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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Ramlal Negi (JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the assessee is directed against the order dated 06.11.2014 passed by Ld CIT(A)-21, Mumbai and it relates to the assessment year 2010-11. The assessee is aggrieved by the decision of Ld CIT(A) in upholding the assessment of interest income earned on fixed deposits under the head Income from other sources, as against the claim of the assessee to assess the same as business income.
We heard the parties and perused the record. The assessee is engaged in the business of developing, operation and maintenance of road infrastructure. The assessee earned interest income of Rs.7,25,778/- and offered the same under the head Business. The AO assessed the same under the head Income from other sources by following the decision rendered by Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilisers Ltd Vs. CIT (227 ITR 172)
2 Andhra Pradesh Expressway Ltd. and also the decision rendered by the jurisdictional Hon’ble Bombay High Court in the case of Godavari Sugar Mills Ltd Vs. CIT (191 ITR 359). The Ld CIT(A) also confirmed the same. Aggrieved, the assessee has filed this appeal before us.
The Ld A.R submitted that the fixed deposits have been made out of funds generated from the business of the assessee and hence the interest income should be assessed under the head Business. In this regard, he placed reliance on the decision rendered by Hon’ble Bombay High Court in the case of Lok Holdings (308 ITR 356) and also the decision rendered by the co-ordinate bench in the case of M/s West Gujarat Expressway Ltd (ITA No. 1284/Mum/2011 dated 27.02.2013). In the alternative, the Ld A.R submitted that the assessee has borrowed huge funds and they are repayable in predetermined instalments on fixed dates. Hence the funds, which are immediately required, was used to make fixed deposits so that interest burden of the assessee on the loans shall be reduced. Further, the assessee is also required to maintain the roads constructed by it and hence the assessee has made the deposits to meet such contingencies. Accordingly he submitted that the fixed deposits have been made out of business exigencies and hence the interest income should be assessed under the head Income from Business.
On the contrary, the Ld D.R placed heavy reliance on the decision rendered by Ld CIT(A).
Having heard rival submissions, we are of the view that there is merit in the later submissions made by Ld A.R. From the financial statements, we notice that the assessee has borrowed loans for executing the project and the amount of loan outstanding as on 31.3.2010 stand at Rs.824.73 crores. The loan taken from banks alone stands at Rs.503.29 crores. It is an admitted fact that the term
3 Andhra Pradesh Expressway Ltd. loans have to be repaid in fixed installments and hence there is merit in the contentions of the assessee that it was constrained to keep the funds in fixed deposits to earn interest, which will meet a portion of interest burden of bank loans. Further, we find merit in the contentions of the assessee that it had to keep some surplus funds in hand in order to meet the maintenance requirements of the roads. In these set of facts, we are of the view that there were business exigencies in keeping the funds in fixed deposits and hence there is merit in the contentions of the assessee that interest income earned on those fixed deposits is assessable as income from business. In the case of Lok Holdings (supra), the assessee therein collected advances from the customers who intended to purchase the flats in the properties as developed by the assessee. Since the construction was going on, the surplus funds available with the assessee out of the advances so received was deposited in Fixed deposits. The Hon’ble jurisdictional Bombay High Court, after considering the decision of Hon’ble Supreme Court rendered in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd (supra), held that the interest income is assessable under the head Income from business.
In view of the foregoing discussions, We set aside the order passed by Ld CIT(A) on this issue and direct the AO to assess the interest income earned on fixed deposits during the year under consideration as business income of the assessee.
In the result, the appeal filed by the assessee is allowed.