Section 80IA Deduction Allowed on Interest from Fixed Deposits and TDS Refund for Business Purposes: Bombay High Court

Section 80IA Deduction Allowed on Interest from Fixed Deposits and TDS Refund for Business Purposes: Bombay High Court

Introduction

The Bombay High Court has held that interest on fixed deposits and TDS refund linked to business qualifies for deduction under Section 80IA of the Income Tax Act.

Factual Background

The assessee, Gateway Terminals India Pvt. Ltd., was engaged in the business of operating and maintaining a container terminal at Jawaharlal Nehru Port Trust (JNPT), which was eligible for deduction under Section 80IA of the IT Act. The assessee earned interest income from fixed deposits maintained with banks for the purpose of its business and also earned interest on refund of taxes due to wrongful deduction of TDS by its customers.

Procedural Background

The assessee filed its Return of Income claiming deduction under Section 80IA of the IT Act, which included the interest income. The Assessing Officer accepted the assessee's claim for deduction, but taxed the interest income arising out of income tax refund under the head "Income from other Sources". The assessee's appeal before the Commissioner of Income Tax (Appeals) and the ITAT were rejected.

Contentions of Parties

Assessee: The assessee argued that the interest income was earned from fixed deposits maintained for the purpose of its business and was therefore, eligible for deduction under Section 80IA.

Revenue: The revenue submitted that the assessee was free to deploy its funds in any manner it decided, but the same was immaterial for the purpose of deduction under Section 80IA.

Reasoning and Analysis

The bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla held that the placement of fixed deposits was imperative for the purpose of carrying on the eligible business of the assessee and there was a direct nexus between the fixed deposits and the eligible business. The court also held that the TDS refund received by the assessee was an integral part connected with the receipt of business income and could not be separated from the business of the assessee.

Decision

The court allowed the appeal and directed the revenue to grant deduction under Section 80IA of the IT Act to the assessee on business income in the nature of interest from fixed deposits with the bank and on interest on TDS refund.

In this case the appellant was represented by Mr. P. F. Kaka, Sr Adv with Mr. Manish Kanth i/b. Mr. Atul K. Jasani, Advocate. Meanwhile the respondent was represented by Mr. Akhileshwar Sharma, Advocate.