Fixed deposit interest income with direct business nexus qualifies for TDS refund despite departmental rejection

ITAT Delhi allowed appeals regarding TDS refund on fixed deposit interest income. Assessees had concession agreements with FCI for silo complex construction and were required to furnish bank guarantees, for which banks kept fixed deposits as security. The tribunal held that interest income from these deposits had direct nexus with business activity and should be treated as business income, eligible for set-off against construction costs. Despite departmental authorities rejecting refund claiming interest was adjusted against construction expenses, ITAT relied on CIT vs. Jaypee DSC Ventures Ltd precedent and directed AO to refund TDS amount to assessees.

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Issues:
Appeals arising from separate orders by National Faceless Appeal Centre (NFAC) for assessment years 2018-19.

Analysis:
The appeals were filed by two assesses, both resident corporate entities wholly owned by National Commodities Management Services Ltd., regarding the rejection of their refund claims by the Centralised Processing Centre (CPC), Bangalore. The assesses had entered into concession agreements with Food Corporation of India (FCI) for constructing Silo Complexes at Varanasi and Bhattu. They claimed that the interest income earned on fixed deposits kept as security for bank guarantees, which were part of the concession agreements, should be considered as business income and set off against construction costs. However, the learned Commissioner (Appeals) rejected this argument, stating that since the interest income was adjusted against construction costs and not offered as revenue, it did not qualify as income for the assessment year.

Upon reviewing the submissions and evidence, it was found that the fixed deposits kept with banks were directly related to the business activities of the assesses. Therefore, the interest income earned had a clear nexus with the business operations. Citing a precedent from CIT vs. Jaypee DSC Ventures Ltd, where it was held that interest income on fixed deposits for performance guarantees is taxable as business income and can be set off against project expenses, the Judicial Member directed the Assessing Officer to refund the TDS amount to the assesses. The decision was based on the fact that the interest income was earned during the relevant assessment year and was integral to the business activities of the assesses.

In conclusion, the appeals were allowed, and the Assessing Officer was instructed to refund the TDS amount to the assesses. The judgment highlighted the importance of considering the direct connection between income earned and business activities in determining tax liabilities and refund claims.

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