2017 (6) TMI 237 - AT - Income Tax

Assessment of interest income - income from profits and gains of business or profession or income from other sources - Held that - As in immediately preceding year i.e. AY 2009-10, the Tribunal in Assessee s own case 2015 (5) TMI 305 - ITAT MUMBAI on the very same issue dismissed Revenue s appeal by holding that the interest income earned by assessee on the security deposits with the bank as per the common loan agreement is to be assessed as income from profits and gains of business or profession and not under the head income from other sources.The facts and circumstances of the case are exactly identical in this year also and interest income earned by the assessee is on the same security deposits with the bank as per the common loan agreement in earlier years - Decided against revenue. Disallowance of claim of depreciation on Toll Road - Held that - As relying on Assessee s own case 2015 (5) TMI 305 - ITAT MUMBAI the assessee is entitled to the claim of depreciation on the road to collect toll being an intangible asset falling within the purview of section 32(1) (ii) of the Act. Assessment of notional interest on the delayed payment of grants - Held that - Hon ble Delhi High Court in the case of CIT vs. Asian Hotels Ltd. (2007 (12) TMI 274 - DELHI HIGH COURT) has held considering the provisions of section 28 (iv) the question of any notional interest on an interest free deposits being added to the interest of the assessee on the basis that it may have earned by assessee if placed in a fixed deposit, does not arise. The provisions of section 23(1)(a) of the Act, which is for determining the income from house property and concerns determination of annual letting value of such property. This contemplates the possible rent that the property might fetch but certainly not the interest in the fixed deposit that may be placed by the tenant with the landlord in connection with the letting out of such property. The notional interest was not assessable either as business income or as income from house property. Thus the lower authorities in the present case erred in assessing the notional interest on the delayed payment of O&M grants received by assessee. We delete the addition and allow this issue of assessee s appeal.

Summary

Issues Involved:
1. Assessment of interest income under the head "Income from profits and gains of business or profession" or "Income from other sources."
2. Disallowance of claim of depreciation on Toll Road.
3. Assessment of notional interest as income from other sources.

Detailed Analysis:

1. Assessment of Interest Income:
Issue:
The Revenue challenged the CIT(A)'s decision to tax interest income of ?1,25,31,115/- as "Business Income" instead of "Income from other sources."

Judgment:
The Tribunal upheld the CIT(A)'s decision, referencing the Assessee's own case from the previous year (AY 2009-10), where it was held that interest income earned on security deposits with the bank as per a common loan agreement should be assessed as "Income from profits and gains of business or profession." The Tribunal noted that the facts and circumstances for the current year (AY 2010-11) were identical to those in the previous year, thus maintaining the consistent view and dismissing the Revenue's appeal.

2. Disallowance of Claim of Depreciation on Toll Road:
Issue:
The Revenue disputed the CIT(A)'s decision to allow depreciation on the toll road, arguing that the assessee was not the owner of the asset and hence did not fulfill the conditions laid down in Section 32 of the Income Tax Act.

Judgment:
The Tribunal referred to its decision in the Assessee's case for AY 2009-10, where it was held that the assessee's investment in the toll road, although not making them the owner of the road, granted them a license to collect toll, which is an intangible asset eligible for depreciation under Section 32(1)(ii). The Tribunal noted that the assessee's right to collect toll constituted an enduring benefit and an intangible commercial right, thus allowing the claim for depreciation. The Tribunal dismissed the Revenue's appeal and allowed the assessee's additional grounds for treating the right to collect toll as an intangible asset.

3. Assessment of Notional Interest as Income from Other Sources:
Issue:
The assessee contested the addition of ?19,97,260/- as notional interest income, arguing that no interest income had actually accrued or been received from the National Highways Authority of India (NHAI).

Judgment:
The Tribunal found that the assessee had not received any interest on the delayed O&M grants from NHAI and had not recognized any such income in its books. The Tribunal emphasized that income must be real and not notional, referencing the Supreme Court's decision in UCO Bank Ltd. vs. CIT, which held that interest on doubtful debts need not be included in taxable income unless actually received. The Tribunal also cited the Delhi High Court's ruling in CIT vs. Asian Hotels Ltd., which rejected the concept of taxing notional interest. Consequently, the Tribunal deleted the addition of notional interest and allowed the assessee's appeal on this issue.

Conclusion:
The Tribunal dismissed the Revenue's appeal regarding the assessment of interest income and the disallowance of depreciation on the toll road, while allowing the assessee's appeal on the issue of notional interest, thereby providing a comprehensive resolution in favor of the assessee on all counts.