Interest income from Surplus Fund invested in Short Term Deposits and Securities is ‘Other Income’: ITAT [Read Order]

Cash Deposits - Liquidated Damages

The Kolkata bench of the ITAT recently held that the interest from surplus fund invested in Short-Term Deposits and Securities is taxable as “Income from Other Sources” under the Income Tax Act, 1961.

The assessee, The New India Assurance Co. Ltd. Employees’ Co-op. Credit Society Ltd is a co-operative credit society limited, which was registered by the employees’ of the New India Assurance Co. Ltd for their mutual benefits.

When the Assessee filed nil return and a notice under section 143(2) and 142(1) of the Act were issued to the assessee. On verification, AO found that assessee claimed interest income under the head profit and gains from its business. Subsequently, AO issued show cause notice to explain the reason why the income received on investment should not be treated as income from other sources.

AO was not satisfied with the reply of Assessee and held that surplus profit invested with State Bank of India (SBI) and W.B. State Co-operative Bank Ltd and interest on such investment which are not immediately required for its business and said interest income cannot be said as profit or gain from business and treated the same as income from other sources and added Rs.39,30,537/- to the total income of the assessee.

Aggrieved, the Assessee challenged the same before CIT (A) and contended that their main object is to help the members through income generated from investment as being utilized for the credit of the society only.

The CIT (A), after considering the Assessee’s submission allowed the claim of the assessee. Now Revenue aggrieved with the order of the first appellate preferred the matter before Kolkata bench comprising M. Balaganesh, Accountant Member and S.S. Viswanethra Ravi, Judicial Member.

Before the bench, the counsel for Revenue S.K.Saha argued that the surplus fund invested in FDs in the national bank is not allowable as deduction u/s. 80P(2) of the Act. In support of his contention, he relied on the judgment of the High Court in the case South Eastern Employees’ Co-op. Credit Society and argued that the  High Court of Calcutta did not agree with the submissions of the assessee that interest earned by the assessee from the investment is also attributable to the business of providing credit facilities to its members.

While hearing the rival submissions, the Tribunal bench found from the decision of High Court of Calcutta binding on the revenue authority for the proposition that the interest income arising out of surplus fund invested in short-term deposits and securities is the income from other sources.

Finally, the bench directed to remand the issue to the file of the AO, to verify the expenses that may have been incurred in earning the impugned amount and also to find whether such investment made out from the surplus fund or out of the amount payable to its members.

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