2001 (7) TMI 277 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of interest on bank deposits as business income.
2. Eligibility for deductions u/s 32AB, 80HH, and 80-I of the Income-tax Act, 1961.

Summary:

Issue 1: Treatment of Interest on Bank Deposits as Business Income
The Revenue's grievance was against the treatment of interest on bank deposits as business income, making it eligible for deductions u/s 32AB, 80HH, and 80-I. The assessee, an industrial undertaking manufacturing electrical towers, received advances from ASEB and deposited part of these advances in the bank to procure bank guarantees and avail overdraft facilities. The CIT set aside the initial assessment u/s 143(l) under section 263 to reconsider the entitlement of deductions. The Assessing Officer (AO) rejected the assessee's claim, stating that the interest income from fixed deposits did not qualify as income derived from an industrial undertaking but was income from other sources.

Issue 2: Eligibility for Deductions u/s 32AB, 80HH, and 80-I
The CIT(A) observed that the fixed deposits were created out of business advances and the interest earned was used for business purposes. The AO did not provide any material to dispute these facts. The CIT(A) allowed the assessee's claim, leading to the Revenue's appeal. The Tribunal noted that the bank deposits were inextricably linked to the business activities, as they were necessary for obtaining bank guarantees and overdraft facilities. The interest received on FDRs and the interest paid on overdrafts were closely related to the business operations. The Tribunal referenced various case laws supporting the view that interest on fixed deposits made for business purposes should be treated as business income.

The Tribunal concluded that the fixed deposits were directly incidental to the business activities, and the interest income was eligible for deductions u/s 80HH, 80-I, and 32AB. The Tribunal emphasized that fiscal statutes should be interpreted in favor of the assessee when the meaning is ambiguous. Consequently, the appeals filed by the Revenue were dismissed.