2020 (1) TMI 1106 - AT - Income Tax

Interest income reclassified as business income with deduction allowed from capital work in progress

The Tribunal allowed the appeal of the assessee, ruling that the interest income should be treated as business income rather than 'Income from Other ... Correct head of income - interest income on fixed deposits in Banks - Income from other sources or business income - HELD THAT:- There is no dispute that assessee earned interest on deposit in Bank. Further, there is no dispute that the assessee is under the process of setting up of infrastructure facility of Expressway from Sikar to Bikaner. The assessee reduced the interest from its work-in- progress. We have noted that on identical grounds of appeal, the coordinate bench of this Tribunal in Jorabat Shillong Expressway Ltd. [2019 (7) TMI 1565 - ITAT MUMBAI] As decided in INDIAN OIL PANIPAT POWER CONSORTIUM LIMITED, NEW DELHI [2009 (2) TMI 32 - DELHI HIGH COURT] funds infused in the assessee by the joint venture partner were inextricably linked with the setting up of the plant, so the interest earned could not be treated as income from other sources - Decided in favour of assessee. Issues:1. Treatment of interest income as 'Income from Other Sources' instead of business income.2. Whether interest income should be reduced from the total value of capital work in progress.3. Allowance of interest expenditure against interest income.4. Liability for payment of interest under section 234B.Issue 1: Treatment of Interest Income:The appeal addressed the treatment of interest income earned by the assessee as 'Income from Other Sources' instead of business income. The assessee argued that the interest income was in the nature of capital receipt and should not be taxed under the head 'Income from other sources.' The Assessing Officer and the Dispute Resolution Panel directed the inclusion of the interest income under the head 'Income from Other Sources.' The Tribunal considered similar cases and allowed the interest income as business income, citing relevant precedents and distinguishing the case from Tuticorin Alkali Chemicals & Fertilizers Ltd. The Tribunal concluded in favor of the assessee, stating that the interest income should be treated as business income.Issue 2: Reduction from Capital Work in Progress:The assessee contended that the interest income should be reduced from the total value of capital work in progress, as it was in the nature of a capital receipt. The Tribunal analyzed the facts, noting that the assessee earned interest on fixed deposits while setting up an infrastructure facility. The Tribunal referred to previous decisions and allowed the reduction of interest income from work in progress, supporting the assessee's argument.Issue 3: Allowance of Interest Expenditure:The appeal raised the question of allowing interest expenditure against interest income, following the provisions of the Income Tax Act. The Tribunal, having allowed the interest income as business income, found the discussion on this ground to be academic. Therefore, no specific adjudication was required on this issue.Issue 4: Liability for Payment of Interest under Section 234B:The final issue related to the denial of liability for payment of interest under section 234B. The Tribunal deemed this issue consequential in nature and did not require specific adjudication, given the allowance of the primary grounds of appeal in favor of the assessee.In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the treatment of interest income as business income and the reduction from capital work in progress. The decision was based on precedents and the specific circumstances of the case, leading to the favorable outcome for the assessee.