PCIT (Central)1 Vs Hiranandani Builders (Bombay High Court)
The Bombay High Court dismissed a tax appeal filed by the Principal Commissioner of Income Tax (Central) against Hiranandani Builders, an assessee engaged in the business of developing and leasing out IT Parks and Special Economic Zones (SEZ). The case, concerning the assessment year 2009-10, revolved around the assessee’s claim for deduction under Section 80IA of the Income Tax Act, 1961. The core issue was whether interest income earned from sources such as income tax refunds and fixed deposits (FDRs) could be considered as “derived from” the assessee’s eligible business, thus qualifying for the same tax deduction.
The revenue’s contention was that this interest income lacked a direct nexus with the development activities and should not be eligible for the deduction. However, both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) had previously ruled in favor of the assessee.
The Bombay High Court concurred with the Tribunal’s decision, affirming that the interest income had a direct and integral link to the assessee’s primary business. The court noted that the interest on the income tax refund was a result of an excess tax payment related to the core business income. Similarly, the interest on FDRs was generated from deposits received from lessees as a performance guarantee, which the assessee had parked in bank deposits. The court found that the entire transaction, including the acquisition of interest-free deposits from lessees and the subsequent earning of interest on these funds, was an integral part of the business of leasing out properties in IT Parks and SEZs.
