PR. COMMISSIONER OF INCOME TAX-2 V. M/S KARNATAKA STATE POLICE HOUSING AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD

ITA/512/2022

AI Insights

The case involves an appeal by the Income Tax Department against the Karnataka State Police Housing and Infrastructure Development Corporation Ltd. (KSPHC), concerning the taxability of interest earned on unutilized government funds. The funds were part of a scheme for the development of infrastructure in Bangalore, and the interest earned was used for the same public purpose. The lower tribunal had ruled that this interest was not taxable, a decision which the Income Tax Department contested in this appeal. The High Court of Karnataka, referencing a similar case (COMMISSIONER OF INCOME TAX & ANR. VS. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPORATION), upheld the tribunal's decision, emphasizing that the interest was part of a public welfare initiative and not a profit-making activity.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 733109 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 20-01-2025
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX & ANR. VS. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPORATION
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: ASHOK KULAKARNI
• Assessee Lawyers: SANMATHI; DILIP
• Keywords: Income tax appeal; Interest on deposits; Nodal Agency; Public Purpose; Mega-City Scheme
• Section: 260-A

Judgement Text

" - 1 - NC: 2025:KHC:2087-DB ITA No. 512 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 20TH DAY OF JANUARY, 2025 PRESENT THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND THE HON'BLE MR JUSTICE G BASAVARAJA INCOME TAX APPEAL NO. 512 OF 2022 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX-2, BMTC COMPLEX, KORAMANGALA, BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -4 (3) (1), BMTC BUILDING, KORAMANGALA, BANGALORE -95 …APPELLANTS (BY SRI. SANMATHI E.I., AND SRI. DILIP M., ADVOCATES) AND: M/S. KARNATAKA STATE POLICE HOUSING AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD., (KSPHC) Digitally signed by NANDINI D Location: High Court of Karnataka - 2 - NC: 2025:KHC:2087-DB ITA No. 512 of 2022 NO.59, RICHMOND ROAD, BENGALURU -560 025 PAN-AAACK6902E …RESPONDENT (BY SRI. ASHOK A KULAKARNI, ADVOCATE) THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 25/11/2021 PASSED IN ITA NO. 185/BANG/2020 FOR THE ASSESSMENT YEAR 2012-2013. PRAYING TO (1) DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HONBLE COURT AS DEEMED FIT. THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT and HON'BLE MR JUSTICE G BASAVARAJA ORAL JUDGMENT (PER: HON'BLE MR JUSTICE KRISHNA S DIXIT) The subject matter of this appeal is substantially similar to the one heard & decided by a Co-ordinate Bench of this court in COMMISSIONER OF INCOME TAX & ANR. VS. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPORATION, (2006) 203 CTR 0422 and it goes in favour of the assessee wherein paragraph 4 reads as under: - 3 - NC: 2025:KHC:2087-DB ITA No. 512 of 2022 \"4. 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 the Planning Commission. Both the Central and the State Governments are expected to provide requisite finances for implementation of the said project. The funds from the Central and State Governments will flow directly to the specialized institutions/nodal agencies as grant and the nodal agency will constitute a revolving fund with the help of Central and State shares out of which finance could be provided to various agencies such as water, sewerage boards, municipal corporations, etc. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and, therefore, the assessee is a nodal agency formed/created by the Government of Karnataka as per the guidelines; there is no profit motive as the entire fund entrusted and the interest accrued therefrom on deposits in bank though in the name of the assessee has to be applied only for the purpose of welfare of the nation/States as provided in the guidelines; the whole of the fund belongs to the State Exchequer and the assessee has to channelise them to the objects of centrally sponsored scheme of infrastructural development for mega-city of Bangalore. Funds of one wing of the Government is distributed to the other wing of the Government for public purpose as per the guidelines issued. The monies so received, till it is utilized, is parked in a bank. The finding recorded by the Tribunal clearly shows that the entire money in question is received for implementation of the scheme which is for a public purpose and the said scheme is implemented as per the guidelines of the Central Government and, therefore, the assessee is only acting as a nodal agency of Central Government for implementation of these projects. It is not the case of the Revenue that the assessee was carrying on any business or activities of its own while implementing the scheme in question. The unutilised money, during which the - 4 - NC: 2025:KHC:2087-DB ITA No. 512 of 2022 project could not be fully implemented, is deposited in a bank to earn interest. That interest earned is also again utilised for the implementation of the mega-city scheme which is also permitted under the 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 assessee as the interest is earned out of the money given by the Government of India for the purpose of implementation of mega-city scheme.\" In view of the above, this appeal being unmeritorious, is liable to be and accordingly rejected. Sd/- (KRISHNA S DIXIT) JUDGE Sd/- (G BASAVARAJA) JUDGE RD "