Case Law Details
Taxability of income earned by an assessee during the period when the project was not complete and business had not commenced has remained a debatable point in many cases. Recently, in ACIT vs. POSCO India Pvt. Ltd. and vice-versa [ITA No.155 & 122/CTK/2017, decided on 15.02.2018], the only common issue taken by the revenue in both the appeals was that the CIT(A) erred in deleting addition of interest income of Rs.1,73,30,736/- for the assessment year 2010-2011 and Rs.13,64,57,044/- for the assessment year 2012-13 holding that such interest on FDs cannot be taxed in the hands of the assessee under section 56 of the Income Tax Act, 1961( for short ‘the Act’).
The brief facts of the case were that during the course of assessment proceedings, the Assessing Officer(AO) found that the assessee has earned interest of Rs.1,73,30,736/- for the assessment year 2010-2011 and Rs.13,64,57,044/- for the assessment year 2012-13 on fixed deposits utilising a part of the unutilised capital and the interest income was claimed to be exempt as capital receipts. The AO referring to various judicial pronouncement observed that the inextricable link with the process of setting up the project with deposits in banks has not been explained by the assessee. The AO observed that the facts of the assessee’s case is similar to the decision of Hon’ble Supreme Court in the case of Tuticorin Alkali,227 ITR 172 (SC) and, therefore, following the same, he rejected the plea of the assessee and taxed the interest income under section 56 of the Act.
On first appeal, the CIT(A) following the decision of this Tribunal in assessee’s own case for the assessment year 2008-09 in ITA No.462/CTK/2011 had held that the interest income on FDs cannot be taxed being capital receipts. The CIT(A) had also observed that in the assessment year 2009-2010, the CIT(A)-II had also deleted the addition on account of interest on FDs following the order of the Tribunal. He deleted the addition made by the AO for both the assessment years under appeal.
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