Case Law Details

Case Name : ACIT Vs National Film Development Corporation Ltd. (ITAT Mumbai)
Appeal Number : ITA No. 444/Mum/2019
Date of Judgement/Order : 18/11/2020
Related Assessment Year : 2013-14
Courts : All ITAT (7455) ITAT Mumbai (2138)

ACIT Vs National Film Development Corporation Ltd. (ITAT Mumbai)

We are of the opinion that considering the facts that assessee’s business -production of films for Ministries of Government of India and various government departments-and the durations for which the amounts were kept with banks the income earned by it has to held as business income. The FAA had allowed the claim made by the assessee on the grounds that it was in the business of production of films, that the completion of films would take time, that during the intervening period the advances were deposited with bank resulting in accrual of interest income. We find that these basic finding of the FAA have not been challenged by the Department. It is also a fact that Government of India was 100% shareholder of the assessee-company and the deposit of advances with the banks was directly and inextricably linked with the business of the assessee, so the interest earned by it had to be treated as income earned from business and cannot not be treated as income from other sources. In other words, it can safely be held that the interest earned by the assessee was obviously attributable and incidental to the business carried on by it, that it would not be correct to say that this interest was totally de hors the business carried on by it. It is well-settled that interest can be assessed under the head Income from other sources, only if it cannot be brought within one or the other of the specific heads of charge. In the case before us the interest income is clearly and justifiably assessed as business income. In short, the case under consideration is not a case of depositing unutilized and surplus money by the assessee to earn interest and, therefore, the interest earned by the assessee cannot be assessed as Income from other sources.

Interest on business advances held as fixed deposit is Business Income

Here, we would like to refer to the case of Lok Holdings(supra).Facts of the case are that the assessee was engaged in construction business and received monies from the purchasers of flats which it deposited with the bank. The AO assessed the interest income earned on money deposited with the bank as income from other sources. The FAA deleted the addition. The Tribunal on finding that the entire interest sprang from the business activity of the assessee and not out of any independent activity, held that the interest income received by the assessee was business income.

Ground raised by the revenue is dismissed.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal filed by revenue in ITA No.444/Mum/2019 for Assessment Year (AY) 2013-14 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-04, Mumbai in appeal No.CIT(A)-4/e-file-66/ACIT-16(1)/2016-17, dated 19/11/2018 (ld. CIT(A) in short) against the order of assessment passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 23/03/2016 by the ld. Assistant Commissioner of Income Tax-16(1), Mumbai (hereinafter referred to as ld. AO).

2. The revenue has raised the following grounds of appeal.

1. Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in directing to treat the fixed deposit interest income under the head Income from Business & Profession instead of Income from Other Sources.

2. Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) failed to appreciate that the assessee has itself described “interest on film loan” in Profit and Loss account separately which could be categorized as income from Business and Profession and in turn meaning that the interest income from Fixed Deposits cannot be categorized as income from Business and Profession.

3. The appellant prays that the order of Ld.CIT(A) on the above grounds be set-aside and that of the assessing officer be restored.

2. We have heard the rival submissions and perused the materials available on record. At the outset, we find that the facts of the assesee involved for the AY 2013-14 i.e the year under consideration are exactly identical with that facts prevailing in AY 2011-12 & 2012-13. We find that for the AY 2011-12, this Tribunal in assessee’s own case in ITA NO. 5737/Mum/2015, dated 27/06/2018 had already adjudicated the very same issue in dispute before us and had dismissed the appeal of the revenue. For the sake of convenience, the entire order passed by this Tribunal for AY 2011­12, dated 27/06/2018 is reproduced hereunder:-

“Challenging the order dated 29/09/2016 of the CIT(A)-4, Mumbai, the Assessing Officer(AO) has filed present appeal. The assessee is engaged in the business of distribution of films, film production, film finance, media campaign, exports of films, service projects including subtitling, hiring of equipments, video studio etc., filed its return of income on 29/09/2011 declaring total income at NIL. The case was selected for scrutiny and accordingly notice u/s. 143(2) was served upon the assessee. The Assessing Officer (A.O) completed assessment u/s. 143(3) on 28/03/2014, determining total income at Rs.61.28 lakhs.

2. Effective ground of appeal is about deleting the addition made by the AO under the head income from other sources. During the assessment proceedings, the AO found that the assessee had shown interest on fixed deposits under the head income from business. He directed it to explain as to why the interest income should not be taxed as income from other sources. After considering the submission of the assessee, he held that as per the Audit Report the nature of the business of the assessee consisted of distribution of films, production of films, film finance and media campaign, that the interest received from the deposits made with the bank was not a part and parcel of the business activities carried by it, that the surplus funds deposited had to be taxed separately, that the assessee itself had shown interest income on film loan separately in the P&L account, that the interest income on account of film related activities was to be assessed as income from other sources. Accordingly, he rejected the claim made by the assessee that the interest income from the fixed deposits should be treated as business income.

