposits, if made for business exigencies, should be treated as business income. The Tribunal cited various judgments, including those from the jurisdictional High Court, which supported this view. However, it was not clear from the lower authorities' orders whether the fixed deposits were indeed made for business purposes. Therefore, the Tribunal remanded the issue back to the Assessing Officer (AO) to examine the nature and purpose of the fixed deposits and determine the appropriate classification of the interest income.

3. Eligibility for Deduction under Section 80IA(4)(iv):
The related issue was whether the interest income classified as "Business Income" would qualify for deduction under Section 80IA(4)(iv) of the Income-Tax Act. The Tribunal noted that if the interest income from fixed deposits is regarded as business income, the assessee would be eligible for the deduction under Section 80IA(4)(iv). This issue was also remanded to the AO for fresh consideration, along with the classification of the interest income.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming that Section 115JB of the Income-Tax Act does not apply to companies engaged in the generation and supply of electricity for AY 2011-12. The cross-objection filed by the assessee was partly allowed for statistical purposes, with the issue of classifying interest income and the corresponding eligibility for deduction under Section 80IA(4)(iv) being remanded to the AO for fresh consideration.