The Income Tax Appellate Tribunal (ITAT), Delhi Bench presided by Mr. Aakash Deep Jain, Vice President, and Dr. B. R. R. Kumar, Accountant Member has held that interest from the fixed deposit is an unearned passive income derived out of non-manufacturing activity and not eligible for deduction under section 80IC.
The appellant, Narayan Industries, is a partnership firm engaged in the business of manufacturing and export of home furnishings items like quilts, bedspreads, cushion covers, etc. The appellant during the assessment proceedings claimed deduction under section 80IC for the interest income earned from fixed deposit pledged to avail overdraft facility.
The appellant submitted that interest expenditure on overdraft facility availed exceeded interest income on fixed deposit pledged to avail such facility. There was, thus, no interest income effectively earned by the appellant and therefore, interest income was not required to be excluded for computing profit eligible for deduction under section 80-IC of the Act.
The Tribunal by relying on the decision in Pandian Chemicals Ltd. v. CIT has observed that the interest on the fixed deposits kept with the bank though may be required for obtaining an overdraft facility, can be said that it is a step removed from the business of the industrial undertaking.
The Tribunal has held that “the interest earned out of the fixed deposit made from the surplus funds is not connected to the manufacturing activity and does not form an integral part of the profits derived from the industrial unit is not eligible for deduction. Interest is an unearned passive income derived out of non-manufacturing activity”.
Adv. Mr. Rohit Jain and Adv. Ms. Manish Sharma appeared on behalf of the appellant and Mr. N. K. Bansal appeared on behalf of the revenue.
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