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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI RAMLAL NEGI
O R D E R
PER RAMLAL NEGI, JM:
The revenue has filed the present appeal against the order dated 12.06.2017, passed by the Commissioner of Income Tax (Appeals)-4, (CIT(A)) pertaining to the assessment year 2012-13 whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against assessment order passed u/s. 143(3) of the Income Tax (Act).
The assessee company engaged in the business of distribution of films, film production, film finance, media campaign, exports of films, service projects including subtitling, hiring of equipments, video studio etc., filed its return of income for the assessment year under consideration declaring nil income. Since the case was selected for scrutiny the AO issued notice u/s. 143(2) and 142(1) of the Act. In response to the said notices the Authorised Representatives (AR) of the assessee appeared before the AO and submitted the details called for and also discuss the case. The AO completed the assessment u/s. 143(3) of the Act, determining the total income of the assessee at Rs. 4,95,21,970/- and after making adjustment of brought forward loss the AO determined the total loss to be carried forward to Rs. 16,01,24,234/- . 3. Aggrieved by the assessment order the assessee preferred the appeal against the assessment order before the Ld. CIT(A) inter alia on the ground that the Ld. AO erred in treating the interest income of Rs. 5,33,90,060/- as income from other sources instead of income from business. The Ld. CIT(A) after hearing the assessee decided this issue in favour of the assessee. The revenue is in appeal against the said findings of the Ld. CIT(A). 4. The revenue has challenge the impugned order passed by the Ld. CIT(A) by raising the following effective grounds of appeal:-
1. "Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in directing to treat the fixed deposit interest income under the head Income from Business & Profession instead of Income from Other Sources". 2. "Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) failed to appreciate that the assessee has itself described "interest on film loan" in Profit and Loss account separately which could be categorized as income from Business and Profession and in turn meaning that the interest income from Fixed Deposits cannot be categorized as income from Business and Profession".
5. Before us the Ld. DR submitted that the Ld. CIT(A) has wrongly treated the interest income earned by the assessee from the fixed deposits as income from business and profession. The Ld. DR further submitted that as per the audited report the nature of business of the assessee consists of distribution of film, film production, film finance, media campaign, exports of films, service projects including subtitling, hiring of equipments, video studio etc., therefore the FDR’s is not part of parcel business activity. Hence, the interest income earned by the assessee from the deposits made is to be taxed under the head income from other sources. The Ld. DR further submitted that judgment of the Hon’ble Bombay High Court in the case of CIT vs. Lok Holdings 308 ITR 356 (Bom) and CIT vs. Paramount Premium P. Ltd., 190 ITR 259 (Bom) are not applicable to the facts of the present case. Since the AO has rightly treated the income in question under the head income from other sources, the Ld. CIT(A) ought to have confirmed the findings of the AO. The Ld. DR further submitted that since the impugned order passed by the Ld. CIT(A) is not not in accordance with the settled principles of law, the same is liable to be set aside.
6. On the other hand the Ld. Counsel for the assessee submitted that this issue is covered in favour of the assessee by the order of the Ld. CIT(A) passed in assessee’s own case for the AY 2011-12. Since there is no change the facts in the present case the Ld. CIT(A) has rightly followed the decision his predecessor rendered in the assesses own case for the AY 2011-12. The Ld. counsel further submitted that in the light of the aforesaid facts there is no infirmity in the order of the Ld. CIT(A).
7. We have perused the material on record including the orders relied upon by the parties. The only grievance of the revenue is that the Ld. CIT(A) has wrongly directed the AO treat the interest income earned from fixed deposits by the assessee under the head income from business and profession. We notice that the Ld. CIT(A) has decided this issue in favour of the assessee by following order of his predecessor passed in the assessee’s own case for the AY 2011-12. The relevant portion of the order pertaining to the said assessment year reads as under:-
"4.2 I have considered the issue under appeal carefully. The issue under appeal is related to assessment of interest income of Rs.2,55,14,206/~ earned on fixed deposits with various banks. According to the A.O., such income should be taxed as income from other sources whereas, according to the appellant, this income should be taxed under the head "Income from Business or Profession". Here, it is pertinent to mention that this is not a simple case where idle money has been parked in FDRs and interest income has been earned. Here is the case where idle money has been made productive and safe because the appellant company is a Government of India's Enterprise under the administrative control of the Ministry of Information and Broadcasting. The Government of India is a 100% shareholder of the appellant company. The object of the Corporation is to plan, promote, organize and integrate the activities of development of the film industry in India as per the policy of Government of India. It can be sep*\ from the details as reproduced by the A.O. at page no,6 of the assessment order that various amounts were received as advances from Ministry of Culture, Ministry of Information and Broadcasting, Department of Land Resources, Ministry of Environment & Forests, District Water and Sanitation Department, IIT Educational Technology and National Disaster Management Authority. Such advances were received for production of films, regional languages films, for restoration of various regional films, for development of regional films as per policy under 11th five year plan 2007-2012 for utilizing regional film production for production of short film