2018 (6) TMI 1721 - AT - Income Tax

Tribunal deems interest income taxable as 'income from other sources' in construction deposit case.

The Tribunal upheld the assessment of interest income of Rs. 62,77,671/- as 'income from other sources', dismissing the assessee's appeal. The income, ... Interest receipt - Income from other sources or Capital gain - whether assessee is not entitled to set off of business expenses against the income shown under the head ‘income from other sources’ as the business of the assessee has not commenced ? - HELD THAT:- The assessee has parked the loan amount in short term deposits with Banks and other financial institution and earned interest income, which has no direct nexus and the interest income is directly attributable to the deposits made out of funds generated by way of term loans. We are of the considered opinion that the interest earned by the assessee has to be treated as income on commercial principles. Having regard to the judgment in the case of Tuticorin Alkali Chemicals and Fertilisers Ltd v CIT [1997 (7) TMI 4 - SUPREME COURT] AND in the case of CIT v. Autokast Ltd. [2000 (11) TMI 7 - SC ORDER] the Hon’ble Supreme Court has held that the interest income is assessable to tax in the hands of the assessee. Hon’ble Supreme Court in the above decisions that the income tax is attracted at the point when the income is earned from the fixed deposits/short term deposits and taxability of income is not dependent upon its destination or the manner of its utilization and respectfully following the above decisions, we confirm the order of the ld. CIT(A) in holding that the Assessing Officer rightly brought the interest income under the head ‘income from other sources’ and dismiss the ground raised by the assessee. Issues:Assessment of interest income under 'income from other sources' - Whether interest income of Rs. 62,77,671/- earned by the assessee is to be assessed as income from other sources.Analysis:1. Assessment by Assessing Officer:The Assessing Officer assessed the total income of the assessee at Rs. 65,75,730/- after bringing to tax the interest income of Rs. 62,77,671/- under the head 'income from other sources'. The interest income was earned from short term deposits with banks, which the assessee had not disclosed initially. The Assessing Officer did not allow the interest income to be netted off against capital work in progress, relying on relevant case law.2. Decision of CIT(A):The ld. CIT(A) confirmed the addition of Rs. 62,77,671/- after considering detailed submissions, case law, and the facts of the case presented by the assessee during the appellate proceedings.3. Arguments before the Tribunal:The assessee appealed before the Tribunal, reiterating submissions made before the CIT(A) and relying on decisions in various cases to support the deletion of the addition made by the CIT(A).4. Tribunal's Analysis:After hearing both sides and examining the records, the Tribunal noted that the interest income earned by the assessee was from deposits made for the purpose of construction and project development expenditure. The Tribunal considered various judgments, including those cited by the assessee, and held that the interest income should be assessed under 'income from other sources' as the business of the assessee had not commenced.5. Judicial Precedents Considered:The Tribunal referred to the decision of the Hon'ble Supreme Court in the case of CIT v. Bokaro Steel Ltd. and other relevant judgments to support its conclusion that the interest income earned by the assessee should be treated as income from other sources. The Tribunal emphasized that the taxability of income is not dependent on its destination or utilization manner.6. Final Decision:In line with the principles established in the cited judgments, the Tribunal confirmed the order of the CIT(A) and dismissed the appeal filed by the assessee. The interest income of Rs. 62,77,671/- was held to be rightly assessed under the head 'income from other sources'.7. Conclusion:The Tribunal's decision, based on a comprehensive analysis of the facts, legal provisions, and judicial precedents, upheld the assessment of the interest income as 'income from other sources', emphasizing the commercial principles governing such income. The appeal filed by the assessee was dismissed, and the order was pronounced on 13th June 2018 in Chennai.