2018 (6) TMI 1779 - AT - Income Tax

Interest income from fixed deposits not eligible for deduction under section 80IA

The Tribunal allowed the Revenue's appeal, ruling that interest income and miscellaneous income were not directly derived from eligible business ... Deduction u/s 80IA - interest earned on fixed deposits for the performances of bank guarantee for carrying on the business for providing performance guarantee - AO held that the interest income earned on FDRs and misc. income cannot be considered as profit derived from the business of developing, operating or maintaining infrastructural facilities and thereby not eligible for deduction u/s 80IA - HELD THAT:- Hon'ble Supreme Court in case of Conventional Fastners [2018 (5) TMI 1866 - SC ORDER] made it clear that interest earned on fixed deposit maintained with bank for obtaining bank guarantee is not derived from business, hence not entitle to deduction. The decision of the Apex Court is applicable in the present case which also considered the decision relied by the Ld. AR i.e. Pandian Chemicals [1997 (4) TMI 38 - MADRAS HIGH COURT]. The decision relied upon by the Ld. AR are factually different and are not applicable in the present case while the decision of the Apex Court passed in Conventional Fastners is more apt in the present case. Therefore, the order of the CIT(A) is set aside and appeal of the Revenue is allowed. Issues Involved:- Deduction under section 80IA denied for interest income and miscellaneous income.Detailed Analysis:- The appeal was filed by the Revenue against the order passed by CIT(A)-XII for Assessment Year 2009-10, challenging the deletion of addition on the ground of deduction under section 80IA amounting to Rs. 49,25,706.- The assessee company was involved in developing, maintaining, and operating infrastructure facilities and claimed a deduction under section 80-IA for the profit earned. The Assessing Officer disallowed the deduction by observing that interest income and miscellaneous income were not directly derived from the business activities eligible for the deduction. The AO held that interest income and miscellaneous income cannot be considered as profit derived from infrastructural facilities.- The CIT(A) partly allowed the appeal of the assessee, leading to the Revenue's appeal. The Revenue argued that interest income and miscellaneous income should not be eligible for deduction under section 80IA, citing a Supreme Court decision in the case of Conventional Fastners Vs. CIT.- The assessee contended that the interest income was part of the business activity as it was necessary for providing bank guarantees, which were essential for undertaking government infrastructure projects. The assessee relied on various decisions to support their argument.- The Tribunal noted that the Supreme Court's decision in Conventional Fastners case was applicable in the present scenario, emphasizing that interest earned on fixed deposits for obtaining bank guarantees is not derived from business and hence not eligible for deduction under section 80IA. The Tribunal found the decisions cited by the assessee as factually different and not applicable in this case, upholding the Revenue's appeal and setting aside the order of the CIT(A).In conclusion, the Tribunal allowed the Revenue's appeal, emphasizing that interest income and miscellaneous income were not directly derived from the business activities eligible for deduction under section 80IA, in line with the Supreme Court's decision in the Conventional Fastners case.