2023 (12) TMI 1024 - AT - Income Tax

Assessee's interest income from short-term investments of unutilized funds treated as non-taxable capital receipt under section 115JB

The ITAT Mumbai held that interest income earned by the assessee from short-term investments of unutilized funds constitutes capital receipt, not revenue ... Nature of receipt - interest earned by the assessee from short term investments in unutilized funds - revenue or capital receipt - HELD THAT:- We notice that the co-ordinate bench in assessee’s own case for A.Y. 2013-14 to 2015-16 [2019 (3) TMI 1457 - ITAT MUMBAI] considered same issue thus we hold that the interest income received by the assessee is capital in nature and accordingly, not taxable under both the normal provisions of the Act as well as under section 115JB. Decided against revenue. Issues Involved:1. Taxability of interest earned from short-term investments in unutilized funds.2. Classification of interest income as capital receipt or income from other sources.3. Applicability of section 115JB of the Income Tax Act.Summary:Issue 1: Taxability of Interest Earned from Short-Term Investments in Unutilized FundsThe Revenue contested the relief granted by the CIT(A) in deleting the addition made by the Assessing Officer, who had classified the interest earned by the assessee from short-term investments in unutilized funds as taxable income. The assessee, a company developing port facilities, had received substantial share capital and kept the unutilized funds in fixed deposits, earning interest of Rs. 30,99,26,463/- for AY 2016-17 and Rs. 22,00,00,010/- for AY 2017-18. The assessee argued that the interest income was a capital receipt and not taxable.Issue 2: Classification of Interest Income as Capital Receipt or Income from Other SourcesThe Assessing Officer issued a show cause notice to the assessee, questioning why the interest income should not be taxed as 'Income from other sources.' The assessee contended that the interest income was earned before the commencement of business and was thus a capital receipt. However, the Assessing Officer rejected this argument, citing various precedents and noting that the assessee had previously offered similar interest incomes to tax in AY 2011-12 and 2012-13.Issue 3: Applicability of Section 115JB of the Income Tax ActThe CIT(A) deleted the addition by relying on the decision of the co-ordinate bench in the assessee's own case for AY 2013-14 to 2015-16, which held that the interest received was capital in nature. The Tribunal, upon hearing both parties, noted that the issue was recurring and had been consistently decided in favor of the assessee. The Tribunal referenced the decision in the case of Bokaro Steel Ltd. by the Supreme Court, which established that receipts directly connected to the construction of a plant are capital receipts and not taxable income. The Tribunal found that the interest income received by the assessee was inextricably linked to the development of port facilities at Karanja Creek and was thus a capital receipt. Consequently, this interest income was not taxable under the normal provisions of the Act or u/s 115JB.Conclusion:The Tribunal upheld the CIT(A)'s decision, confirming that the interest income received by the assessee from short-term investments in unutilized funds was a capital receipt and not taxable under both the normal provisions of the Income Tax Act and section 115JB. The appeals of the Revenue were dismissed. Order Pronounced:Order pronounced in the open court on 16/10/2023.