2022 (11) TMI 1078 - AT - Income Tax

Refund of the tax deducted at source (TDS) - income earned on the fixed deposits - mismatch between the return of income and Form 26AS - as submitted by the assessee that since the interest income has arisen in the assessment year under dispute, the assesees are entitled to claim refund of the TDS amount - HELD THAT - As assessees have entered into concession agreements with FCI for construction, operation and maintenance of Silo Complex. In terms of the concession agreements, the assessees are required to furnish bank guarantees for which the concerned banks have kept securities by way of fixed deposits. Thus, it cannot be denied that the fixed deposits kept with banks are in connection with the business activity of the assessee. That being the factual position emerging on record, the interest income earned has a direct nexus with the business activity of the assessee. In that view of the matter, the interest income earned by the assessee has to be treated as income from business and can be set off against the cost of construction. There is no doubt that the interest income pertained to the impugned assessment year and the concerned banks have deducted tax at source while crediting the interest income to the account of the assessee. The only reason on which the departmental authorities have rejected to grant refund of the TDS amount is, the interest income has been adjusted against the construction expenses. This, as unacceptable. In case of CIT vs. Jaypee DSC Ventures Ltd 2011 (3) TMI 309 - DELHI HIGH COURT while considering identical nature of dispute has held that the interest income earned on fixed deposits kept as security for performance guarantee is taxable as business income and can be set off against project expenses. AO directed to refund the TDS amount to the assessees. Appeals are allowed.

Summary

Issues:
Appeals arising from separate orders by National Faceless Appeal Centre (NFAC) for assessment years 2018-19.

Analysis:
The appeals were filed by two assesses, both resident corporate entities wholly owned by National Commodities Management Services Ltd., regarding the rejection of their refund claims by the Centralised Processing Centre (CPC), Bangalore. The assesses had entered into concession agreements with Food Corporation of India (FCI) for constructing Silo Complexes at Varanasi and Bhattu. They claimed that the interest income earned on fixed deposits kept as security for bank guarantees, which were part of the concession agreements, should be considered as business income and set off against construction costs. However, the learned Commissioner (Appeals) rejected this argument, stating that since the interest income was adjusted against construction costs and not offered as revenue, it did not qualify as income for the assessment year.

Upon reviewing the submissions and evidence, it was found that the fixed deposits kept with banks were directly related to the business activities of the assesses. Therefore, the interest income earned had a clear nexus with the business operations. Citing a precedent from CIT vs. Jaypee DSC Ventures Ltd, where it was held that interest income on fixed deposits for performance guarantees is taxable as business income and can be set off against project expenses, the Judicial Member directed the Assessing Officer to refund the TDS amount to the assesses. The decision was based on the fact that the interest income was earned during the relevant assessment year and was integral to the business activities of the assesses.

In conclusion, the appeals were allowed, and the Assessing Officer was instructed to refund the TDS amount to the assesses. The judgment highlighted the importance of considering the direct connection between income earned and business activities in determining tax liabilities and refund claims.