3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA) and made detailed submissions. It also relied upon certain case laws. After considering the available material, he held that it was not a simple case where idle money was part fixed deposits and the assessee had earned income, that the idle money was made productive itself by investing, that assessee was an enterprise of government of India, that it was under direct control of the Ministry of Information and Broadcasting, that the Government of India was 100% shareholder of the assessee-company, that the object of the company was to plan, promote, organize and integrate the activities of development of film industry, as per the policy of the government, that various amounts were received as advances by the assessee from Ministry of Culture, Ministry of Information and Broadcasting, Department of Land resources, Ministry of Environment and Forests, District water and Sanitation Department, that advances were received for production of films, regional language films for restoration of various regional films as per policy of 11th 5-year plan, that various advances were received by it for the business purposes, that for production of such films adequate time was required, that there were lots of complications, activities and techniques related issues for production of films, that the advances received by it could not be utilised for that reason, that with a view to safeguard the advances the company decided to deposit the money with the banks, that a general approach for taxing interest income earned on fixed deposit as income from other sources could not become a prevailing force. He referred to the various deposits made by the assessee company and the duration of the fixed deposit receipts. He further observed that advances were received from various ministries and government departments for business purposes only, that advances had been deposited on short-term basis to make them productive, that unlike other assessees the assessee company had to be reviewed after taking into consideration the peculiar facts, that the entire advances received by it could not be immediately utilised, that the surplus amounts were temporarily parked with the bank, that the investment was not from other sources but from the main source i.e. Government of India and its various departments, that the AO had only presumed the nature of the income as interest income, that the relevant facts revealed that the advances received were for the purpose of funding media release and production of big films/short films, that the process of film production would undertake different stages and would be spread over for a longer period of time. He relied upon cases of Paramount Premium Ltd. (190 ITR 259), Lok Holdings (308 ITR 356), Bihar State Co-operative bank Ltd. (39 ITR 114) and finally allowed the appeal filed by the assessee.

4. During the course of hearing before us, the Departmental Representative(DR)strongly supported the order of the AO and stated that assessee was not in business of earning interest income, that interest income was rightly assessed as income from other sources. He relied upon the cases of Tuticorin Alkali Chemicals (227 ITR72) and Sangam Power Generation (Income tax Appeal No. 87 of 2016, dtd. 31.08.2017) of the Hon’ble Allahabad High Court. The Authorised Representative(AR) relied upon the order of the FAA and stated that there was direct link between the business of the assessee and the interest income, that the advances received from various governmental agencies were utilised in an efficient manner for a limited period. He relied upon the cases of Lok Holdings( supra).

5. We have heard the rival submissions and perused the material before us. We are of the opinion that considering the facts that assessee’s business -production of films for Ministries of Government of India and various government departments-and the durations for which the amounts were kept with banks the income earned by it has to held as business income. The FAA had allowed the claim made by the assessee on the grounds that it was in the business of production of films, that the completion of films would take time, that during the intervening period the advances were deposited with bank resulting in accrual of interest income. We find that these basic finding of the FAA have not been challenged by the Department. It is also a fact that Government of India was 100% shareholder of the assessee-company and the deposit of advances with the banks was directly and inextricably linked with the business of the assessee, so the interest earned by it had to be treated as income earned from business and cannot not be treated as income from other sources. In other words, it can safely be held that the interest earned by the assessee was obviously attributable and incidental to the business carried on by it, that it would not be correct to say that this interest was totally de hors the business carried on by it. It is well-settled that interest can be assessed under the head Income from other sources, only if it cannot be brought within one or the other of the specific heads of charge. In the case before us the interest income is clearly and justifiably assessed as business income. In short, the case under consideration is not a case of depositing unutilized and surplus money by the assessee to earn interest and, therefore, the interest earned by the assessee cannot be assessed as Income from other sources.

5.1. Here, we would like to refer to the case of Lok Holdings(supra).Facts of the case are that the assessee was engaged in construction business and received monies from the purchasers of flats which it deposited with the bank. The AO assessed the interest income earned on money deposited with the bank as income from other sources. The FAA deleted the addition. The Tribunal on finding that the entire interest sprang from the business activity of the assessee and not out of any independent activity, held that the interest income received by the assessee was business income. Dismissing the appeal filed by the Department, the Hon’ble Bombay High Court held as under:

“….the Tribunal was justified in holding that the interest income received by the assessee was assessable as business income.”

As far as matter of Sangam Power Generation(supra), is concerned, we would like to mention that matter deals with different set of facts. In that matter business had yet to commence. In the case before us, the assessee is carrying on business of film production from its inception. Advances were received by assessee in its normal course of business. Similar is the case of Tuticorin Alkali. In short, both the cases do not deal with the facts of the present case. So, considering the peculiar facts and circumstances of the case, we hold that the order of the FAA does not suffer from any legal or factual infirmity and that it does not require any interference from our side. Effective ground of appeal is decided against the AO.

As a result, appeal filed by the AO stands dismissed.”

4. Similar order has been passed by this Tribunal for AY 2012-13 in ITA No. 5956/Mum/2017 in assessee’s own case, dated 17/05/2019 wherein the appeal of the revenue was dismissed.

5. We find that there is absolutely no dispute that facts of assessment years 2011-12 and 12-13 are exactly identical with the facts of AY 2013-14 i.e. the year under consideration. Respectfully following the aforesaid judicial precedent, the grounds raised by the revenue are dismissed.

6. In the result, appeal of the revenue is dismissed.

Order pronounced in the open court on this 18/11/2020

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