Excelra Knowledge Solutions (P) Ltd. Vs DCIT (ITAT Hyderabad)
ITAT Hyderabad held that when fixed deposits are made with an investment decision and is not made for business exigencies or requirement of other business obligations. Then, benefit of section 10AA of the Income Tax Act cannot be given on such interest earned. Accordingly, appeal dismissed.
Facts- During the course of assessement proceedings, AO noted that the assessee has earned interest income on fixed deposits made with banks which has been included in the business income while computing deduction u/s 10AA of the Act. AO held that the interest income received on bank deposit is not a business income and therefore, the same is assessable to tax under the head other sources. Accordingly, AO has disallowed the claim of deduction u/s 10AA on the interest income of Rs.4,40,41,931/-.
Conclusion- Held that it is undisputed fact that the assessee has made long term deposits with the Banks which is also evident from the fact that for the A.Ys 2017-18 & 2018-19, the interest income on the same deposits with banks was assessed by the Assessing Officer as income from other sources and denied the benefit of section 10AA. Thus, it is clear that the fixed deposits made by the assessee in the case in hand are not an incidental or owing to commercial expediency but it was an investment decision taken by the assessee to earn the interest income on the surplus fund available with the assessee not required for business purposes. When the deposits were not made for business exigencies or requirement of other business obligations of the assessee like securing bank guarantee or letter of credit or margin money or security deposits etc., necessary for business which can be regarded as inextricably linked with business activity of the assessee but is a part of decision of making investment in fixed deposits for a specific motive to earn the interest income, then the income earned on such deposits cannot be regarded as directly or inextricably linked with the business activity of the assessee. The source of deposits cannot change the nature of the income in the form of interest on the fixed deposits because the export income is already considered for the benefit of section 10AA and subsequent deposits in the bank account and interest on such deposits cannot be said to have a direct nexus with the export activity of the assessee.
