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2019 (2) TMI 1460 - AT - Income TaxInterest on Income Tax Refund - Correct head of income - addition under the head Income from other Sources as the assessment has been framed by applying a net profit @ 7% on the Gross receipt of the assessee - assessment as busniss income - HELD THAT - As in Commissioner of Income Tax-I V vs. M/s Delhi State Industrial & Infrastructure Development Corporation Ltd. 2012 (8) TMI 158 - DELHI HIGH COURT dealing with the similar issue has held that interest received on income tax refund is a statutory interest received and hence has to be subject to tax under the head income from other sources. In the instant case the assessee has received interest from the income tax dept on the excess TDS deducted and hence the interest is liable to be assessed as Income from other Sources and not under the head Profits and gains of business or profession - decided against assessee.
Issues Involved:
1. Justification of sustaining the addition of ?3,91,497 on account of Interest on Income Tax Refund under "Income from Other Sources." Issue-wise Analysis: 1. Justification of Sustaining the Addition of ?3,91,497 on Account of Interest on Income Tax Refund under "Income from Other Sources": The Assessee appealed against the order of the Commissioner of Income Tax (Appeals), Patiala, which sustained the addition of ?3,91,497 on account of Interest on Income Tax Refund under the head "Income from Other Sources." The Assessee argued that this interest should be considered as business income since the TDS, which led to the refund, was deducted from business receipts. The brief facts from the CIT(A) order indicate that the Assessee, a partnership firm, filed its return declaring an income of ?48,90,510. The case was scrutinized, and the assessment was framed by applying a flat rate of 7% on the gross receipts. The Assessing Officer made additional income assessments, including ?6,45,921 from FDR interest, ?3,91,497 from Income Tax Refund interest, and ?1621 from rebate and discount, under "Income from Other Sources." The CIT(A) deleted the interest received from FDRs, referencing multiple judgments that distinguished between interest earned from surplus funds and interest earned from funds linked to business activities. The CIT(A) upheld the addition of interest on the Income Tax Refund, differentiating it from FDR interest. The Assessee's representative argued that the TDS was deducted from business payments and thus, the interest on the excess TDS should be considered business income. The Revenue's representative relied on the CIT(A)'s order. The Tribunal found that the interest on the Income Tax Refund resulted from excess tax deducted and referenced the Delhi High Court's decision in "Commissioner of Income Tax-I V vs. M/s Delhi State Industrial & Infrastructure Development Corporation Ltd." The High Court held that interest on income tax refunds is statutory and should be taxed under "Income from Other Sources." Thus, the Tribunal concluded that the interest received on the income tax refund is liable to be assessed under "Income from Other Sources" and not under "Profits and Gains of Business or Profession." Consequently, the appeal by the Assessee was dismissed. Conclusion: The Tribunal upheld the addition of ?3,91,497 as "Income from Other Sources," affirming the CIT(A)'s decision and dismissing the Assessee's appeal. The judgment emphasized that statutory interest on income tax refunds does not qualify as business income, aligning with precedents set by higher courts.
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