High Court allowed deduction u/s 80IA allowed on interest income from fixed deposits and on interest on TDS refund
In a recent judgment, Hon’ble Bombay High Court directed the Assessing Officer to grant deduction under Section 80IA of the Income Tax Act, 1961 (the Act) to the assessee on business income in the nature of interest from fixed deposits with the bank and on interest on TDS refund.
ABCAUS Case Law Citation:
4715 (2025) (08) abcaus.in HC
In the instant case, the appellant assessee had challenged the order passed by the ITAT rejecting the claim for deduction of interest under Section 80IA of the Income Tax Act, 1961 (the Act).
The Appellant, during the relevant previous year was engaged in its only business of operating and maintaining a container terminal at a Port which was eligible for deduction under the provisions of Section 80IA of the Act.
During the said previous year assessee earned interest income from fixed deposits maintained with banks for the purpose of the business and related to the business of the Appellant. Interest was also earned on refund of taxes due to wrongful deduction of TDS by the customers of the assessee.
The fixed deposits were made as the License Agreement with the port authority, the assessee was under an obligation to replace cranes after a certain period. The failure to replace the cranes would result in a revocation of the license. Therefore, a portion of the funds were periodically deposited/kept aside by way of fixed deposits to meet the contractual obligations required to be fulfilled in order to continue the business of operating and maintaining the container terminal. Further, the interest also arose due to parking of funds in compliance of Court’s Order arising out of a tariff dispute between the appellant assessee and the Tariff Authority.
The assessee filed its Return of Income for the relevant Assessment Year claiming deduction under Section 80IA of the IT Act of its business income, which included the abovesaid interest income.
Although the Assessing Officer (AO) accepted the claim for deduction under the provisions of Section 80IA of the Act, which also included the interest earned on fixed deposits as being a part of the business income. The interest income arising out of income tax refund was taxed by the AO under the head “Income from other Sources”.
However, the CIT(A) issued an “Enhancement Notice” and rejecting the assessee’s submissions qua eligibility of interest earned on fixed deposits under Section 80IA of the IT Act as not being derived from an industrial undertaking.
The ITAT confirmed the disallowance made by the CIT(A).
The Hon’ble High Court observed that the Hon’ble Supreme Court had held that, if placement of funds is imperative for the purposes of carrying on the business, the interest income derived therefrom would be income from the assessee’s business and entitled to deduction under Section 80P (2) (a) (i) of the Act.
Further, relying on the judgement of the Hon’ble Supreme Court, the Madras High Court held that where requirement of fixed deposit was a pre-condition to enable the assessee to open a foreign Letter of Credit for the purpose of import of critical components for the manufacture, the interest income was not liable to be assessed and was eligible to be claimed as deduction.
The Hon’ble High Court observed that as a mandatory condition for operating and maintaining the port, the said License Agreement required the appellant to replace the equipment at a certain time and to plan for such replacement of equipment well ahead of such due date for replacement. The assessee had made deposits only for this purpose. Also, in a dispute, the High Court directed the assessee to collect tariff amount over and above the new tariff prescribed, subject to further orders of this Court.
The Hon’ble High Court noted that the assessee had an obligation to replace cranes costing huge amounts and also had received differential tariff under the ad-interim order of the Court. The Appellant, in order to comply with its obligations for maintaining and operating the port and accounting for differential tariffs, kept money in fixed deposits and on the interest income deduction under Section 80IA of the Act was claimed.
The Hon’ble High Court held that it was very clear that the interest earned by the assessee was directly related to the business of the assessee and therefore was deductible under Section 80IA.
Accordingly, the questions of law were answered in favour of the assessee and against the Revenue. The Revenue was directed to grant deduction under Section 80IA of the Act on business income in the nature of interest from fixed deposits with the bank and on interest on TDS refund for the relevant Assessment Year.
Download Full Judgment Click Here >>
- UCO Bank Concurrent Auditor Online Empanelment for FY 2025-26
- Section 87A rebate available for short-term capital gains – ITAT
- Homebuyer entitled to possession if their name included in list of financial creditors
- GSTN Advisory to file pending returns before expiry of three years on 01.10.2025
- Insurance premium paid for partner of the firm held as allowable expenditure
