M/s Karnataka State Agricultural Produce Processing & Export Corporation Ltd., Bangalore V. ACIT, Bangalore

ITA 1078/BANG/2012

• Counselvise Citation: 107821114 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 27-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L V BHASKARA REDDY JT
• Assessee Lawyers: R PRATHIBHA
• Keywords: Maximum Marginal Rate; Additional evidence; Question of law; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.1078/BANG/2012 ASSESSMENT YEAR : 2008-09 M/S. KARNATAKA STATE AGRICULTURAL PRODUCE PROCESSING & EXPORT CORPORATION LTD., NO.17, RICHMOND ROAD, BANGALORE 560 025. PAN : AABCK 1918M VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. R. PRATHIBHA, ADVOCATE RESPONDENT BY : SHRI L.V. BHASKARA REDDY, JT. CIT(DR) DATE OF HEARING : 27.11.2013 DATE OF PRONOUNCEMENT : 20.12.2013 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 02.01.2012 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESS MENT YEAR 2008-09. ITA NO.1078/BANG/2013 PAGE 2 OF 15 2. THE ASSESSEE IS A COMPANY FULLY OWNED BY GOVERNM ENT OF KARNATAKA. IT IS ENGAGED IN TRADING IN AGRICULTURA L PRODUCE AND IS AN APPROVED CANALIZING AGENT FOR BANGALORE ROSE ONION AND NIGER SEEDS. IN THE BUDGET SPEECH 2006-07 OF KARNATAKA STATE ASSEMB LY, IT WAS ANNOUNCED THAT THE ASSESSEE WOULD BE PROVIDED A GRA NT OF RS.10 CRORES FOR IMPROVING AND CREATING INFRASTRUCTURAL FACILITIES I N VARIOUS PARTS OF STATE FOR IMPROVING THE EXPORT OF HORTICULTURAL PRODUCE. THE PROCEEDINGS OF THE GOVERNMENT OF KARNATAKA IS PLACED AT PAGES 6 TO 8 O F THE PAPERBOOK. THE RELEVANT PART OF THE PROCEEDINGS IN SO FAR AS IT IS MATERIAL TO THE PRESENT CASE IS AS FOLLOWS:- GOVERNMENT ORDER NO.AHD 88 HPP 2006 BANGALORE, DATED 23.01.2007 GOVERNMENT IS .PLEASED TO SANCTION NEW SCHEME NAM ELY, SUPPORT TO KAPPEC (2401-00-800-2-29) DURING 2006- 07. 2. THE DIRECTOR OF HORTICULTURE IS PERMITTED TO RE LEASE RS. 10.00 CRORES (RUPEES TEN CRORES ONLY) TO KAPPEC FOR CREATION, OF INFRASTRUCTURE FACILITIES IN VARIOUS PARTS OF TH E STATE FOR INCREASING THE EXPORT OF HORTICULTURAL PRODUCE. 3. KAPPEC SHALL MAKE EARNEST EFFORTS TO GET MATCHI NG CONTRIBUTION FROM GOVERNMENT OF INDIA THROUGH ITS A GENCIES/ SCHEMES SUCH AS ASIDE, NATIONAL HORTICULTURE MISSIO N FOR THE PURPOSE. 4. KAPPEC SHALL PREPARE VIABLE AND IMPLEMENTABLE S CHEMES AND OBTAIN APPROVAL FROM THE KAPPEC BOARD. THE APPR OVED SCHEMES WILL BE SUBMITTED TO THE DEPARTMENT OF HORT ICULTURE. 5. KAPPEC SHALL SUBMIT PROGRESS REPORTS ON PHYSICA L AND FINANCIAL ACHIEVEMENTS TO THE DIRECTOR OF HORTICULT URE EVERY MONTH, WHICH WILL REVIEWED IN THE MONTHLY MMR MEETI NGS. ITA NO.1078/BANG/2013 PAGE 3 OF 15 6. NO PART OF THE FUNDS SHALL BE UTILISED BY KAPPE C FOR MEETING EXPENSES TOWARDS SALARY AND ESTABLISHMENT. 