Article
The ‘Interest’ing conundrum – Navigating taxation of interest earned from idle project funds
To secure funds for certain ventures requiring a substantial upfront capital outlay, companies often resort to issuing shares or incurring debt. However, these funds may not always be immediately deployed due to procedural delays in asset acquisition, statutory or contractual obligations, or the phased nature of the project. To maximize returns, companies typically invest these idle funds in interest-bearing securities. The article in this issue of Direct Tax Amicus discusses the issue of taxability of the interest income generated from these securities - whether the interest earned should be taxed as ‘income from other sources’ or it should be reduced from the value of capital work in progress recognised as ‘asset’ in the books of accounts. The authors (Harshit Khurana, Sonali Bansal and Devanshi Khurana) delve into the evolving legal landscape, including the recent decision of the Delhi High Court in International Coal Ventures, and its impact on the taxpayers. According to them, taxpayers planning to undertake similar transactions should evaluate the application of various judicial precedents to their factual matrix and take tax positions prudently.
Notifications & Circulars
- Guidelines for setting up income-tax exempted Infrastructure Debt Fund revised
- Timebound filing of Liaison Office’s Annual Statements
- Timelines for furnishing of statement by business and securitization trusts revised
- SEZ – Due date for filing Form 56F extended till 31 March for AY 2024-25
Ratio decidendi
- Non-deduction of tax while making freight payment to foreign companies at the time of ‘break bulk’ – Expenditure disallowable – ITAT Chennai
- Commissioner (Appeal) to adjudicate appeal filed against assessment order wherein the underlying issue emanates from intimation order issued by CPC – ITAT Chandigarh
- Financial transactions between Holding Co. and Subsidiary Co. would not attract deemed dividend provisions if done out of commercial expediency – ITAT Kolkata
- Invocation of Section 56(2)(viib) is unwarranted where the share premium is received by a subsidiary company from its holding company – ITAT Chennai
