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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
O R D E R
PER MAHAVIR SINGH, JM:
This appeal by the Revenue is arising out of the order of the CIT-(A)-14, Mumbai in appeal No.CIT(A)-14/IT.137/Rg.6(1)/10-11 dated 10-05-2012. Assessment was framed by the ITO, Ward -6 (1) (3), Mumbai for the assessment year 2008-09 vide his order dated 28-12-2010 u/s 143(3) (ii) of the Income Tax Act, 1961 (hereinafter „the Act‟).
The only issue in this appeal of the Revenue is against the order of the CIT (A), Mumbai in deleting the addition made by the AO assessing interest on income tax refund as the income from other sources as against the claim of the assessee as business income. For this, the Revenue has raised the following ground No.1:-
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in directing to assess interest on income tax refund under the head Business Income and not Income from Other Sources without appreciating the fact that interest on income tax refund has to be assessed under the head “Income from Other Sources” which is supported by the judgment of Delhi High Court in the case of CIT v/s Delhi State Industrial & Infrastructure Development Corporation Ltd. in dated 27.07.2012.”
We have heard the learned Sr. DR and gone through the facts and circumstances of the case. The facts of the case are that the assessee has declared the following interest income under the head “Business Income”:-
Interest on Inter Corporate Deposits Rs. 9,14,942/- Income on Income tax refund Rs.31,00,204/- Interest on Business Deposit Rs. 30,628/- Rs.40,45,774/- The AO treated this interest income as income from other sources as against claimed by the assessee as business income. The AO also noted that even in the assessment year 2007-08, this interest income was treated as income from other sources. Aggrieved against the action of the AO, the assessee preferred appeal before CIT (A), who deleted the addition by treating the interest income on income tax refund as income from business by observing as under:-
“14.4 I find that this issue has been adjudicated by my predecessor in the case of the appellant in AY 2006-07. Respectfully, following this order in that case, I hold that the interest on Inter Corporate Deposits at Rs. 9,14,942/- is assessable under the head „Income from other Sources.‟ However, the interest on Income tax refund at Rs. 31,00204/- is assessable under the head Income from Business. Regarding the amount of Rs. 30,628/-, claimed to be the interest on business deposit, no further details have been furnished during the appellate proceedings. Therefore the AO is directed to verify the claim of the appellant that such interest has been received from any deposit which was necessary for carrying out the business. If the claim is found to be correct, the AO is directed to assess the interest income of Rs. 30,628/- as business income. Accordingly, the Assessing Officer is directed to assess Income from interest on Income tax refund Rs. 31,00,204/- under the head Income from Business and verify the claim of the appellant in regard to the interest income of Rs. 30,628/- and take a decision in this regard as per above directions.” Aggrieved against the directions of CIT (A) directing the AO to assess the interest on Income Tax Return as business income, Revenue came in second appeal before Tribunal.
We have heard learned senior DR and gone through facts and circumstances of the case. Admittedly, the assessee company is claim to be engaged in the business of hiring of business assets, research and consultancy etc. The assessee is earning income from business, income from house property, capital gains and interest income. Admittedly, assessee is not in the business of money lending or the business of earning of interest. Admittedly the assessee has earned interest on income tax refund amounting to Rs. 31,00,204/-. Can this interest be assessed as business income or this will come under the head income from other sources? We find that this issue has been answered by the Hon‟ble Madrass High Court in the case of Smt. B Seshamma v. CIT, (1979) 119 ITR 314 (Mad), wherein it is held as under:-
“15. Relying on this passage, the learned counsel argued that even in the case of a receipt of interest, it should be held as not an income. If payment of interest is not an expenditure and not related to any trading activity, according to the learned counsel, receipt of interest also will not be an income. We have already seen that the Supreme Court in the three decisions in Dr. Shamlal Narula v. C1T , T. N. K. Govindaraju Chetty v. CIT [1967] 66 ITR 465 and Chandroji Rao v. CIT[1970] 77 ITR 743, had clearly held that if interest was payable under a statute or under an agreement, express or implied, on any amount which has been withheld, or liable to be refunded, it would be income and not a capital receipt irrespective of the fact whether the interest paid is on a capital amount or profit. The interest paid under Section 214 of the Act being a statutory obligation with respect to an amount found refundable, we have to hold that though it may not be an income arising from an activity, business or investment, it would come under the head " Other sources ". The interest is not paid as personal compensation, but it is paid for deprivation of the use of the money. We have, accordingly, to hold that the Tribunal was right in holding that the respective interests received during the three assessment years were income liable to be assessed. We answer the three questions referred to us in the affirmative and against the assessee. In the circumstances, there will be no order as to costs.” In view of the above legal position, we are of the review that the interest paid by Central Govt. on excess payment towards income tax by any assessee is to be assessed as income from other sources and not as income from business. On identical proposition of law Hon‟ble Supreme Court has affirmed the decision in (2010) 322 ITR 283 (SC), of Hon‟ble Karnataka High Court in the case of Totagars Co-operation sale Society Ltd. Vs. ITO (2010) 322 ITR 272 (Karn), wherein it is held that earning of interest was not the activity of business of the assessee and accordingly interest is assessable as income from other sources. In view of this proposition, and facts of the present case, we direct the AO to assess this interest on income tax refund in the present case as income from other sources. We reverse the order of CIT (A) and this issue of Revenue‟s appeal is allowed.
In the result, the appeal of the Revenue is allowed. Order pronounced in the open court on 19-10-2016.
Sd/ Sd/ (RAMIT KOCHAR) (MAHAVIR SINGH) ACCONTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 19-10-2016 Lakshmikanta Deka/Sr.PS