7. THE KAPPEC SHAL1 MAKE SURE THAT UTILIZATION OF FUNDS SHALL BENEFIT FARMERS IN INCREASING THE EXPORT OF T HEIR HORTICULTURAL PRODUCE FOR GETTING BETTER RETURNS. 8. WHILE UTILISING THE FUNDS KAPPEC SHALL FOLLOW K TPP ACT AND OTHER PROCEDURES AS REQUIRED BY THE RULES. 9. THIS ORDER ISSUES WITH THE CONCURRENCE OF FINAN CE DEPARTMENT VIDE ITS NOTE NO. 417 2006 DATED 20.01.2007. 3. THE GRANT OF RS.10 CRORES GIVEN BY THE STATE GO VT. WAS KEPT IN FIXED DEPOSITS (FDS) TILL UTILIZATION FOR THE DESIRED PRO JECTS. THE ASSESSEE EARNED INTEREST ON SUCH FDS. IN THE BOOKS OF ACCOUNTS, TH E ASSESSEE CAPITALISED THE INTEREST RECEIVED ON FDS AND ADDED THE SAME TO THE GRANTS RECEIVED FROM THE GOVT. THE FOLLOWING IS THE ACCOUNTING TRE ATMENT GIVEN BY THE ASSESSEE IN THE BALANCE SHEET:- --------------------------------------------------- -------------------------------------- AS AT AS AT 31.03.2008 31.03.2009 RS. RS. --------------------------------------------------- -------------------------------------- OTHER GOVERNMENT GRANTS : GRANT FROM GOVERNMENT OF KARNATAKA FOR CREATION OF INFRASTRUCTURE FACILITIES THROUGH OUT THE STATE IN A PHASED MANNER: OPENING BALANCE 10,00,00,000 10,00,00,000 ADD: INTEREST EARNED (INCLUDING PREVIOUS YEAR FIGURE OF RS.917120/-) 1,14,59,442 - ----------------- ---------------- 11,14,59,442 10,00,00,000 ----------------- ----------------- ITA NO.1078/BANG/2013 PAGE 4 OF 15 4. IN THE PROFIT & LOSS ACCOUNT, THE ASSESSEE DID NOT DISCLOSE THE INTEREST INCOME. SCHEDULE-11 TO THE PROFIT & LOSS ACCOUNT AND OTHER INCOME WAS AS FOLLOWS:- --------------------------------------------------- -------------------------------------------------- FOR THE YEAR RS. RS. --------------------------------------------------- -------------------------------------------------- OTHER INCOME SCHEDULE 11 INTEREST ON DEPOSITS 1,30,62,373 LESS: INTEREST RECEIVED TRANSFERRED TO RESPECTIVE GOVERNMENT GRANTS TREATED AS CAPITAL RECEIPT 1,05,43,773 25,18,600 --------------------------------------------------- ------------------------------------------------- 5. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INTEREST RECEI VED ON GOVERNMENT GRANTS PARKED IN FDS OF RS.1,05,43,773 BE NOT TREAT ED AS INCOME FROM OTHER SOURCES AND BROUGHT TO TAX. IN REPLY, THE ASSESSEE POINTED OUT THAT IT WAS A FULLY OWNED GOVT. COMPANY AND THEREFORE WAS S UBJECT TO AUDIT BY THE AUDITOR COMPTROLLER GENERAL OF INDIA (AG). THE ASS ESSEE POINTED OUT THAT AGS OFFICE HAD ADDRESSED LETTERS TO THE STATUTORY AUDITORS OF THE ASSESSEE DATED 31.08.2007 RELEVANT FOR THE A.Y. 2007-08 IN W HICH THEY POINTED OUT THAT THE ASSESSEE SHOULD NOT SHOW THE INTEREST INCO ME EARNED ON GRANT AMOUNT DEPOSITED IN THE BANK PENDING UTILIZATION AN D THAT THE SAME SHOULD BE