Relief to NLC: Simpliciter Interest received for delay in payment can’t be considered as Income generated from Business Operations, eligible for Deduction, says ITAT

The Income Tax Appellate Tribunal (ITAT), Chennai Bench held that simpliciter interest received for delay in payment cannot be considered as income generated from business operations, eligible for deduction.

The issue that came up for consideration from assessee, M/s NLC India Ltd. appeal for both assessment years is disallowance of other income for computation of deduction under section 80IA of the Income Tax Act, 1961.

The assessee while computing deduction under section 80IA of the Act, has included other income being miscellaneous receipts consisting of tender from sales, hospital receipts, notice pay, hire charges of car recovery from employees, insurance claims, forfeiture deposits, etc., and also interest from others. Besides, the assessee has also included surcharge received from Electricity Boards as per the proviso to Regulation 5(3) of Central Electricity Regulatory Commission.

The AO excluded other income for the purpose of computing deduction claimed u/s.80IA of the Act, on the ground that said other income is not derived from the business in order to be eligible for claiming deduction.

The AO was further of the opinion that unless income is having first degree nexus with the main business activity, the income is not eligible for claiming the benefit of deduction provided under the Act.

On appeal, the CIT(A) upheld the findings of the AO by following the ITAT order in assessee’s own case for assessment year 2007-08 to 2010-11, where the Tribunal has upheld re-computation of income eligible for deduction under section 80IA of the Act.

The Coram consisting of V. Durga Rao and G. Manjunatha examined the claim of the assessee in light of proviso to Regulation 5(3) of Central Electricity Regulatory (terms and conditions of tariff) Regulations 2009 and found that although the assessee claims that it has received surcharge from Electricity Boards for delayed payment of receivables in respect of supply of electricity, but in principle said payment represents interest for delay in payment of dues to the assessee. Therefore, interest earned by the assessee for delay in payment of receivables cannot be characterized as income earned from business operations merely for the reason that said receipt is received from the supplier.

The Tribunal held that it is simpliciter interest received from the party for delay in payment as per terms of contract. Therefore, the same cannot be considered as income generated from business operations which is eligible for deduction under section 80IA of the Act.