2015 (5) TMI 482 - HC - Income Tax

Treatment to interest income on the FDR's - ITAT treated as part of its business income - Held that - This Court, in Indian Oil Panipat Power Consortium Ltd v. ITO (2009 (2) TMI 32 - DELHI HIGH COURT) held that where interest on money is received as share capital, and is temporarily placed in fixed deposit awaiting acquisition of land, a claim that such interest is in a capital receipt entitled to be set off against pre-operative expenses, is admissible, as the funds received by the assessee company by the joint venture partners are inextricably linked with the setting up of the plant and such interest earned cannot be treated as income from other sources. The reasoning in Indian Oil (supra) is in line with Bokaro Steel Ltd. (1998 (12) TMI 4 - SUPREME Court ). Similarly, the Supreme Court held that such receipts are not income in CIT v. Karnataka Power Corporation, (2000 (7) TMI 72 - SUPREME Court) and Bongaigaon v. Refinery and Petro Chemical Co. Ltd. v. Commissioner Income Tax 2001 (7) TMI 4 - SUPREME Court . This Court is consequently of the opinion that the Revenue s contentions have to perforce, fail. Furthermore, the mandate of Section 117C of the Companies Act also supports this view, because a debenture debtor such as the assessee in this case, is compelled to a certain margin separately, to secure the interest of the debenture holders. - Decided against revenue. Disallowance of business expenditure - ITAT allowed the claim - Held that - The CIT (A) reversed that finding but noticed that of that amount ₹ 7,48,700/- could not have been allowed as revenue expenditure because the above expenditure on Registrar of Companies fee for increase in authorized share capital could not be allowed and was also not amortizable under Section 35D (2)(c)(iii) of the Act, not being fee for initial registration of the company. The CIT s view was supported by Brook Bond India Ltd. v. Commissioner of Income Tax 1997 (2) TMI 11 - SUPREME Court & Punjab State Industrial Development Corporation Ltd. v Commissioner of Income Tax 1996 (12) TMI 6 - SUPREME Court . The ITAT upheld this view. - Decided against revenue.

Summary

Issues:
1. Treatment of interest income on FDRs as business income.
2. Allowance of business expenditure as revenue expenditure.

Analysis:
1. The first issue revolved around the treatment of interest income earned by the assessee company on Fixed Deposit Receipts (FDRs) as part of its business income. The Assessing Officer (AO) initially categorized the interest income as income from other sources, disallowing the set-off with projects in progress. However, the Commissioner of Income Tax (Appeals) (CIT(A)) accepted that the interest accrued on FDRs was related to the business activity of the assessee, as it was earned to service the interest burden on debentures issued for business purposes. The CIT(A) held that the interest income should be considered as business income and not as income from other sources. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, emphasizing the specific circumstances of the case and distinguishing it from relevant case laws. The Revenue challenged this decision, arguing that the test applied in a specific case should have led to a different conclusion. However, the Court found that the interest income was directly linked to the business activities of the assessee and upheld the decisions of the lower authorities.

2. The second issue pertained to the allowance of business expenditure as revenue expenditure. The AO directed a certain amount to be capitalized, which was contested by the assessee. The CIT(A) reversed part of the AO's decision, disallowing a specific amount as revenue expenditure related to Registrar of Companies' fee for an increase in authorized share capital. This disallowance was supported by Supreme Court judgments. The ITAT upheld the CIT(A)'s view on this matter. The Court found no fault in the approach or decision of the ITAT, relying on established legal precedents. Consequently, the Court dismissed the appeal, concluding that no substantial question of law necessitated its consideration in this case.