CAPITALISED AS PART OF THE GRANT. IT HAS ALSO B EEN POINTED OUT IN THE AFORESAID LETTER THAT AS PER THE ACCOUNTING POLICY- 7 OF THE ASSESSEE, GRANTS ITA NO.1078/BANG/2013 PAGE 5 OF 15 RECEIVED ARE TREATED AS CAPITAL GRANTS AND SHOWN UN DER RESERVES & SURPLUS. THEREFORE THERE IS AN OVERSTATEMENT OF LI ABILITY AND UNDERSTATEMENT OF RESERVES & SURPLUS. THE ASSESSEE ALSO POINTED OUT THAT THE EXPERT ADVISORY COMMITTEE OF ICAI, ON A QUERY W ITH REGARD TO TREATMENT OF INTEREST ACCRUING ON SHORT TERM DEPOSITS MADE WI TH THE BANKS OUT OF GRANTS-IN-AID RECEIVED FROM GOVT. OF INDIA, HAS OPI NED THAT THE TREATMENT OF SUCH INTEREST INCOME WOULD DEPEND ON THE TERMS OF T HE AGREEMENT UNDER WHICH THE GRANT WAS GIVEN. IF THE AGREEMENT PROVID ES THAT THE INTEREST WILL BE USED ONLY FOR THE SAME PURPOSE FOR WHICH THE GRA NT IS USED, THEN THE SAME SHOULD BE ADDED TO THE GRANT AND ACCOUNTED IN THE BALANCE SHEET BY ROUTING IT THROUGH THE INCOME & EXPENDITURE ACCOUNT . IF THE TREATMENT PROVIDES THAT THE INTEREST SHOULD BE USED AS GENERA L INCOME AND NOT FOR SPECIFIC PURPOSE OF THE GRANT, THEN IT SHOULD BE SH OWN AS REVENUE RECEIPT. IT WAS FURTHER OPINED THAT IF THE GRANT IS SILENT, THEN IT WOULD BE ADVISABLE THAT SUCH INCOME SHOULD BE ADDED TO THE EARMARKED F UND BY ROUTING IT THROUGH THE INCOME & EXPENDITURE ACCOUNT. THE ASSES SEE ALSO POINTED OUT THAT THE GOVERNMENT HAS THREATENED TO TAKE BACK THE GRANT IF THE SAME IS NOT UTILIZED AND THAT EVENT THE ASSESSEE WOULD HAVE TO RETURN THE GRANT AS WELL AS THE INTEREST EARNED ON TEMPORARY PARKING OF THE GRANT IN FIXED DEPOSITS. 6. THE AO, HOWEVER, WAS OF THE VIEW THAT THE GOVERN MENT ORDER GIVING THE GRANT WAS SILENT ON THE TREATMENT OF INTEREST I NCOME. HE THEREFORE HELD THAT THE INTEREST INCOME IS REVENUE IN NATURE AND H AS TO BE TREATED AS ITA NO.1078/BANG/2013 PAGE 6 OF 15 INCOME OF THE ASSESSEE. ACCORDINGLY, THE INTEREST INCOME IN QUESTION WAS BROUGHT TO TAX BY THE AO. 7. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED APPEAL BEFORE THE CIT(APPEALS). BEFORE THE CIT(A); THE AS SESSEE, BESIDES REITERATING THE STAND TAKEN BEFORE THE AO, FURTHER BROUGHT TO THE NOTICE OF THE CIT(A) THAT IN IDENTICAL CIRCUMSTANCES, THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPORATION ( KUIDFC ), 284 ITR 582 (KAR) , HELD THAT INTEREST EARNED BY THE GOVERNMENT NODAL AGENCY SET UP FOR DEVELOPMENT ACTIVITIES ON FUNDS PROVIDED BY CENTRAL GOVERNMENT, BUT PARKED IN BANK FOR THE PERIOD OF NON-UTILISATION IS NOT INCOME CHARGEABLE TO TAX. THE ASSESSEE THUS PLEADED THAT INTEREST INCOME SHOULD NOT BE BROUGHT TO TAX. 8. THE CIT(A), HOWEVER, HELD THAT THE FACTS OF THE ASSESSEES CASE WERE DIFFERENT FROM THE FACTS OF THE CASE DECIDED B Y THE HONBLE KARNATAKA HIGH COURT IN KUIDFC (SUPRA) . ACCORDING