HC Upholds ITAT Remand; Interest Income is Business Income per Prior Year’s Ruling.

By | November 13, 2025
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HC Upholds ITAT Remand; Interest Income is Business Income per Prior Year’s Ruling.

Issue

Whether interest income earned by an electricity distribution company from staff loans, advances, and fixed deposits, as well as miscellaneous receipts (like from the sale of tender forms), should be classified as “Business Income” (Section 28(i)) or as “Income from Other Sources” (Section 56).

Facts

  • The assessee, a company engaged in electricity distribution, filed its return for AY 2014-15.
  • The Assessing Officer (AO) treated the company’s interest income (from staff loans, advances, FDRs) and various miscellaneous receipts (sale of tender forms, supplier registration fees, power purchase rebates) as “Income from Other Sources.”
  • The AO’s reasoning was that this income was not generated from the “day-to-day business” of the assessee.
  • The Commissioner (Appeals) [CIT(A)] partly allowed the appeal, holding that the miscellaneous receipts were business income but that the interest income was correctly “Income from Other Sources.”
  • The Income Tax Appellate Tribunal (ITAT) set aside the CIT(A)’s order and remanded the matter back to the Assessing Officer for fresh consideration.
  • The Revenue challenged the ITAT’s remand order, but the High Court noted that in a previous year, this exact issue had already been decided in the assessee’s favor, holding that the interest was “directly related to the business.”

Decision

  • The High Court ruled in favour of the assessee by upholding the Tribunal’s order.
  • It held that since the issue (of interest income being business income) was already settled in the assessee’s own case in an earlier year, the ITAT’s order to remand the matter for fresh consideration (in light of that precedent) was correct.
  • The court found that no “substantial question of law” arose from the Tribunal’s order, as it was merely directing the AO to follow a binding precedent.

