Interest Income Reclassified as Business Income; Expenditure Deduction Remanded for Review

Jorabat Shillong Expressway Ltd. Versus ITO Mumbai

Jorabat Shillong Expressway Ltd. Versus ITO Mumbai - TMI Issues Involved:
1. Treatment of interest income as business income or income from other sources.
2. Deduction of interest payment against taxable income.
3. Allowability of revenue expenditure.
4. Capitalization of revenue expenditure.
5. Levy of interest under Section 234B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

Issue Nos. 1 & 2: Treatment of Interest Income
The primary issue was whether the interest income of Rs. 31,13,010 should be treated as business income or income from other sources. The assessee argued that the interest income from deposits should be treated as business income, relying on precedents such as Indian Oil Panipat Power Consortium Ltd. vs. ITO and Bokaro Steel Ltd. The Tribunal noted that the assessee, a special purpose vehicle promoted by IL&FS Transportation Network Ltd., had entered into a Concession Agreement with the National Highways Authority of India for a road project. The funds borrowed for the project were kept in a bank, generating interest. The Tribunal observed that the interest income was inextricably linked to the business exigency of the project. Citing similar cases where interest income was treated as business income due to its connection with the project, the Tribunal concluded that the interest income should be treated as business income.

Issue No. 3: Deduction of Interest Payment
This issue was contingent on the outcome of Issues 1 and 2. Since the Tribunal decided that the interest income should be treated as business income, there was no need to address the deduction of interest payment separately.

Issue Nos. 4 & 5: Allowability and Capitalization of Revenue Expenditure
The assessee claimed a deduction for revenue expenditure of Rs. 66,77,379. The Tribunal noted that the CIT(A) had not adjudicated this issue, as it was not raised before the Assessing Officer (AO). The Tribunal remanded the matter back to the CIT(A) for adjudication in accordance with the law, ensuring the assessee is given an opportunity to be heard.

Issue No. 6: Levy of Interest under Section 234B
The issue of interest under Section 234B was deemed consequential and dependent on the final demand raised against the assessee. Therefore, it did not require separate adjudication.

Conclusion:
The appeal was partly allowed. The Tribunal ordered the interest income to be treated as business income, remanded the issue of revenue expenditure to the CIT(A) for fresh adjudication, and noted that the issue of interest under Section 234B was consequential. The order was pronounced in open court on 12.09.2018.