2002 (12) TMI 560 - AT - Income Tax

Interest income on excessive tax refund exempt under section 80P

Deputy Commissioner of Income-tax Versus Punjab State Co-operative Bank Ltd.

Deputy Commissioner of Income-tax Versus Punjab State Co-operative Bank Ltd. - [2004] 1 SOT 69 (CHD.) Issues:Nature and character of interest allowed on refund due to excessive payment of tax under section 244A - whether exempt under section 80P of the Act.Analysis:The appeals involved a common issue concerning the nature and character of interest allowed to the assessee on the refund paid due to excessive tax payments. The assessee, a wholly owned undertaking of the Punjab Government, had paid tax that was to be refunded as its income was exempt under section 80P(2)(a)(i) of the Act. The Assessing Officer delayed the refund payment, leading to interest under section 244A being granted to the assessee. The main question was whether this interest should also be considered exempt under section 80P of the Act. The Assessing Officer treated the interest income as taxable under 'other sources' and not as business income eligible for section 80P, resulting in the interest being taxed.On appeal, the CIT(A) delivered contradictory judgments, treating the interest as taxable in some assessment years and exempt in others. The parties appealed against the respective decisions, leading to the matter being heard by the Tribunal. The Tribunal considered a similar issue from a previous assessment year and referred to relevant legal precedents, including decisions of the Punjab and Haryana High Court and the Supreme Court. The Tribunal analyzed the nature of the interest received by the assessee and its connection to the business activities, concluding that the interest formed an integral part of the business profits and was eligible for deduction under section 80P(2)(a)(i).The Tribunal highlighted the distinction between interest paid on belated tax payments, which is not considered part of business activity, and interest received on TDS from securities, which is integral to the business operations. Referring to various legal judgments supporting the assessee's case, the Tribunal held that the interest received from the income tax department was part of the business profits and qualified for deduction under section 80P(2)(a)(i). The Tribunal rejected attempts to distinguish the case based on other legal precedents, affirming that the interest allowed to the assessee was exempt and not taxable.Consequently, the Tribunal dismissed the Revenue's appeal for one assessment year while allowing the assessee's appeals for the other assessment years, affirming that the interest received on the excessive tax refund was exempt under section 80P of the Act.