The Income Tax Appellate Tribunal (ITAT), Chennai Bench, has recently, in an appeal filed before it, held that interest on fixed deposits is assessable under the head ‘income from other source’.
The aforesaid observation was made by the Chennai ITAT, when an appeal was preferred before it by the Assessee, as directed against the order passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 13.10.2021, pertaining to the assessment year 2017-18.
The brief facts of the case were that, the appellant was a partnership firm engaged in the business of home furnishing, who filed its return of income for the assessment year 2017-18 on 31.03.2018, declaring total income under Section 44AD of the Income Tax Act, 1961, estimating the net profit of Rs. 7,85,880/-. The gross turnover of the assessee for the assessment year 2017-18 included sale of goods, incentive received, interest on deposits etc.
The AO, CPC processed the return of income filed by the assessee and issued intimation under Section 143(1) of the Act on 18.01.2019, determining the total income of Rs. 12,55,770/-, by making additions towards income from house property and income from other sources.
The assessee carried the matter in appeal before the first appellant authority, and the CIT(A), NFAC, Delhi, vide their order dated 13.10.2021, dismissed appeal filed by the assessee.
The assessee carried the matter in further appeal before the Tribunal and the ITAT, Chennai Benches in ITA No. 668/Chny/2022, dated 19.09.2022, partly allowed appeal filed by the assessee with a direction to the AO to reduce additions made towards income from house property and income from other sources to be reduced from gross turnover for the purpose of estimation of net profit.
The assessee filed Miscellaneous Application under Section 254(2) of the Act, against order of the Tribunal and the ITAT vide their order dated 17.02.2023 in MA No. 06/Chny/2023, recalled the order of the Tribunal dated 19.09.2022, qua ground no. 2(b), 2(c) and 2(d) of appeal filed by the assessee.
Hearing the opposing contentions of both sides as submitted by Shri. N.V Lakshmi, the Advocate on behalf of the assessee, and by Shri. P. Sajit Kumar, the JCIT on behalf of the Revenue, as well as perusing the materials available on record, the ITAT observed:
“In so far as interest on deposits is concerned, the assessee has included interest received from deposits amounting to Rs. 55,449/- as business receipts and estimated net profit under Section 44AD of the Act. The AO has excluded interest receipts from gross receipts and assessed under the head income from other source. It was the argument of the Ld. Counsel for the assessee, that the assessee has parked surplus funds which is not immediately required for the purpose of business in fixed deposits and earned interest and thus, it partakes the nature of business receipts and assessable under the head income from business. We find that there are no merits in the argument of the ld. Counsel for the assessee, that source of fund is not relevant to decide the nature and head of income under which a particular receipt is taxable, but what is relevant is nature of receipts.”
“In this case, interest on fixed deposits is in the nature of income which is assessable under the head income from other source and this legal position is supported by the decision of Hon’ble Supreme Court in the case of Tuticorin Alkali Chemical and Fertilizers Ltd vs CIT”, the coram of Mahavir Singh, the Vice – president and Manjunatha.G, the Accountant Member added.
Thus, the ITAT finally held:
“Therefore, we are of the considered view that interest on fixed deposits is rightly assessed under the head income from other source and thus, we reject the argument of the assessee.”
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