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2021 (11) TMI 638 - HC - Income TaxIncome from the nature of interest received by the assessee in DRDO/ISRO accounts (for short ‘FD A/cs’) - taxability of interest on deposits out of funds provided by the DRDO/ISRO, both Government of India Departments, for specific projects - case of the assessee on the interest earned from FD A/cs as non-computable income - assessee is a 100% subsidiary of BrahMos Aerospace Thiruvananthapuram Limited (BATL), and Indo- Russia Joint Venture Company in which DRDO under the Ministry of Defence, Government of India holds 50.50% shares and NPO Mashinostroyenia a State Enterprise of Russian Federation holding 49.50% - Whether Appellate Tribunal is right in holding that the interest received from banks on deposits of surplus funds received by the Appellant from DRDO/ISRO, both Government of India Departments, for setting up specific projects on their behalf and returned to the DRDONSRO is to be assessed in the hands of the Appellant? HELD THAT:- In the case on hand, there is no deflection, for, right through the funds transferred belong to DRDO/ISRO, and, as a corollary, interest earned belongs to DRDO/ISRO. The Fixed Deposits are opened in the name of assessee, the Banks are correct in effecting TDS and issuing TDS certificate to the assessee. The assessee once establishing no tax liability on this component, the TDS is referred to be made over to DRDO/ISRO. In the armchair of revenue, the above aspects sound atypical to taxation. The Government Departments, since are not under obligation to pay income tax, the funds merely because are in the hands of the assessee and earn interest, the reasoning whichever way it is stated is not convincing to tax the interest income in assessee’s return and the Revenue looked at the transactions from the kaleidoscope of the letter of Income Tax Department but without appreciating the spirit of documents which have bearing on the adjudication of the issue. It is appropriate to observe that an assessee is under obligation to pay tax on its real income or income derived from one source or the other by the assessee, but not on every receipt recognized in the books of the assessee. The circumstances in Vizhinjam International Seaport [2016 (10) TMI 349 - ITAT COCHIN] are similar to the case on hand and there is inconsistency in approach by the Tribunal in the findings recorded in similar circumstances. The deliberation and the resultant view we are taking in this judgment are peculiar and particular to the fact situation of the case on hand. The computability of interest-income or any other source of income is specific to the particular case dealt with by the Court/Tribunal/Revenue. In the instant case, the objection of Revenue is not that the funds are parked by a true owner liable to tax, but parked with the assessee and thereby the obligation of tax is avoided through such an understanding. The burden in such a claim is very heavy on the assessee to establish that the income is non-computable income of assessee. Reverting to case on hand, the assessee, DRDO/ISRO are either Government Departments or Government Companies. The burden is discharged by the assessee to not go by recognition of entries in books of account, but appreciate all the circumstances while treating whether the interest is computable or non-computable income of the assessee. Hence, in the circumstances of the case, the interest income for the Assessment Year 2009-10 is non-computable income of assessee. The contrary findings recorded by the orders under appeal are illegal and unavailable. Hence, liable to be set aside and is set aside accordingly. Decided in favour of assessee.
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