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Income Tax Appellate Tribunal, ‘A’BENCH,
Before: Shri M.Balaganesh & Shri S.S.Viswanethra Ravi
This appeal by the Revenue is against the order dt: 12-12- 2013 passed by the Commissioner of Income Tax (Appeals), XIX, Kolkata for the assessment year 2009-10.
The appellant Revenue has raised as many as four grounds of appeal, amongst which the only effective ground is to be decided is as to whether the CIT-A justified in treating the interest accrued on Fixed Deposits as income from business in the facts and circumstances of the case.
During the course of scrutiny of return, the AO found that the assessee claimed interest on fixed deposit made out of accumulated profits and reserves is income derived from industrial undertaking as deduction. The AO also found that the assessee suffered a loss from housing project and income from other sources. In explanation, the assessee filed revised computation claiming that the interest income as its business income. According to AO, the filing of revised computation is an afterthought. Since the assessee did not claim the deduction u/s. 80IB(10) of the Act in its original return, thereby the assessee has taken a chance to claim of admissibility of Rs.259,14,135/- u/s. 80IB(10) of the Act showing the same derived from its business operation and above deduction claimed u/s. 80IB as per the revised computation was disallowed by the AO and to that effect an order u/s.143(3) of the Act was passed on 28-12-2011.
Aggrieved by such order of the AO, the assessee preferred an appeal before the CIT-A and contended that the West Bengal Housing Board came into existence in the year 1972 by an order under the West Bengal State Legislature. It commenced the business of housing project from July, 1973. At the initial stage, the Housing Department, Govt. of West Bengal allotted several semi finished projects to the assessee which were subsequently completed by the assessee and sold to the general public on full payment/EMI basis. At the initial stage Govt. of West Bengal advanced some loan to the assessee. Similarly, Housing and Urban Development Corporation(Delhi) also accorded financial assistance in the form of loan for conducting and construction of several projects and such loans were duly repaid by the assessee. The modus operandi of the assessee is that the State Government allots lands for different projects and the assessee undertakes different projects on such lands for constructing LIG/MIG and HIG flats. The assessee also carries on several projects in joint sectors as per the instruction of the State Government.
The assessee submitted that the net profit as per revenue account is shown under different heads like income from house property, income from other source and business income and it is only shown for complying with the statutory requirements which govern the housing board. The financial statements are prepared after complying with the legal requirements but from the operational point of view all the income, disclosed under whatever head are the integral parts of its only business i.e housing project and for the purpose of the Income tax Act the income of the assessee is to be considered as and only the profits derived from the housing projects. The assessee claimed that the computation of income as filed by the assessee exhibits positive income and such income is from the housing project eligible for deduction u/s.80IB(10).
The CIT-A considering the submissions of assessee was of the opinion that the said interest accrued on fixed deposits, which were made out from business funds available with the assessee and the same is incidental to business activity of assessee being eligible for deduction u/s. 80IB of the Act and directed the AO to allow the claim of the assessee. Relevant finding of the CIT-A on this issue is reproduced herein below for better understanding:- 9.3 The moot point here is that whether the accrued interest is to be treated as income from the business which is entitled for exemption u/s 80IB(10) of the Act or Income from Other Sources. The appellant has shown the interest accrued on the fixed deposits as business interest. On the contrary the AO treated the interest as income from other sources. It is often overlooked that section 56, providing for income from other sources, is a residuary one. It is only when an income does not fall under any of the other regular sources of income that the need arises for invoking section 56 of the Act. Where a person has only one source of income, which is business, there could hardly be any other inference. In the case of Snam Progetti S.P.A. vs. Add!. CIT [1981J 132 ITR 70 the Delhi High Court took a broad view and considered interest as incidental to business income, because it cannot be presumed that the assessee has come all the way from Italy to make bank deposits on India, when it was clear that the company was established for carrying on business. 9.4 In the case of CIT vs. Tamil Nadu Dairy Development Corporation Ltd [1995] 216 ITR 535 (Mad.), the Madras High Court has held, following the decision of the Supreme Court in the case of CIT vs. Calcutta National Bank Ltd. [1959J 37 ITR 171 (SC) that "business" is a word of very wide connotation with the result that it should ordinarily be treated as business income. Except where the investments are independent of business made out of surplus funds in long term deposits, there is no possibility of assessing the same as otherwise - Tirupati Woolen Mills Ltd. 193 ITR 252 (Cal.), CIT vs. AP Industrial Corporation 175 ITR 361 (AP); CIT vs. East India Hotels Ltd. 207 ITR 881 (Cal); and the fact that the purpose of the assessee in investing in fixed deposits is to make available funds for its housing projects and therefore the interests on such deposits should be treated as the business income of the assessee. Not only that there is no gainsaying the fact that the investment was made out of the business fund available with the assessee, the assessee is also entitled to treat the interest income as the income from business. I am of the firm view that the term business is a word of very wide import and by no means to be determined in a limited scope and has to be considered with reference to each particular kind of activity and occupation of the assessee concerned. Upon the peculiar facts of this case, I am of the opinion that the interest accrued on the fixed deposits of the appellant which were made out of the business funds available with it before the same were utilized for actual business and, as such, the same is to be considered as incidental to the business activity of the appellant and thus the interest on the fixed deposits should be treated as business income thus qualifying for deduction u/s. 80IB of the Act. The AO is directed to allow the deduction as claimed by the appellant u/s.80IB in this regard. This ground is treated as being allowed. “
The ld.DR has relied on the order of the AO.
