2017 (3) TMI 1873 - AT - Income Tax

Deduction u/s 80IB - Interest accrued on Fixed Deposits as income from business - assessee claimed deduction u/s. 80IB(10) of the Act towards the accrued interest on fixed deposits filed in the revised computation of income showing the said interest income as its business income - HELD THAT - Admittedly, the assessee shown the said income as income from other sources in the original return. We find that the AO has allowed deduction under similar circumstances u/s.143(3) for the AY 2006-07 based on interest income. AR argued that only business Funds were utilised for making deposits, which fetched interest income. We find force in the submissions of the assessee that the net profit as per revenue account the assessee shown under the different heads i.e. income from house property, income from other sources and income from business. Financial statements are prepared after completing all the legal requirements. But, from the operational point of view all the income were disclosed under whatever sources are the integral parts of assessee s business. As relying on TIRUPATI WOOLLEN MILLS LIMITED 1991 (1) TMI 34 - CALCUTTA HIGH COURT we hold that the interest earned on fixed deposits made out from accumulated profits and reserves is the income, which derived from assessee s business activity. Therefore, the assessee is eligible to claim deduction u/s. 80IB(10) of the Act. Therefore, we find no infirmity in the order of the CIT-A and it is justified. - Decided against revenue.

Summary

Issues:
Interpretation of interest accrued on Fixed Deposits as income from business for deduction under section 80IB(10) of the Income Tax Act.

Analysis:
The appeal by the Revenue questioned the treatment of interest accrued on Fixed Deposits as income from business by the Commissioner of Income Tax (Appeals). The appellant Revenue raised four grounds of appeal, focusing on whether the interest accrued on Fixed Deposits should be considered income from business in the given circumstances. The Assessing Officer (AO) initially disallowed the deduction claimed under section 80IB(10) of the Act for the interest income. The appellant contended that the interest accrued on Fixed Deposits was incidental to its business activity and thus eligible for deduction under section 80IB of the Act.

The Commissioner of Income Tax (Appeals) considered the submissions and found that the interest accrued on Fixed Deposits, derived from business funds, was integral to the business activity of the assessee. Referring to relevant case laws, the Commissioner concluded that the interest income should be treated as business income eligible for deduction under section 80IB(10) of the Act. The Appellate Tribunal, after hearing both parties, upheld the decision of the Commissioner, emphasizing that the interest earned on Fixed Deposits made from accumulated profits and reserves was indeed income derived from the assessee's business activity. The Tribunal found no fault in the Commissioner's order and dismissed the appeal by the Revenue.

The Tribunal's decision was based on the understanding that the interest income arose from the utilization of commercial assets, indicating a business activity. The Tribunal highlighted that the Revenue did not challenge the fact that the assessee was engaged in business activities. Furthermore, the Tribunal noted that the Income-tax Officer allowed the expenditure incurred by the assessee in connection with earning the interest income, reinforcing the business nature of the activity. Ultimately, the Tribunal concluded that the interest earned on Fixed Deposits was rightfully considered income from business, making the assessee eligible for the deduction under section 80IB(10) of the Act.

In conclusion, the Tribunal upheld the decision of the Commissioner, ruling in favor of the assessee and dismissing the appeal by the Revenue. The interest accrued on Fixed Deposits was deemed income from the business, entitling the assessee to claim deduction under section 80IB(10) of the Income Tax Act.