TO THE CIT(A), KUIDFC WAS ENGAGED IN WELFARE ACTIVITIES FOR TRANSFORMING BANG ALORE TO A MEGA CITY, CONSTRUCTION & DEVELOPMENT OF FLYOVERS ETC. AND WAS NOT ENGAGED IN ANY ACTIVITY OF EARNING PROFIT THROUGH COMMERCIAL ACTIV ITY. HE WAS OF THE VIEW THAT THE ASSESSEE IN THE PRESENT CASE WAS A COMPANY , WITH THE MAIN OBJECT OF DEVELOPMENT OF QUALITY OF AGRICULTURAL PRODUCE A ND ALSO EXPORTS OF ITA NO.1078/BANG/2013 PAGE 7 OF 15 AGRICULTURAL PRODUCE. HE THEREFORE HELD THAT THE D ECISION OF THE HONBLE KARNATAKA HIGH COURT WILL NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE. 9. THE NEXT ASPECT CONSIDERED BY THE CIT(A) WAS THA T THOUGH THE GOVERNMENT HAS THREATENED TO TAKE BACK THE GRANT GI VEN TO THE ASSESSEE BECAUSE OF NON-UTILISATION, NO SUCH RETURN OF GRANT WAS MADE BY THE ASSESSEE. HE THEREFORE HELD THAT THE ASSESSEE WAS THE OWNER OF THE INTEREST INCOME AND IT CANNOT BE ARGUED THAT INTERE ST INCOME DID NOT BELONG TO THE ASSESSEE, BUT TO THE GOVERNMENT. THE CIT(A) ALSO REJECTED THE ARGUMENT OF THE ASSESSEE THAT SINCE THE GRANT WAS M ADE FOR CAPITAL PURPOSES, INTEREST EARNED ON DEPLOYMENT OF SUCH FUN DS SHOULD ALSO BE CAPITALISED AND NOT TREATED AS REVENUE RECEIPT. TH E CIT(A) THEREAFTER REFERRED TO THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF TUTICORIN ALKALI & CHEMICALS LTD. V. CIT, 227 ITR 1 72 (SC) , CIT V. COROMONDEL CEMENTS LTD., 234 ITR 412 (SC) AND CIT V. BOKARO STEEL LTD., 236 ITR 315 (SC) AND CONCLUDED THAT THE INTEREST INCOME EARNED ON DEPOSITS PARKED TEMPORARILY WOULD BE INCOME CHARGEA BLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 10. FOR ALL THE ABOVE REASONS, THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. 11. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. ITA NO.1078/BANG/2013 PAGE 8 OF 15 12. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSE L FOR THE ASSESSEE, WHO REITERATED THE STAND OF THE ASSESSEE AS TAKEN B EFORE THE CIT(A). FURTHER RELIANCE WAS PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. M/S. INDIA TELEPHONE INDUSTRIES V. CIT, ITA 739/2009 DAT ED 18.03.2013 , WHEREIN THE SUBSTANTIAL QUESTION OF LAW CONSIDERED BY THE HONBLE KARNATAKA HIGH COURT WAS AS TO WHETHER GRAN T IN AID GIVEN BY THE GOVERNMENT IS CAPITAL RECEIPT OF REVENUE RECEIPT. IN OUR VIEW, THE QUESTION IN THE PRESENT CASE IS WITH REGARD TO INTEREST RECE IVED ON GRANT IN AID PENDING UTILIZATION AND THEREFORE THE AFORESAID DEC ISION WOULD NOT BE OF ANY RELEVANCE TO THE PRESENT CASE. 13. THE LD. COUNSEL FOR THE ASSESSEE ALSO PLACED RE LIANCE ON THE DECISION OF THE ITAT AHMEDABAD BENCH IN THE CASE OF SAR INFRACON PVT. LTD. V. ITO, ITA NO.1079 & 1080/AHD/2010 FOR A.YL. 2005-06 & 2006-07, ORDER DATED 15.02.2013. THE QUESTION BEFORE THE TRIBUNAL IN THE AFORESAID CASE WAS