Income Tax | Interest On Fixed Deposits, TDS Refund Linked To Business Qualifies For S. 80IA Deduction: Bombay High Court

Section 80IA of the Income Tax Act, 1961 provides tax incentives for businesses operating in certain sectors such as infrastructure, power, and telecommunications.

Justices B.P. Colabawalla and Firdosh P. Pooniwalla stated that the placement of fixed deposits was imperative for the purpose of carrying on the eligible business of the assessee. The placement of fixed deposits is not for parking surplus funds which are lying idle. This is also demonstrated by the fact that the assessee had used these fixed deposits for purchasing cranes for the eligible business. There is a direct nexus between the fixed deposits and the eligible business of the assessee.

In this case, the assessee/Appellant was engaged in its only business of operating and maintaining a container terminal at Jawaharlal Nehru Port Trust (JNPT), which was eligible for deduction under the provisions of Section 80IA of the IT Act.

During the previous year, interest income arose out of the said eligible business of the assessee. It is the case of the assessee that interest was earned out of money accrued from the eligible business of the assessee and the same was also utilized for the purpose of its eligible business.

The interest was earned from fixed deposits maintained with banks for the purpose of the business and related to the business of the assessee. Interest was also earned on refund of taxes due to wrongful deduction of TDS by the customers of the assessee.

The assessee filed its Return of Income claiming deduction under Section 80IA of the IT Act of its business income, which included the interest income.

The Assessing Officer accepted the assessee's claim for deduction under the provisions of Section 80IA of the IT Act, which also included the interest earned on fixed deposits as being a part of the business income. The interest income arising out of income tax refund was taxed by the AO under the head “Income from other Sources”.

Against the assessment order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT) which was rejected.

Aggrieved by the CIT Order, the assessee filed an appeal before the ITAT which was rejected.

The revenue submitted that the assessee is free to deploy its funds in any manner it decides, but the same is immaterial for the purpose of deduction under Section 80IA. The profit so deployed may generate further profit, i.e., the fruits of profit. However, the entire profit made by the assessee in a year is not allowed for deduction but only that part of the profit which is generated in the process of creation of eligible infrastructure assets is deductible.

The bench opined that the assessee is entitled to the deduction [under Section 80IA of the Act] on the interest earned from fixed deposits which were placed by the assessee for planning of replacement of equipments as per the provisions of the said License Agreement and due to the tariff dispute.

Further, the bench stated that the TDS refund received by the assessee is an integral part connected with the receipt of business income by the assessee and the same cannot be separated from the business of the assessee. In these circumstances, the assessee is entitled to deduction under Section 80IA of IT Act, on the interest received by it on TDS refunded to it.

The bench directed the revenue to grant deduction under Section 80IA of the I.T. Act to the assessee on business income in the nature of interest from fixed deposits with the bank and on interest on TDS refund.

In view of the above, the bench allowed the appeal and set aside the impugned order.

Case Title: Gateway Terminals India Pvt. Ltd. v. Deputy Commissioner of Income-tax, Raigad

Case Number: INCOME TAX APPEAL NO. 1139 OF 2021

Counsel for Appellant/Assessee: P. F. Kaka, Senior Adv. a/w Adv. Manish Kanth i/b. Adv. Atul K. Jasani

Counsel for Respondent/Department: Akhileshwar Sharma