By TIOL News Service

NEW DELHI, JUNE 21, 2018: THE ISSUE is - Whether interest income earned by the assessee on account of fixed deposits for maintaining infrastructural facilities is liable to be treated as income for deduction u/s 80IA. NO is the answer.

Facts of the case:

The assessee company, engaged in the business of developing, maintaining and operating of infrastructure facilities. It returned income for the relevant AY. The same was selected for scrutiny. Subsequently, notices under Ss 143(2) & 142(1) along with questionnaire were issued in response to which the assessee's Chartered Accountant appeared from time to time and submitted the requisite details which were verified by the AO. During the assessment proceeding, the AO noted that the assessee had claimed deduction u/s 80-IA for profit so earned by it. The AO observed from the assessee's P&L account that the assessee had credited 'other Income'. The assessee had derived profit from the business of providing infrastructural facilities of design and construction of water treatment plant, sewage treatment plant and water supply scheme and also earned income from other sources in the form of interest & miscellaneous income.

The AO held that the interest & miscellaneous income could not be held to be derived from the business of providing infrastructural facilities as there was no direct nexus between the interest earned arid the business of providing infrastructural facilities. The AO further stated that the interest income earned on FDRs and misc. income could not be considered as profit derived from the business of developing, operating or maintaining infrastructural facilities and thereby not eligible for deduction u/s 80IA. Interest income was held to be assessable under the head 'Income from Other Sources' along with the miscellaneous income on which 80IA deduction was not eligible. Thus, the profit from developing, maintaining or operating infrastructural project which was eligible for deduction u/s 80IA, was computed and thereby reduced the claim of the assessee made u/s 80IA. On appeal, partial relief was granted by the CIT(A).

ITAT held that,

++ the basic structure of the Ss 80HH, 80IC, 80IA is in respect of exemption/benefit claimed by the assessee. The Supreme Court has taken cognizance about all the aspects regarding the interest earned on fixed deposits for the performances of bank guarantee for carrying on the business for providing performance guarantee. The Supreme Court in case of Conventional Fastners vs. CIT made it clear that interest earned on fixed deposit maintained with bank for obtaining bank guarantee is not derived from business, hence not entitle to deduction. The decision of the Apex Court is applicable in the present case which also considered the decision relied by the Counsel for the assessee i.e. Pandian Chemicals. The decision relied upon by the Counsel for the assessee are factually different and are not applicable in the present case while the decision of the Apex Court passed in the case of Conventional Fastners is more apt in the present case. Therefore, the order of the CIT(A) is set aside and appeal of the Revenue is allowed.

(See 2018-TIOL-914-ITAT-DEL)