WITH REGARD TO INTEREST EARNED O N THE CENTRAL GRANT GIVEN BY THE CENTRAL GOVT. THE TRIBUNAL IN THE AFO RESAID DECISION REFERRED TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT I N THE CASE OF GUJARAT MUNICIPAL FINANCE BOARD V. DCIT, 221 ITR 317 (GUJ) WHEREIN IT WAS HELD THAT INTEREST RECEIVED IN RESPECT OF GRANT IN AID CANNOT BE TREATED AS INCOME OF THE ASSESSEE IN VIEW OF THE SPECIFIC D IRECTIVE OF THE GOVERNMENT THAT INTEREST EARNED WILL BE TREATED AS PART OF GRANT IN AID. THE ITA NO.1078/BANG/2013 PAGE 9 OF 15 TRIBUNAL ULTIMATELY HELD FOLLOWING THE DECISION OF THE GUJARAT HIGH COURT THAT INTEREST INCOME RECEIVED ON GRANT IN AID PARKED IN FD PENDING UTILIZATION IS NOT CHARGEABLE TO TAX. 14. THE LD. DR RELIED ON THE ORDER OF THE CIT(A). 15. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO FILED BEFORE US AN APPLICATION TO ADMIT THE FOLLOWING DOCUMENTS AS ADD ITIONAL EVIDENCE:- SL. NO. PARTICULARS PAGE NOS. 1 COPY OF THE LETTER DATED 12.11.2013 RECEIVED FROM GOVERNMENT OF KARNATAKA 1 2 2 COPY OF THE LETTER DATED 18.06.2013 FILED BEFORE GOVERNMENT OF KARNATAKA 3 6 3 COPY OF EIGHT MEETING OF STATE LEVEL SANCTIONING COMMITTEE ON RASHTRIYA VIKAS YOJANA DATED 16.03.2012 7 - 19 16. IN THE APPLICATION FILED FOR ADMITTING ADDITION AL EVIDENCE, IT HAS BEEN SUBMITTED THAT THESE DOCUMENTS TRANSPIRED AFTER THE CONCLUSION OF THE PROCEEDINGS BEFORE THE CIT(A). IT HAS FURTHER BEEN SUBMITTED THAT THE ABOVE DOCUMENTS CLEARLY SHOW THAT THE GOVERNMENT OF KARNATAKA HAD SPECIFICALLY DIRECTED THAT INTEREST EARNED ON DEPOS ITS OF GRAND IN AID PENDING UTILIZATION SHOULD BE TREATED AS ADDITIONAL GRANT O F THE SCHEME AND NOT TREATED AS INCOME OF THE COMPANY. WE ARE OF THE VI EW THAT THE DOCUMENTS FILED BY WAY OF ADDITIONAL EVIDENCE ARE NECESSARY F OR RENDERING A DECISION ITA NO.1078/BANG/2013 PAGE 10 OF 15 ON THE ISSUE BEFORE THE TRIBUNAL AND THEREFORE THE SAME ARE ADMITTED AS ADDITIONAL EVIDENCE. 17. IT IS SEEN FROM THE ADDITIONAL DOCUMENTS THAT G OVERNMENT OF KARNATAKA HAS INFORMED THE ASSESSEE VIDE LETTER DAT ED 12.11.2013 AND 18.06.2013 THAT INTEREST EARNED ON GOVERNMENT GRANT S SHOULD ALSO BE SPENT FOR THE PURPOSE FOR WHICH THE GRANT IS GIVEN. REFERENCE HAS BEEN MADE IN THIS LETTER TO THE PROCEEDINGS OF THE 8 TH MEETING OF THE STATE LEVEL SANCTION COMMITTEE OF RASHTRIYA KRISHI VIKAS YOJANA HELD ON 16.03.2012. IN THE AFORESAID PROCEEDINGS, THE COMMITTEE CONSIDE RED THE UTILIZATION OF INTEREST ON UNSPENT GRANTS AND DIRECTED THAT SUCH I NTEREST SHOULD ALSO BE SPENT FOR THE PURPOSE FOR WHICH THE GRANTS WERE GIV EN. THE LD. COUNSEL FOR THE ASSESSEE THUS SUBMITTED THAT THE AFORESAID DOCU MENTS CLEARLY SHOW THAT THE INTEREST RECEIVED ON TEMPORARY PARKING OF GRANT IN AID PENDING UTILIZATION CANNOT BE TREATED AS