MAHARASHTRA AIRPORT DEVELOPMENT COMPANY LIMITED,MUMBAI vs. ACIT, CIRCLE-3(2)(1), MUMBAI

ITA 37/MUM/2024Status: DisposedITAT Mumbai09 September 2025AY 2016-1750 pages
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What did the Tribunal hold?

The Tribunal admitted the additional ground of appeal raised by the assessee, considering it a pure legal ground requiring no further investigation beyond the existing facts. The Tribunal noted that in its own cases for earlier Assessment Years (2007-08, 2010-11, 2012-13, 2014-15, and 2015-16), the ITAT had held the assessee to be a State under Article 289 of the Constitution of India, and consequently, interest earned on Fixed Deposits was held to be exempt as it was not income from business. Following these precedents, the Tribunal held that the interest income of Rs. 23,55,68,319/- earned on Fixed Deposits should not have been taxed as 'Income from Other Sources' because it was not derived from any trade or business carried on by the assessee. The Tribunal found this issue intrinsically linked to the taxability of the interest income. Consequently, the assessee's appeal was allowed. For the Revenue's appeal, the Tribunal dismissed its grounds concerning the loss on account of water supply, as this issue had been allowed in earlier years and the addition directed to be deleted. The Revenue's grounds regarding the deletion of 50% of disallowance for provisions for expenses and reimbursement of expenses were allowed for statistical purposes, to be re-examined by the AO after providing an adequate opportunity to the assessee. The Revenue's ground regarding interest on advances to developers/contractors being business income was dismissed, as the CIT(A) had followed the ITAT's decision in the assessee's own case for AY 2008-09, which held such interest as business income eligible for deduction under Section 80-IAB.

What were the facts?

The assessee, Maharashtra Airport Development Company Limited, and the Revenue are in appeal before the Income-Tax Appellate Tribunal (ITAT) against the order of the Commissioner of Income-tax (Appeals) (CIT(A)) for Assessment Year 2016-17. The appeals arise from an assessment order passed under Section 143(3) of the Income-tax Act, 1961. The primary dispute concerns the taxability of interest income of Rs. 23,55,68,319/- earned on fixed deposits. The assessee claimed this as business income to be reduced from the cost of the project, while the Revenue treated it as income from other sources. The assessee also raised an additional ground, arguing that as a State entity under Article 12 read with Article 289 of the Constitution, this interest income should be exempt. The ITAT heard both appeals together.

What were the issues?

1. Whether the interest income of Rs. 23,55,68,319/- on Fixed Deposits should be treated as 'income from other sources' or 'business income' to be reduced from the cost of the project, as per Section 143(3) of the Income-tax Act, 1961, and principles of natural justice. 2. Whether, without prejudice to the above, interest expense should be allowed as a deduction against the interest income on Fixed Deposits under Section 57 of the Income-tax Act, 1961. 3. Whether, without prejudice to the above, the "Capital Work in Progress" / "Cost of the Project" should be increased by the amount of interest income upheld as 'Income From Other Sources', as per Section 143(3) of the Income-tax Act, 1961. 4. Whether the interest income of Rs. 23,55,68,319/- earned on Fixed Deposit ought to have not been made taxable, as the assessee is a State under Article 12 read with Article 289 of the Constitution of India, and the income is not derived from trade or business. Assessee's Contentions: - The interest income is business income and should be reduced from the cost of the project, as per accounting standards. - The assessee is a State under Article 12 and 289 of the Constitution, making the interest income exempt as it's not derived from business. - Relied on ITAT orders in its own case for AY 2007-08, 2010-11, 2012-13, 2014-15, and 2015-16, and Supreme Court decisions in National Thermal Power Co. Ltd. and Jute Corporation of India. Revenue's Contentions: - The judgment records no specific contentions for the revenue on the primary issue of re-characterization of interest income.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 57,Section 289,Section 12,Section 80IAB

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Before: SHRI SAKTIJIT DEY & SHRI PRABHASH SHANKAR

For Appellant: Shri Rushabh Mehta, AR
For Respondent: Shri Ritesh Misra, (CIT DR)
Hearing: 15.07.2025Pronounced: 09.09.2025

Heard together (2 matters)

ITA No. 37/MUM/2024
ITA No. 87/MUM/2024

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PER PRABHASH SHANKAR [A.M.] :-

The above captioned appeal

The order continues below.

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