Interest on IT Refund/ FDR, Other interest and Tender fees eligible for deduction u/s 80IA

Brief of the case:

ITAT Mumbai held in the case of M/s Hiranandani Builders Vs ITO that the followings receipts were also eligible for deduction u/s 80IA considering the same to be profits from undertakings:

1. Interest on IT refund
2. Other Interest
3. FDR Interest
4. Tender fees

Further ITAT was of the view that the interest on refunds was on the TDS deducted from the lease rentals which was the main business of assesse and the TDS was also the part of lease rentals which had been received in the form of refund. So the same should be allowed for deduction u/s 80IA.

The amount of interest received on the late payment of lease rentals from the lessee should also be allowed for deduction u/s 80IA because it was the internal part of lease rentals.

The assesse had received interest on FDR amount accumulated from receipt of lease rental which was in link with the main business of the assesse. If the assesse had not invested the amount in FDR then the assesse would have repaid the loan or interest on the same which would have reduced the interest liability

Tender fees was the fees collected by the assesse when it raised tender for the construction of the assesse’s projects so that should be allowed for deduction u/s 80IA.

Facts of the case:

The assesse was operating 2 IT parks and 1 SEZ and claimed deduction u/s 80IA for profits and gain derived by an undertaking from any business referred to in sub section (4). Under the provisions of sec. 80IA(4)(iii), the deduction u/s 80IA(1) shall be allowable to an undertaking which develops, develops and operates or maintains and operates an industrial park or special economic zone notified by the Central Government in accordance with the scheme framed. The assesse also claimed the deduction of the following items:

1. Interest on IT refund
2. Other Interest
3. FDR Interest
4. Tender fees

Which AO objected and disallow the same but CIT(A) allowed the same so revenue was in appeal before ITAT.

Contention of the assesse:

Assessee gave its following view:

1.Interest on I. T. Refund of Rs.1, 12,09,8271: Lessees used to deduct the TDS as per the provisions of IT act but as assesse claimed deduction u/s 80IA so all the TDS was taken as refund and IT department paid interest for delayed payment. So as the rental receipts was the business of the assesse so TDS was also related with the business and the interest on refund of TDS should also be related with the business so the interest on IT refund should also be allowed for deduction u/s 80IA.

2.Other Interest: This interest was interest on the late payment of rental by the lessee which was as per the part of contract between the assesse and the tenants, So as the rental income was the business profits so the interest on late payment should also be considered as the profits derived from the business So should be allowed for deduction u/s 80IA.

3. FDR Interest: Interest on fixed deposit received are directly related to leased units in projects whose income were exempt, and therefore this amount should also be allowed as deduction u/s 80IA. If interest on fixed deposit had been considered as income from other sources then interest should be allowed as deduction u/s 80IA.

4.Tender Fees: This fees was collected from the contractors who were been allotted the tender for the construction of the project whose details had been furnished So should be allowed as deduction u/s 80IA.

Contention of the revenue:

Revenue relied on the decision given by that Hon’ble Supreme Court in the case of Liberty India Ltd (317 ITR 280) in which it was held that the DEPB Credit/ duty drawback was not a profit derived from the business, it was received from the central govt. So in the above case also all above amounts should not be allowed for deduction u/s 80IA.

Held by ITAT:

1.ITAT held that the above case of Liberty India would not apply in the assesse case because TDS deduction was integral part connected with the receipt of lease income and the same could not be separated from the activity carried on by the assesse. Since the lease income was the primary source of the assesse and since the TDS had been deducted from the said primary source and since the assessee was deprived of a portion of lease rent for a temporary period for the reasons beyond the control of the assessee, there was some merit in the contention of the assessee that the interest on TDS refund should be equated with the interest on delayed payment of business receipts.

2. ITAT relied on the decision Hon’ble Supreme Court in the case of Govinda Choudhary & Sons (supra) and the decision of Hon’ble jurisdictional Bombay High Court in the case of CIT Vs, Bhansali Engg. Polymers Ltd (2008)(306 ITR 194 and announced that the deduction should be allowed.

3.In case of FDR interest ITAT was of the view that as the amount of which FDR had been made in the bank was from the accumulated amount of lease rentals which was the primary business of assessee so deduction should be allowed.

4. ITAT was of the view that the Ld CIT(A) had noticed that the assessee had availed the services of various sub-contractors for the purpose of carrying our various works in the IT parks and SEZ. So the payment received from the contractors in the form of tender fees should be considered as a budiness receipt and should be allowed as deduction u/s 80IA.

Appeal of the assesse was allowed