INCOME, BUT HAS TO BE TREATED AS PART OF GRANT IN AID. 18. THE LD. DR, HOWEVER, SUBMITTED THAT THESE LETTE RS EMANATED AFTER THE GRANT IN AID WAS GRANTED BY THE GOVERNMENT OF KARNA TAKA AND WILL THEREFORE HAVE NO EFFECT. ACCORDING TO HIM, THE PROCEEDINGS OF GOVERNMENT OF KARNATAKA BY WHICH A SUM OF RS.10 CRORES WAS GRANTE D DID NOT CONTAIN ANY SUCH CONDITION AND THE AFORESAID CORRESPONDENCE CAN NOT ALTER THE CONDITIONS UNDER WHICH THE ORIGINAL GRANT IN AID WA S GIVEN. ITA NO.1078/BANG/2013 PAGE 11 OF 15 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT I S NO DOUBT TRUE THAT AS PER ORIGINAL PROCEEDINGS VIZ., GOVERNMENT ORDER DATED 23.01.2007 WHEREBY A SUM OF RS.10 CRORES WAS TO BE GRANTED TO THE ASSESSEE AS GRANT IN AID FOR CREATION OF INFRASTRUCTURAL FACILITIES I N VARIOUS PARTS OF THE STATE FOR INCREASING THE EXPORT OF HORTICULTURAL PRODUCE, THE RE WAS NO CONDITION THAT INTEREST EARNED ON THE PARKING OF GRANT IN AID SHOU LD ALSO BE TREATED AS PART OF GRANT IN AID OR SPENT ONLY FOR THE PURPOSE FOR W HICH THE GRANT IN AID WAS GIVEN. NEVERTHELESS, FROM THE ADDITIONAL EVIDENCE, IT BECOMES CLEAR THAT THE GOVERNMENT IS OF THE VIEW THAT SUCH INTEREST SH OULD ALSO BE TREATED AS PART OF GRANT IN AID. IN THAT VIEW OF THE MATTER, WE ARE OF THE VIEW THAT THE OPINION OF EXPERT ADVISORY COMMITTEE OF ICAI THAT T HE AFORESAID AMOUNT SHOULD BE CAPITALISED AND NOT TREATED AS INCOME WIL L BE APPLICABLE. 20. WE ARE ALSO OF THE VIEW THAT THE DECISION OF T HE HONBLE KARNATAKA HIGH COURT IN THE CASE OF KUIDFC ( SUPRA ) WILL BE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE QUESTION BEFORE THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPN. 284 ITR 582 (KARN) WAS AS TO WHETHER INTEREST EARNED BY GOVERNMENTAL NODAL AGENC Y SET UP FOR DEVELOPMENT ACTIVITIES ON FUNDS PROVIDED BY CENTRAL GOVERNMENT BUT PARKED IN BANKS FOR THE PERIOD OF NON-UTILISATION I S INCOME CHARGEABLE TO TAX. THE HONBLE HIGH COURT ANSWERED THE QUESTION IN THE NEGATIVE. THE FACTS OF THE CASE BEFORE THE COURT WERE THAT M/S KA RNATAKA URBAN ITA NO.1078/BANG/2013 PAGE 12 OF 15 INFRASTRUCTURE DEVELOPMENT AND FINANCIAL CORPORATIO N (FOR SHORT HEREINAFTER REFERRED TO AS THE ASSESSEE) WAS A FULLY KARNATAK A STATE GOVERNMENT OWNED COMPANY. IT WAS APPOINTED AS A NODAL AGENCY F OR THE IMPLEMENTATION OF THE MEGA-CITY SCHEME WORKED OUT B Y THE PLANNING COMMISSION OF MINISTRY OF URBAN AND EMPLOYMENT FOR DEVELOPMENT OF URBAN INFRASTRUCTURE TO BANGALORE CITY. THE CENTRAL GOVERNMENT HAS PROVIDED THE MONEY TO THE ASSESSEE FOR IMPLEMENTING THE SAID SCHEME. THE MONEY SO RECEIVED FROM THE GOVERNMENT OF INDIA WAS PARKED BY THE ASSESSEE IN VARIOUS BANK DEPOSITS DURING THE UNUTIL ISED PERIOD. THE INTEREST EARNED DURING THE YEAR ON THESE DEPOSITS WERE TRANS FERRED TO