A division bench of the Allahabad High Court, recently ruled that the interest received on fixed deposits by the assessee before the commencement of business must be treated as ‘Income from Other Sources’ under the provisions of the Income Tax Act, 1961.
While allowing a departmental appeal, the division bench clarified that since the income has no nexus with the business of the assessee, the same cannot be treated as ‘Business Income’.
Assessee, M/S Sangam Power Generation Company Ltd, Noida is a 100 percent subsidiary company of “M/S Jaiprakash Power Ventures Ltd”. During the relevant assessment year, Assessee company set up a Thermal Power Project in TehsilKarchana, District Allahabad and had received interest in respect of short term deposit with banks. Assessee claimed that the said amount constitute capital receipt and therefore, not liable to pay tax. However, the Assessing Officer treated the same as ‘Income from Other Sources’.
The bench noted that the amount in dispute was kept in fixed deposit is surplus capital fund possessed by Assessee after deciding to invest fruitfully during interregnum period when business is yet to be established and commenced.
Diving deeply into the facts of the case, the bench noted that interest on Fixed Deposit Receipt has no immediate nexus with the business of Assessee company. “Business is yet to commence. So long as Assessee had no business income, the interest earned can not be treated as business income. Thus in our view, it has to be treated as “income from other sources”.
Read the full text of the Judgment below.
