Delhi High Court rules against tax on income from FDRs until ownership is proved

Delhi High Court rules against tax on income from FDRs until ownership is proved

The revenue department contended that ITAT erred in deleting the additional amount

The Delhi High Court has held that tax is not leviable on the interest income from Fixed Deposit Receipts (FDRs) till the date of the final arbitral award where the ownership of the FDRs is confirmed.

The assessee, Rajdarbar Heritage Venture Ltd received an arbitral award wherein the Income Tax Appellate Tribunal (ITAT) comprising three retired judges passed an order that FDRs were made in the name of the respondent-assessee by virtue of the October 2021 consensual order.

The department approached the high court contending that ITAT erred in deleting the additions of Rs.8,57,25,871 and Rs.16,15,54,801 for the Assessment Years 2012-13 and 2013-14, respectively. It stated that the assessing officer (AO) ignored the fact that the FDRs were in the name of the assessee and the interest accrued was credited only in the name of the assessee. The share of the disputed parties in the interest would arise only after payment of due taxes.

The bench comprising Justice Manmohan held, "The court is in agreement with the finding of the two appellate authorities that till the final award was passed by the tribunal determining the ownership of the FDRs and interest, it could not be said that the interest income had crystallized in the respondent's hands. It cannot be held to be the income of the respondent-assessee under the Income Tax Act, 1961."