In a recent ruling, the Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeal filed by the Hyderabad Metro Rail Ltd and held that the Govt Grants and interest on deposits etc. received by the Company is assessable under the head “Business Income”.
Assessee is a Special Purpose Vehicle company formed on behalf of the Govt. of Andhra Pradesh for interacting with the BOT Developer for setting up and operation of prestigious project of “Metro Rail Development” in Hyderabad. For the assessment year under consideration, the assessee conceded income under the heads Govt Grants, Interest on deposits and other incomes.
Assessee also claimed administrative expenditure, M.D’s remuneration and preliminary expenses written off as business expenditure.The AO disallowed the same by finding that the assessee company has not yet started its business and the expenditure claimed is pre-operative expenditure. Further, the AO assessed the business income returned by the assessee under the head “income from other sources”.
The bench found that the assessee is a special purpose vehicle formed by the Govt. of Andhra Pradesh for bringing into existence the Metro Rail System in Hyderabad.It was also found that the AO went wrong in finding that the assessee has not commenced its business.
With regard to the nature of the income earned by the assessee, under the heads (i) Govt. grant (ii) Interest on deposits and (ii) other income, the bench said that “the govt. has released the grant for carrying out the objects of the assessee and therefore, the govt. grant has to be considered as the business receipts of the assessee. The interest on deposits is the interest earned by the assessee on deposits made by the assessee of the unutilized funds as short term deposits. It is thus clear that the funds are for business purposes of theassessee and when they are not immediately needed, instead of keeping them idle, the assessee is parking them in short term deposits. The funds received by the assessee are for the purpose of the business of the assessee but it is for commercial exploitation of the unused funds, that they are parked as short term deposits. Therefore, we hold that interest income is business income.”
Relying on the Apex Court decision in SA Builders, the bench stated that where the assessee earns interest on its business receipts which are temporarily not required for business, and are parked in banks for earning of interest in order to reduce the cost, then the same attains the nature of business income.
Read the full text of the order below.