THE MEGA-CITY SCHEME ACCOUNT DIRECTLY WITH AN APPROPRIATE DISCLOS URE IN THE NOTES TO THE ACCOUNTS. THE ASSESSEE HAS BEEN INVOLVED IN OTHER P ROJECTS OF DEVELOPMENT OF INFRASTRUCTURE APART FROM THE ACTIVI TY AS A NODAL AGENCY FOR THE IMPLEMENTATION OF THE MEGA-CITY SCHEME UNDERTAK EN BY THE GOVERNMENT OF INDIA. THE INTEREST EARNED AND RECEIV ED BY THE ASSESSEE OUT OF THE AMOUNT WHICH IT HAD RECEIVED FROM THE CE NTRAL AND STATE GOVERNMENTS AND DEPOSITED IN VARIOUS BANKS, WAS TRE ATED AS AN INCOME OF THE ASSESSEE AND THE AO BROUGHT THE AFORESAID AMOUN TS TO TAX. THE TRIBUNAL HELD THAT THE ASSESSEE WAS MERELY A TRUSTE E OF FUNDS ENTRUSTED TO CARRY OUT THE OBJECTS OF THE GOVERNMENT WHILE IMPLE MENTING THE SCHEME. THE ASSESSEE IN FACT ACTED AS AN AGENT OF THE GOVER NMENTS OF BOTH THE CENTRAL AND THE STATE FOR IMPLEMENTING THE SCHEME O F THE GOVERNMENT. THIS BEING THE FACTUAL POSITION, THE LOWER AUTHORIT IES COMMITTED SERIOUS ITA NO.1078/BANG/2013 PAGE 13 OF 15 ERROR IN TREATING THE INTEREST AS INCOME OF THE ASS ESSEE AND BRINGING THE SAME TO TAX. ON FURTHER APPEAL BY THE REVENUE TO T HE HIGH COURT, THE HONBLE HIGH COURT HELD: THE MATERIAL ON RECORD SHOWS THAT THE VERY PURPOSE OF CONSTITUTION OF THE ASSESSEE WAS TO ACT AS A NODAL AGENCY FOR IMPLEMENTATION OF MEGA-CITY SCHEME WORKED OUT BY TH E PLANNING COMMISSION. BOTH THE CENTRAL AND THE STATE GOVERNMENTS ARE EXPECTED TO PROVIDE REQUISITE FINAN CES FOR IMPLEMENTATION OF THE SAID PROJECT. THE FUNDS FROM THE CENTRAL AND STATE GOVERNMENTS WILL FLOW DIRECTLY TO THE SPE CIALISED INSTITUTIONS/NODAL AGENCIES AS GRANT AND THE NODAL AGENCY WILL CONSTITUTE A REVOLVING FUND WITH THE HELP OF CENTRA L AND STATE SHARES OUT OF WHICH FINANCE COULD BE PROVIDED TO VA RIOUS AGENCIES SUCH AS WATER, SEWERAGE BOARDS, MUNICIPAL CORPORATIONS, ETC. THE OBJECTIVE IS TO CREATE AND M AINTAIN A FUND FOR THE DEVELOPMENT OF INFRASTRUCTURAL ASSETS ON A CONTINUING BASIS AND THEREFORE, THE ASSESSEE IS A N ODAL AGENCY FORMED/CREATED BY THE GOVERNMENT OF KARNATAK A AS PER THE GUIDELINES; THERE IS NO PROFIT MOTIVE AS TH E ENTIRE FUND ENTRUSTED AND THE INTEREST ACCRUED THEREFROM ON DEP OSITS IN BANK THOUGH IN THE NAME OF THE ASSESSEE HAS TO BE A PPLIED ONLY FOR THE PURPOSE OF WELFARE OF THE NATION/STATE S AS PROVIDED IN THE GUIDELINES; THE WHOLE OF THE FUND B ELONGS TO THE STATE EXCHEQUER AND THE ASSESSEE HAS TO CHANNEL ISE THEM TO THE OBJECTS OF CENTRALLY SPONSORED SCHEME O F INFRASTRUCTURAL DEVELOPMENT FOR MEGA-CITY OF BANGAL ORE. FUNDS OF ONE WING OF THE GOVERNMENT IS DISTRIBUTED TO THE OTHER WING OF THE GOVERNMENT FOR PUBLIC PURPOSE AS PER THE GUI DELINES ISSUED. THE MONIES SO RECEIVED, TILL IT IS UTILISED , IS PARKED IN A BANK. THE FINDING RECORDED BY THE TRIBUNAL CLEARLY SHOWS THAT THE ENTIRE