Interest on Security Deposit made for Sales Tax Registration is Taxable as ‘Other Income’ : ITAT [Read Order]

While partly allowing the appeal filed by Jhabua Power Limited, Kolkata bench of Income Tax Appellate Tribunal (ITAT) recently ruled that interest on security deposit made for sales tax registration for construction of power plant is taxable under the head other income.

The assessee in the present case is a company which was set up a Thermal Power Plant during the year under consideration has filed its return of income for the year and declared total income at Rs.2,37,54,826 which comprised of interest income, capital gain from the sale of Mutual Funds, etc.

During the assessment year, the Assessing Officer (AO) has noticed that had earned interest income of Rs.9,87,836/- during the year under consideration, which was not offered to tax.

In response the Assessee submitted that the said interest income was earned on the deposits given to the various Government Organizations in connection with the construction of its Power Plant and the same, therefore, was a capital receipt not chargeable to tax.

However the AO refused to accept the contention of the Assessee and treating the interest earned by the assessee as a revenue receipt chargeable to tax, he made an addition of Rs.9,87,836 to the total income of the assessee under the head “income from other sources”.

On appeal, the CIT(A) also rejected the submissions of the Assessee and upheld the addition made by the AO. Thereafter the Assessee preferred a further appeal before the Tribunal against the order passed by the authority.

The Tribunal bench comprising of Judicial Member S.S. Viswanethra Ravi and Accountant Member P.M. Jagtap observed that the construction of Power Plant of the assessee-company was under progress during the year under consideration and in connection with the same, security deposit was required to be kept by the assessee to Commercial Tax Officer for sales-tax registration as well as with Executive Engineer for supply of water.

However, the said deposits were linked with the construction of Power Plant of the assessee and interest earned by the assessee on the said deposits was liable to be adjusted against the Project construction expenditure and the same could not be assessed as income from other sources. The CIT(A) has confirmed the addition made by the Assessing Officer to the total income of the assessee by treating the said interest income as chargeable to tax in the hands of the assessee-company under the head “income from other sources” by mistake. The bench directed the AO to delete the addition made by him while concluding the issue.