2018 (8) TMI 1182 - AT - Income Tax

Deduction u/s 80IE - whether interest on income refund is as part of business income or not - Held that - interest on income tax refund is held not eligible for deduction under section 80IE of the Act and the action of the ld CIT(A) is hereby confirmed - Decided against the assessee.

Summary

Issues Involved:
1. Whether interest on income tax refund is eligible for deduction under section 80IE of the Income Tax Act, 1961.

Detailed Analysis:

1. Eligibility of Interest on Income Tax Refund for Deduction under Section 80IE:

Facts of the Case:
The assessee, a joint venture concern engaged in manufacturing and hydro-mechanical works in Arunachal Pradesh, declared a gross total income of ?14,22,58,195/- for the assessment year 2013-14. This income was claimed as exempt under section 80IE of the Income Tax Act, 1961. During assessment, the Assessing Officer (AO) observed that the assessee had shown income under "Other sources" amounting to ?4,47,166, which included interest on income tax refund of ?3,53,135/-. The AO held that this interest income could not be construed as profits derived from the industrial undertaking and thus, was not eligible for deduction under section 80IE.

Contentions by the Assessee:
The assessee argued that the entire income, including the interest on income tax refund, should be considered as business income eligible for deduction under section 80IE. It was contended that the interest received on the income tax refund was directly related to the business activities and should be treated as business income. The assessee relied on the decision of the Hon’ble Karnataka High Court in the case of Hubli Electricity Supply Co. vs. DCIT, where interest income on fixed deposits was deemed eligible for deduction under section 80IA.

Findings of the CIT(A):
The CIT(A) partially allowed the appeal by considering miscellaneous receipts as part of business income but upheld the AO’s decision regarding the interest on income tax refund. The CIT(A) noted that the interest on tax refund could not be said to be derived from the manufacturing business of the undertaking.

Tribunal’s Analysis:
The Tribunal examined whether the interest on income tax refund could be considered as business income eligible for deduction under section 80IE. It referred to the decision in Atria Power Corporation Ltd. v. DCIT, where it was held that interest earned on income tax refunds was not assessable as part of the profits and gains of the business eligible for deduction under section 80-IA. The Tribunal emphasized that income tax payment is a personal obligation and not a business expense. Consequently, any interest received on excess tax payment cannot be considered business income but should be assessed under "Income from other sources".

Distinguishing the Karnataka High Court Decision:
The Tribunal distinguished the case of Hubli Electricity Supply Co. vs. DCIT by noting that the interest in question there was on fixed deposits placed due to business exigencies, unlike the present case where the interest was on an income tax refund.

Conclusion:
The Tribunal concluded that the interest on income tax refund is not eligible for deduction under section 80IE of the Act. The action of the CIT(A) was confirmed, and the appeal of the assessee was dismissed.

Final Judgment:
The appeal of the assessee was dismissed, and the order was pronounced in the open Court on 25/07/2018.