On the other hand, the ld.AR of the assessee reiterated the same submission as made before the CIT-A and supported the order of the CIT-A and relied on the decision of the Hon’ble Calcutta High Court in the case of Tirupati Woolen Mills Ltd 193 ITR 252(Cal).
West Bengal Housing Board
Heard rival submissions and perused the material available on record. We find that the assessee did not claim the deduction u/s. 80IB of the Act in its original return. But, however, in explanation offered before the AO, the assessee claimed deduction u/s. 80IB(10) of the Act towards the accrued interest on fixed deposits filed in the revised computation of income showing the said interest income as its business income. Admittedly, the assessee shown the said income as income from other sources in the original return. We find that the AO has allowed deduction under similar circumstances u/s. 143(3) for the AY 2006-07 based on interest income. The ld.AR argued that only business Funds were utilised for making deposits, which fetched interest income. We find force in the submissions of the ld.AR of the assessee that the net profit as per revenue account the assessee shown under the different heads i.e. income from house property, income from other sources and income from business. Financial statements are prepared after completing all the legal requirements. But, from the operational point of view all the income were disclosed under whatever sources are the integral parts of assessee’s business. In this regard, we may refer to the decision as relied on by the ld.AR of the assessee in the case of supra. Relevant finding in this regard is reproduced herein below:-
"The only activity which the assessee-company had in the Calcutta office during the relevant previous year consisted of deriving some interest on fixed deposits. It could not be said that this activity was in the nature of a business activity. Considering the nature of loans, the frequency of transactions as well as the irregularity, it is held that this amount had to be assessed as income from other sources. The appellant company, therefore, was entitled only to such expenditure which was incurred in connection with earning of income from other sources. On the facts of the case, it cannot be said that the disallowance made by the Income-tax Officer was unjustified particularly keeping in view the fact that a major portion of the expenditure is on account of interest on loans which have been utilised for setting up the new factory which had not started during the year. The claim of the appellant is, therefore, disallowed."
Aggrieved by the order of the Commissioner of Income-tax (Appeals), the assessee went up in appeal before the Tribunal. The Tribunal observed that the business activities may consist of purchase and sale resulting in profit or loss. The absence of such activities during the year may not necessarily mean that the business activities have come to a standstill. The erection of the plant at Sonepat in Haryana is nothing but a business activity and the assessee is busy in the said activity during the year under consideration. The Tribunal further found that the company utilised its commercial assets which were lying in the form of surplus cash earning interest. Such earning, according to the Tribunal, arising from utilisation of commercial assets would be business income and it would not be correct to say that the income in question was "income from other sources". The Tribunal, in that view, was of the opinion that the income derived from the utilisation of commercial assets would be income from business. The Tribunal, on the question of business loss, found that, for the assessment year under consideration, there was income from commercial assets and, therefore, the question of not allowing expenses did not arise. The expenses were business expenses and should have been allowed. Since, according to the Tribunal, the assessee was carrying on business during the year, the Tribunal on that basis observed that it would be more appropriate to say that assessees income from business was less than the expenditure incurred by it. Business loss results precisely for such reason and to disallow business loss merely because the income is less than the expenditure makes little sense. The Tribunal for that reason, allowed the assessees claim of business loss.
The only question is whether the Tribunal was justified in holding that interest income should be assessed under the held "Business". From narration of facts, it will evident that the findings of the Tribunal that the Assessee in fact was carrying on business has not been challenged by the Revenue. That apart, the fact remains that although the income was earned by way of interest from the fixed deposits, the Income-tax Officer allowed the expenditure incurred by the assessee to the extent of the interest income which would go to show that the Income-tax Officer must consider the expenditure in connection with carrying on business, otherwise, he would be allowed only the expenditure which was incurred in connection with earning of the interest income.
Thirdly, the Tribunal found as fact that earning of interest income arose from the utilisation of commercial assets. The Tribunal found that funds utilised in making fixed deposits with the bank where the business funds lying temporarily in surplus with the assessee.
On these facts, the income derived from the utilisation of the commercial assets would be income from business.”
Respectfully following the above in the case of supra, we hold that the interest earned on fixed deposits made out from accumulated profits and reserves is the income, which derived from assessee’s business activity. Therefore, the assessee is eligible to claim deduction u/s. 80IB(10) of the Act. Therefore, we find no infirmity in the order of the CIT-A and it is justified. The grounds raised by the Revenue are dismissed.
West Bengal Housing Board
In the result, the appeal of the revenue is dismissed. ORDER PRONOUNCED IN OPEN COURT ON 22 /03/2017 Sd/- Sd/- M.Balaganesh S.S.Viswanethra Ravi Accountant Member Judicial Member Dated 22 -03-2017 *PP/SPS: Copy of the order forwarded to: 1. The Appellant/Revenue: The Asstt. Commissioner of Income Tax, Cir-31, 10B Middleton Row, Kol-71 (4th Floor). 2 The Respondent/Assessee: West Bengal Housing Board, Abasan, 105 S.N Banerjee Road, Kolkata-14. 3 The CIT(A) The CIT 4. DR, Kolkata Bench 5.