Key Takeaways

  • Principle of Consistency: The tax department cannot take a different stand on the same issue, in the same assessee’s case, when the facts are identical to a prior year where the issue has already been settled by an appellate authority.
  • Nexus with Business: For a company, income streams like interest on staff loans, advances to suppliers, or temporary investment of business funds in FDs are generally considered to be “directly related to” and incidental to the main business. They are correctly classified as “Business Income.”
  • Miscellaneous Receipts: Receipts from the sale of tender forms, supplier registration fees, or rebates from purchases are fundamentally part of the business operations and are, therefore, “Business Income.”
  • ITAT’s Power of Remand: The Tribunal was justified in remanding the case to the AO with the implicit direction to follow the precedent set in the assessee’s own case.
HIGH COURT OF GUJARAT
Principal Commissioner of Income-tax
v.
Paschim Gujarat Vij Company Ltd.*
BHARGAV D. KARIA and Pranav Trivedi, JJ.
R/TAX APPEAL NO. 418 of 2024†
SEPTEMBER  30, 2025
Karan G Sanghani for the Appellant. Manish J Shah for the Respondent.
ORDER
BHARGAV D. KARIA, J.- Heard learned advocate Mr.Karan G. Sanghani for the appellant and learned advocate Mr.Manish J. Shah for the respondent.
2. This Appeal is filed under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) by the appellant-Revenue arising out of the order dated 19th September, 2023 passed by the Income Tax Appellate Tribunal, Ahmedabad (For short “the Tribunal”) in Paschim Gujarat Vij Company Ltd. v. ITO [IT Appeal No. 300/Ahd/2018] for Assessment Year 2014-2015.
3. The questions of law arising in this Appeal are as under :
“i)Whether on the facts and circumstances of case and law, the Ld. Appellate Tribunalis justified in setting aside the addition of Rs.2,45,50,000/-made by the AO on account of treating Interest income earned from loans to staff and other loans as “Income from other sources” without appreciating the fact that the assessee is in the business of distribution of electricity and not in the money lending business?”
(ii)Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in taxability and treating income from miscellaneous receipts of Rs.25,02,07,000/- as business income instead of income from other sources as treated by the A.O. by merely relying upon the decision of the Ld.CIT(A) without appreciating the fact that income from interest were not generated from day to day business of assessee company and the assessee had failed to substantiate its claim with cogent and acceptable reasons with documentary evidence.?
(iii)Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in treating miscellaneous receipts “such as excess stock found on physical verification, sale of tender forms, registration fees from suppliers and contractors rebate for prompt payment by the purchaser of power etc.” as business income instead of income from other sources by merely upholding the decision of the Ld.CIT(A) and without appreciating the fact that such miscellaneous receipts were not generated from day to day business activity, and the assessee had failed to controvert the findings of the A.O., and failed to substantiate its claim with necessary documentary evidence?
4. Brief facts of the case are that the assessee-Company e-filed its return of income on 30.09.2014 declaring total income at Rs.NIL after claiming set-off of brought forward business loss and unabsorbed depreciation. Further, the assessee had shown Book Profit under Section 115JB of Rs.38,52,16,954/-. The return of income of the assessee was processed under Section 143(2) of the Act. The case of the assessee was selected for scrutiny and notice dated 04.09.2015 under Section 143(2) of the Act was issued. Thereafter notice under section 142(1) of the Act dated 19.01.2016 was issued calling for details such as audited profit and loss account, balance sheet, tax audit report etc.
5. Thereafter, Assessment Order dated 23.09.2016 was passed under Section 143(3) of the Act for Assessment Year 2014-2015 wherein, the Assessing Officer while finalising the assessment for the Assessment Year 2014-2015, treated interest income of Rs.2,45,50,000/- from staff loan and advances, fixed deposit and advance to other as well as miscellaneous receipts of Rs. 25,02,07,000/- as income from other sources instead of income from business and profession as the assessee company was engaged in business of distribution of electricity and the income was not generated from day to day business of the assessee company.
6. Being aggrieved, the assessee preferred an Appeal before the CIT (Appeals) who partly allowed the appeal of the assessee vide order dated 17.11.2017. Insofar as treating the interest income from staff loans and advances as income from other sources, the CIT(Appeals) confirmed the view of the Assessing Officer whereas insofar as miscellaneous receipts is concerned, the CIT(Appeals) was of the view that items such as excess stock found during physical verification, sale of tender forms, registration fees from suppliers and contractors, rebate for prompt payment by the purchaser of power etc. are business income and therefore to treat the same as business income whereas other items to be treated as income from other sources because they have no direct nexus with the business activity of the appellant.
7. Being aggrieved, the appellant as well as Revenue preferred appeals before the Tribunal, who by impugned order allowed the appeal of the assessee and dismissed the appeal of the Revenue.
8. Being aggrieved, the appellant Revenue has preferred the present appeal.
9. The Tribunal followed the decision of the Co-ordinate Bench on the identical issue in case of the sister concern of the assessee- Company namely Gujarat Energy Transmission v. Dy. CIT [IT Appeal No. 2855/Ahd./2015, dated 27.07.2022] wherein by order dated 27.07.2022, the issue was sent back to the file of the Assessing Officer in view of the decision of the Hon’ble Orissa High Court in case of the Odisha Power Generation Corporation Limited to decide the issue upon examining the same with regard to the head of income considering relevant evidence in light of the observation made by the Hon’ble Orissa High Court. The Tribunal also followed the decision in case of Madhya Gujarat Vij Company Ltd. v. Addl. CIT [IT Appeal No.680/Ahd/2014, dated 18.08.2023]. The Tribunal therefore, sent the matter to the Assessing Officer relying upon the aforesaid decisions.
10. Learned advocate Mr. Karan Sanghani for the appellant-Revenue submitted that though the issue is no-more res-integra in view of the decision of this Court in Tax Appeal No.63 of 2020, the judgment rendered by this Court in the said Tax Appeal is pending for adjudication before the Apex Court and therefore, the question may be admitted to keep the issue alive.
11. On the other hand, learned advocate Mr.Manish Shah for the respondent submitted that the issue is squarely covered by the decision of this Court in case of the Pr. CIT v. Gujarat Urja Vikas Nigam Ltd. [Tax Appeal No. 63 of 2020, dated 13-11-2020] which was later on considered by this Court in Uttar Gujarat Vij Co. Ltd. v. ITO ITR 729 (Gujarat)/Special Civil Application No.20400 of 2023 and other allied matters while considering the order passed by the Tribunal rejecting the application for rectification of mistake filed by the petitioner. Learned advocate Mr.Manish Shah therefore submitted that following the decision of this Court, this Appeal is liable to be dismissed.
12. Heard learned advocates for both the sides. In case of Gujarat Urja Vikas Nigam Ltd. (supra), this Court has held as under :
“13. With regard to question No.2[d], the Assessing Officer noticed that as per Schedule 14, the assessee has shown other income consisting of interest on loan and advances, incentives from CPSU, etc. The Assessing Officer was of the view that this income was to be assessed as income from other sources instead of business income shown by the assessee.
14. On appeal, the CIT(A) as well as the Tribunal held that the interest income is required to be treated as business income instead of income from other sources. The Tribunal in its order observed as under:

“10 We have heard the rival contentions and perused the material on record on this issue. The assessing Officer has treated the aforesaid income under the head income from other sources without controverting the submission of the assessee on the basis of which it was claimed that these income were of the nature of business income as elaborated in para seven of this order. The ld. CIT(A) has decided the issue in favour of the assessees taking that this issue was decided in favour of the assessee for assessment year 2009-10. During the course of appellate proceedings, the Revenue has failed to controvert the aforesaid contention and the findings of the ld. CIT (A), therefore after considering the material fact that interest earned on loan and advances from deposit placed with Mega Power Project toward sits sharing of power and interest of UL pool account received from M/s.Power Grid Corporation India Ltd were directly related to the business of the assessee, therefore, this ground of appeal of the Revenue stands dismissed.”

15. In view of above findings of acts arrived at by the Tribunal that interest earned by the assessee was directly related to the business of the assessee, no question of law much less substantial question of law arises. Therefore, appeal stands dismissed qua question No.2[d].”
13. Considering the above decision, while rendering the oral judgment in Special Civil Application No. 20400 of 2023 in case of Uttar Gujarat Vij Co. Ltd (supra), it was observed as under :
“8. Having heard learned advocates for the parties it appears that it is not in dispute that the petitioner has relied upon the decision of this court in case of Gutarat Urja Vikas Nigam Itd v. DCIT in Tax Appeal No. 63/2020 wherein, the Tax Appeal was preferred by the Revenue on the aspect as to whether interest received on staff loan is business income or not for the purpose of consideration of disallowance under section 14A of the Act. The facts of the case of Gujarat Urja Vikas Nigam Ltd v. DCIT and the facts of the case of the petitioner are identical and not different and as such, the Tribunal could not have relied upon the decision of Orissa High Court while distinguishing the facts of the case of the petitioner by ignoring the decision of the Jurisdictional High Court. More particularly, when the CIT and the Tribunal in case of the Guiarat Urja Vikas Nigam Ltd v. DCIT have held that interest income on staff loans is required to be treated as ‘business income’ instead of ‘income from other sources’ which is confirmed by this court in the aforesaid Tax Appeal.
9. In case of Gujarat Energy Transmission Corporation Ltd supra) in ITA No. 633/2013, the Coordinate Bench of the Tribunal, after considering the decision of this Court, has held that the interest on staff loans and advances are part of the ‘business income’ only. In such circumstances, the decision of the co-ordinate Bench of the Tribunal as well as this court were binding upon the Tribunal resulting into the mistake apparent on record.”
14. In view of the above view taken by this Court, we do not find any merit in this Appeal as no question of law much less any substantial question of law can be said to have arisen in the impugned order passed by the Tribunal so far as the proposed questions of law are concerned. The Appeal therefore, being devoid of any merit is accordingly dismissed.