Supreme Court remands Income Tax Matter for Determination of Purpose of Short Term FD Accounts, Nature Of Income [Read Judgement]

The Supreme Court of India in a recent Appeal before it remanded an Income Tax matter back to the Assessing Officer (AO) while directing the AO to reconsider the nature of business conducted by the Assessee and the purpose for which the Short-Term Fixed Deposits (FD) had been opened by the Assessee.

The Civil Appeal, arising out of a Special Leave Petition was filed before the Supreme Court by XL India Business Services Pvt. Ltd., against the ruling of a Division Bench of the Delhi High Court in an Income Tax Appeal before it.

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The impugned appeal order by the Delhi High Court arose from the ruling of the Income Tax Appellate Tribunal, Delhi Bench on the financials of the same Assessee for the Assessment Year 2009-2010, and ascertained whether interest derived from from short-term fixed deposit made in a Bank is eligible for deduction for under Section 10-A or Section 10-B of the Income Tax Act, 1961.

Counsel appearing for the Appellant submitted that the impugned Order passed by the Delhi High Court erred in holding that “FDs were not being maintained to meet any requirement of the Bank for opening LC or any other business purpose and therefore, the interest income had to be treated as income from other sources”.

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The Counsel for the Appellant further made reference to the Order of the Income Tax Appellate Tribunal (ITAT) in a case before it having the same subject matter and pertaining to the very same Assessee, but for the subsequent Financial Year, i.e, 2010-2011.

The ITAT, in the case pertaining to F.Y. 2010-2011 remanded the matter back to the Assessing Officer for reconsideration while directing the AO to bear in mind the facts of the case and nature of business conducted by the Assessee.

The two-judge Bench of the Supreme Court of India constituted by Justice B.V. Nagarathna and Justice Nongmeikapam Kotiswar Singh took into consideration the submissions made by the Counsel for the Appellant praying for a similar relief as provided by ITAT for the F.Y. 2010-2011, and appreciated the fact that the remanded order is still under consideration by the Assessing Officer

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Therefore, in the interest of maintaining uniformity of law, the Apex Court proceeded to allow the appeal and remanded the matter back to the AO to determine the purpose for which the short-term fixed deposit accounts were opened by the Assessee in the bank, while directing the AO to be cognizant of nature of income derived by the assessee and the treatment of interest income as income from other sources or business income.

To Read the full text of the Order CLICK HERE

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