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TMI Blog2024 (10) TMI 1566X X X X Extracts X X X X X X X X Extracts X X X X ..... fies as business income when the FDRs are closely linked to the business s financial structure. This principle is squarely applicable to the present case, as the FDRs were created to fulfil the bank s conditions for the loan used to finance the infrastructure project. We note that the reliance on Tuticorin Alkali Chemicals Fertilisers [ 1997 (7) TMI 4 - SUPREME COURT] by AO and the CIT(A) is misplaced. In Tuticorin Alkali Chemicals Fertilisers, the interest income arose from surplus funds that were parked in FDRs, unrelated to the core business activity. Here, the FDRs were created as part of the business financing for the infrastructure project, and the interest income is a direct outcome of the financial requirements of the business. Therefore, the principle laid down in Tuticorin Alkali Chemicals Fertilisers does not apply to the facts of this case. The assessee's audited financial statements, as presented by the AR, clearly confirm that the loan obtained from PNB was exclusively used for the infrastructure project. No unsecured loans or other financial obligations appear on the balance sheet. Thus, the FDRs were solely for the project, further supporting the claim that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not directly related to the assessee's core business activities of developing and maintaining infrastructure. The AO relied on the judgement of Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. [1997] 227 ITR 172 (SC) , which held that interest earned on deposits placed temporarily cannot be treated as business income but should be classified as income from other sources. Based on this precedent, the AO concluded that the interest income lacked the requisite nexus with the eligible business to qualify for the deduction under Section 80-IA(4) of the Act. 3. The assessee preferred an appeal before the CIT(A) against the order of the AO. The CIT(A) upheld the disallowance made by the AO, agreeing that the interest income could not be considered as profits derived from the business of infrastructure development. The CIT(A) placed reliance on the same judicial precedent , Tuticorin Alkali Chemicals , to confirm that interest on FDRs, being passive income, did not have the necessary nexus with the infrastructure business. The CIT(A) noted that the interest earned on FDRs was not incidental to the infrastructure project but was generated by investing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfrastructure project. It included repayment of unsecured loans, and it was not clear if the entire loan amount was exclusively used for the infrastructure project. Therefore, the interest income earned on the FDRs should not be considered as part of the eligible business income. 7. The AR firmly rebutted the DR s contention by emphasizing that the assessee is a Special Purpose Vehicle (SPV) specifically incorporated to execute a single infrastructure project under the Build-Operate-Transfer (BOT) model. As an SPV, the sole and exclusive business of the company is to develop, operate, and maintain the infrastructure project. The AR pointed out that, given the nature of an SPV, all financial activities, including the creation of FDRs, are inherently and inextricably linked to this single project. The AR addressed the DR's contention regarding the purpose of the loan and whether it was used exclusively for the infrastructure project. The AR pointed out that the company's audited financial statements clearly confirm that the loan in question was the only loan appearing in the balance sheet and was solely used for the purpose of developing, operating, and maintaining the infras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m FDRs can be considered as income derived from the eligible infrastructure business under Section 80-IA(4) of the Act. The term derived from has been interpreted in various judicial pronouncements to require a direct and immediate nexus between the income and the business. In the present case, the FDRs were created as a direct consequence of the loan condition imposed by PNB, which was essential for financing the infrastructure project. The FDRs were not independent investments but were integral to the business s financing structure. The interest income arising from these FDRs was incidental to the core business activity of infrastructure development and thus should be considered as profits derived from the business for the purposes of Section 80-IA(4) of the Act. 7.4. The Hon ble Gujarat High Court, in CIT v. Shah Alloys Ltd. [2017] 396 ITR 711 (Guj) , held that interest income earned on FDRs maintained as margin money for securing business loans qualifies as business income when the FDRs are closely linked to the business s financial structure. This principle is squarely applicable to the present case, as the FDRs were created to fulfil the bank s conditions for the loan used to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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