Interest from FDRs made for Business Purposes and for getting Tender shall be treated as 'Business Income': ITAT [Read Order]

The Jaipur bench of the Income Tax Appellate Tribunal (ITAT) has held that the interest income received from the FDRs made for business purposes and for getting the tender from the Electricity Board shall be treated as business income and not as “Income from Other Sources” for the purpose of the Income Tax Act, 1961

The assessee, M/s R.G. Colonizers Pvt. Ltd., had shown interest income of Rs.12,58,998/- on the FDR and miscellaneous receipts of Rs.2,89,200/-. The AO assessed the same as income from other sources. On first appeal, the Commissioner (Appeals) confirmed the addition.

The Tribunal bench comprising Shri Sandeep Gosain, JM & Shri Rathod Kamlesh Jayantbhai, AM found that the interest income earned on FDR is part of business income as FDRs’ were made for the purpose of business for giving bank guarantees to the awarder of contract.

“For this purpose assessee has to obtain the FDR from the bank which was pledged to it. From Note No.3.0 of the financial statements which is at page No. 15 of the paper book, we noticed that the FDR of Rs.1.98 crores has been pledged with the bank for obtaining the bank guarantee. Thus, interest on FDR is part of business income. Also, the FDR were made by utilizing the cash credit limit on which interest is paid to the bank and which forms part of the business expenditure. Thus, the interest income on such FDR which was earned out of the funds placed with the bank by utilizing the bank overdraft limit is to be considered as business income and not as income from other sources,” the Tribunal said.

The Tribunal, while ruling in favour of the assessee relied on the decision in Mehru Electricals & Engg. Pvt. Ltd. wherein the Coordinate Bench of this Tribunal has held that “the FDRs were made for providing bank guarantee to the Electricity Board. Apparently, the interest on FDRs is directly connected with the industrial undertaking. Even the assessee’s argument of netting of interest income is accepted. The FDRs were made for business purposes and for getting the tender from the Electricity Board and income from interest is directly connected with the industrial undertaking.”

Chartered Accountant Shri P.C. Parwal appeared for the assessee.

To Read the full text of the Order CLICK HERE

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