2023 (8) TMI 292 - HC - Income Tax

Deduction u/s 80IC - interest received on a fixed deposit, created pursuant to an order of the court to secure payment of entry tax - Tribunal has ruled against the appellant/assessee by holding that such income cannot be categorized on derived from an eligible business - HELD THAT - According to us, the interest accrued on fixed deposits, furnished to secure payment of liability towards entry tax, cannot, by any stretch of imagination, be construed as income derived from eligible business i.e., profit and gains derived by an undertaking or an enterprise which is relatable to manufacturing or production of articles. It is not income qua which deduction u/s 80IC can be claimed by the appellant/assessee. Insofar as Appellant is concerned that the AO could not have, in such circumstances, treated the interest accrued on fixed deposit as business income, is a submission which has merit. However, that said, this would not impact the tax burden insofar as the appellant/assessee is concerned; what would change, perhaps, would only be the head under which such income is made amenable to tax. We are not inclined to interfere with the impugned order passed by the Tribunal.

Summary

Issues:
The appeal concerns the Assessment Year 2014-15. The main issue raised is whether interest received on a fixed deposit, created pursuant to a court order to secure payment of entry tax, is eligible for deduction under Section 80IC of the Income Tax Act, 1961.

Summary:

Issue 1 - Eligibility for Deduction under Section 80IC:
The appellant/assessee appealed against the order of the Income Tax Appellate Tribunal (Tribunal) regarding the eligibility of interest received on a fixed deposit for deduction under Section 80IC of the Income Tax Act. The Tribunal ruled against the appellant, stating that such income cannot be categorized as "derived" from an eligible business.

Background:
The appellant was required by an interim order of the High Court of Himachal Pradesh to pay a portion of the disputed entry tax and secure the remaining amount by creating fixed deposits. This order was related to a challenge to the Himachal Pradesh Tax on entry of Goods into the Local Area Act, 2010.

Arguments:
The appellant created fixed deposits to secure the unpaid disputed tax liability, resulting in the accrual of interest. The appellant sought deduction under Section 80IC by treating the interest as part of the income derived from the eligible business. The appellant argued that if deduction under Section 80IC was to be denied, the interest should have been treated as "income from other sources."

Court's Decision:
The court agreed with the respondent that the interest accrued on fixed deposits, meant to secure payment of entry tax liability, cannot be considered income derived from an eligible business under Section 80IC. The court noted that even if the characterization of the income was incorrect, it would not affect the tax burden on the appellant. The court declined to interfere with the Tribunal's order, stating that no substantial question of law arose for consideration.

Conclusion:
The appeal was closed, and the court upheld the Tribunal's decision regarding the ineligibility of interest received on a fixed deposit for deduction under Section 80IC of the Income Tax Act, 1961.