MONEY IN QUESTION IS RECEIVED FOR IMPLEM ENTATION OF THE SCHEME WHICH IS FOR A PUBLIC PURPOSE AND THE SA ID SCHEME IS IMPLEMENTED AS PER THE GUIDELINES OF THE CENTRAL GOVERNMENT AND THEREFORE, THE ASSESSEE IS ONLY ACTI NG AS A NODAL AGENCY OF CENTRAL GOVERNMENT FOR IMPLEMENTATI ON OF THESE PROJECTS. IT IS NOT THE CASE OF THE REVENUE T HAT THE ASSESSEE WAS CARRYING ON ANY BUSINESS OR ACTIVITIES OF ITS OWN WHILE IMPLEMENTING THE SCHEME IN QUESTION. THE UNUT ILISED MONEY, DURING WHICH THE PROJECT COULD NOT BE FULLY IMPLEMENTED, IS DEPOSITED IN A BANK TO EARN INTERES T. THAT INTEREST EARNED IS ALSO AGAIN UTILISED FOR THE IMPL EMENTATION OF THE MEGA-CITY SCHEME WHICH IS ALSO PERMITTED UNDER THE ITA NO.1078/BANG/2013 PAGE 14 OF 15 SCHEME. THEREFORE, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR ANY PREVIOUS YEAR THE INTEREST ACCRUED ON BANK DEPOSITS CANNOT BE TREATED AS AN INCOME OF THE ASSE SSEE AS THE INTEREST IS EARNED OUT OF THE MONEY GIVEN BY TH E GOVERNMENT OF INDIA FOR THE PURPOSE OF IMPLEMENTATI ON OF MEGA-CITY SCHEME. THEREFORE, THERE IS NO ERROR IN T HE CONCLUSION REACHED BY THE TRIBUNAL THAT THERE WAS N O INCOME EARNED BY WAY OF INTEREST BY THE ASSESSEE AND SETTI NG ASIDE THE ORDER OF AO WHICH IS AFFIRMED BY THE FIRST APPE LLATE AUTHORITY. THE FINDING GIVEN BY THE TRIBUNAL IS PUR ELY A QUESTION OF FACT. NO SUBSTANTIAL QUESTION OF LAW IS INVOLVED IN THIS APPEAL AND THEREFORE, THIS APPEAL IS LIABLE TO BE DISMISSED AT THE STAGE OF ADMISSION ITSELF. 21. WE ARE OF THE VIEW THAT THE AFORESAID DECISION OF THE HONBLE KARNATAKA HIGH COURT WILL CLEAR APPLY TO THE FACTS OF THE PRESENT CASE. THE CIT(A) HAS NOT FOLLOWED THE AFORESAID DECISION ON T HE BASIS THAT KUIDFC WAS ENGAGED IN WELFARE ACTIVITIES TO TRANSFORM BANG ALORE TO A MEGA CITY, WHEREAS THE ASSESSEE WAS ENGAGED IN TRADING OF AGRI CULTURAL PRODUCE. IN OUR VIEW, THIS DISTINCTION SOUGHT TO BE MADE OUT BY THE CIT(A) CANNOT BE ACCEPTED. THE ASSESSEE AS WELL AS KUIDFC ARE ENGAG ED IN WELFARE ACTIVITY WHOLLY OWNED BY STATE GOVERNMENT. KUIDFC IS ALSO A COMPANY. THE ASSESSEE IS ALSO ENGAGED IN WELFARE ACTIVITY AN D FORMED FOR THE PURPOSE OF HELPING THE AGRICULTURAL PRODUCE AND PRO CESSION OF EXPORT. THEREFORE THE RATIO LAID DOWN BY THE HONBLE KARNAT AKA HIGH COURT IN THE CASE OF KUIDFC ( SUPRA ) WILL CLEARLY APPLY TO THE FACTS OF THE PRESENT CA SE ALSO. IN THAT VIEW OF THE MATTER, WE HOLD THAT THE INTEREST INCOME IN QUESTION CANNOT BE BROUGHT TO TAX AS INCOME OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED. ITA NO.1078/BANG/2013 PAGE 15 OF 15 22. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF DECEMBER, 2013. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 20 TH DECEMBER, 2013. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.