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April 23, 2022

Interest on a business’s ideal fund put in a bank FD is treated as business income by ITAT

by Mahesh Mara in Income Tax

Interest on a business’s ideal fund put in a bank FD is treated as business income by ITAT

Facts and Issue of the case

When a firm’s ideal fund is deposited in a bank as a fixed deposit (FD), the interest earned on the FD is recognised as business income. The assessee is a local corporation. According to the Assessing Officer, the assessee is in the construction, builder, and developer of residential and commercial buildings, among other things. The assessee received advances from customers in the course of its construction company, which were deposited in a bank account. According to him, the surplus in the bank account resulting from deposits made that is not immediately required to be used in the business is maintained in short term deposits for periods ranging from three to nine months. When the necessity arises, the assessee encashes the fixed deposits. He argued that, for commercial reasons, the assessee has deposited idle funds in short-term deposits to generate a higher rate of interest, lowering the building costs because the funds invested in the fixed deposit are eventually used to pay for the company.

Observation

 The assessee and the revenue are at odds over which head the assessee’s interest income should be assessed under. The assessed is a registered developer and builder in the construction industry. The assessee’s use of the project completion technique to recognise revenue from its construction business is likewise undeniable. In the year in question, it is clear. In the above circumstance, it is impossible to say that interest income is not closely related to the assessee’s business.

Conclusion

As a result, the assessee’s interest income on fixed deposits must be considered as business income.

Interest-on-a-businesss-ideal-fund-put-in-a-bank-FD-is-treated-as-business-income-by-ITAT.

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