for the Department of Land Resources, for production of short films for Department of Environment and Forests, for production of short film for District, Water and Sanitation Department, for production of short film for IIT Educational Technology and for National Disaster Management Authority. Thus, it can be seen from the details mentioned by the A.O. at page no.6 and 7 of the assessment order that various advances have been received exclusively for the business purposes and all such advances cannot be utilized for production of such big films, advertisement films or short file's instantly as for production of such films, there requires formulation of idea, concept and theme and thereafter requires approval from the respective Departments/Ministry. Further, there is lots of complications, activities and techniques related to production of films, hence such advances could not be utilized immediately. Therefore, with a view to safeguard the advances and make it productive, such advances have been ordered to be kept by the Bank as fixed deposit so that appellant can earn the interest and as and when payments are required to be made in respect of production of such films, such money can be withdrawn immediately. The duration of deposit reveals the fact that such FDRs are not for longer period but for short duration. With a view to make this point more clear, it becomes necessary to point out the factual aspects so that a general approach for taxing interest income earned on FDRs as Income from Other Sources cannot become prevailing force. The deposit of Rs.5,31,32,742/-with Corporation Bank was for the period of one year i.e.26.02.2010 to 26.02.2011 and further it was extended from 26.02.2011 to 25.02,2012 because of pending production of film Titled - 1857 First War of Independence. Further, deposit of Rs.17,37,265/- with State Bank of Mauritius was only for the period 26.02.2010 to 15.06.2011. This advance was also for the production of film as per the order of Ministry of Culture. The deposit of Rs.1,01,00,000/- made on 27.03.2010 was for the period 27.03.2010 to 25.08.2011 and again an amount of Rs.1,01,00,000/- was for the period 27.03.2010 to 25.08.2011. Further, deposit ofRs.1,00,50,000/- was for the period 27.03.2010 to 25.08.2011. These advances were received from Ministry of Information and Broadcasting in various regional languages by the appellant company as per the policy of the Government of India prescribed in 11th Five Year Plan. Similarly, the various deposits with IDBI Bank 09.08.21010 to 25.11.2011. Such advances were received for restoration of various regional films. Advance of Rs.62,14,290/- and Rs.60,10,543/- deposited with YES Bank was for share application money received from Ministry of Information and Broadcasting. Similarly, various advances received and deposited with IDBI Bank has been advances for various films production. The amounts of Rs.95,00,000/-, Rs.72,91,00./-, Rs.5,40,000/- and Rs.20,00,000/- were deposited with Bank of India for production of short film for National Disaster Management Authority and Environment and Forest Department. These facts prove that such advances received from various Governmental Department/Ministry or for business purposes and only for time gap arrangement, such advances have been deposited on short-term basis to make them productive, hence unlike general assessee, the case of the appellant has to be reviewed in the facts and circumstances of the case. Since the entire advances received could not be immediately utilized on receipt, the surplus amount temporarily parked with the bank yielding interest is the income which can be regarded from the business activities and not as income from other sources because in the appellant's case, such investment is not from other source but from the main source i.e.Government of India and its various departments. I find merit in the argument of the id. A.R. that Id. A.O. has only presumed the nature of the income as interest income whereas the embedded fact to the issue under consideration is that advances received are for the purpose of funding media releases and production of big films as well as short films. Also, some of the advances are for the production of regional languages films as per the policy decided by Government of India in 11th Five Year Plan 2007-2012. Obviously, the process of film production undertakes different stages and spread over a period of time, hence such fund could not be utilized immediately. The appellant gets support from the decision ofHon'ble Bombay High Court in the cases ofCIT vs. Paramount Premium Pvt Ltd. C1991) 190 ITR 259 (Bom) and Commissioner of Income tax Vs. Lok Holdings (2009) 308 ITR 356 (Bom). Id. A.O. has tried to distinguish the facts of the case but has not properly appreciated the propositions of the cases supporting the claim of the appellant It is pertinent to point out the various propositions related to taxability of interest on deposit under the respective head. The interest on short-term bank deposits received by Bank of Saurashtra was held as Income from Business vide Bihar State Cooperative Bank Ltd. vs. CIT (1960) 39 ITR 114 (SC), Similarly, in the case of CIT vs. Tamil Nadu Dairy Development Corporation Ltd. 216 ITR 535, 542 (Mad.), the Hon'ble Madras High Court has held that interest on short-term deposit, requirement of utilization of such advances for specific purposes which occurrence is always in future as there is a requirement of production of film which takes time and also considering the decision of Hon'ble Jurisdictional High Court giving the propositions which supports the case of the appellant, the A.O. is directed to treat the amount of Rs.2,55,14,206/- as being interest income as income from business and profession and not as income from other sources.”
We have gone through the findings of the Ld. CIT(A) passed in the assessee own case for the AY 2011-12. The Ld. CIT(A) has held that in case of the assessee it is not a simple case of making investments in FDRs with a view to earn interest income. The assessee used to receive advances for various jobs and the advances and it is not possible to utilise the advances so received immediately. As the production of films requires formulation, ideas, concept of theme approval from the respective department, the assessee deposits the 6 | P a g e