Deduction under Section 80IA of the Income Tax Act can be claimed on interest income
Bombay High Court Grants Tax Relief to Gateway Terminals India Pvt. Ltd. Income from fixed deposits and TDS refunds deemed eligible for Section 80IA deduction.
News Report: In a significant ruling, the Bombay High Court has set aside the decision of the Income Tax Appellate Tribunal (ITAT) and granted Gateway Terminals India Pvt. Ltd. a deduction under Section 80IA of the Income Tax Act, 1961. The judgment, delivered by Justices B. P. Colabawalla and Firdosh P. Pooniwalla, recognized the interest income from fixed deposits and TDS refunds as integral to the company's eligible business, thus qualifying for tax relief.
The case arose from Gateway Terminals' operations at the Jawaharlal Nehru Port Trust, where they had accumulated interest income from fixed deposits placed for equipment replacement and funds set aside due to tariff disputes, as well as interest on TDS refunds. The company's appeals were previously rejected by the ITAT, which argued that such interest did not directly derive from the business activities of the container terminal.
However, the High Court refuted this stance, emphasizing that the fixed deposits were not merely surplus funds but were strategically placed to fulfill business obligations under the license agreement with JNPT. The court also highlighted the direct nexus between the interest income and the core business operations, thereby entitling Gateway Terminals to deductions under Section 80IA.
The court's decision underscores the importance of the "derived from" interpretation, affirming that profits and gains must have a direct nexus with the business operations to qualify for deductions. This judgment sets a precedent for similar cases where companies face challenges in claiming deductions for interest income associated with their business activities.
Bottom Line:
Deduction under Section 80IA of the Income Tax Act can be claimed on interest income arising from fixed deposits placed for business obligations and on interest from TDS refunds, provided such income has a direct nexus with the eligible business.
Statutory provision(s): Income Tax Act, 1961, Section 80IA
