2023 (11) TMI 403 - AT - Income Tax

Accrual of income - Taxability of income - interest income generated on the funds received from Gol - ownership of Interest earned - as per revenue assessee has not included the same in its ITR as income from interest as per provision of section 194A - AO made addition of the interest in the hands of the assessee treating it as the income from other sources u/s. 56 - HELD THAT - As decided in Handicrafts Development Corporation 2020 (5) TMI 410 - ITAT DELHI when an assessee collects certain income on behalf of Government and remits the income back to the government and TDS is deducted in the name of assessee then in all practical purposes income collected by the assessee is its income in hands of the assessee and the rent paid back to the Government is its expenses and the TDS credit/refund will be provided to the assessee in whose name TDS has been deducted. Hence, in this situation also there would be no income chargeable to tax. As relying on DELHI STATE INDUSTRIAL DEVELOPMENT 2007 (4) TMI 150 - HIGH COURT, DELHI CIT(A) held that the interest income generated on funds owned by Gol is not an income in the hands of the appellant company but it is the income of Gol and accordingly it is not required to be taxed in the hands of the Appellant Company. Therefore, the ld. CIT(A) held that the action of the AO treating the interest income in the hands of the appellant is not sustainable on the facts of the case as well as the law. Before us, as submitted the Entire interest earned has already been deposited in to the consolidated fund of India by way of challans. Since the entire amounts received as interest stands deposited in the consolidated fund of India, we hold that no addition is called for in the hands of the assessee. For the limited purpose of reconciliation of the interest earned and deposited in the CFI, we direct the assessee to furnish the entire details of receipt of interest income earned, TDS deducted and the total amounts deposited in CFI before the AO in a consolidated statement, which the AO shall verify and accord the benefit. Appeals of the Revenue are dismissed.

Summary

Issues involved:
The issues involved in the judgment are related to the treatment of interest income generated on funds received from the Government of India (GOI) by a company engaged in developing national highways and infrastructure projects. The key issues include whether the interest income should be considered as income of the company for tax purposes, the justification of deleting the addition made by the Assessing Officer, and the treatment of TDS claimed by the company.

Details of the Judgment:

Issue 1: Addition of Interest Income
The Appellate Tribunal considered the appeal filed by the Revenue against the order of the CIT(A) regarding the deletion of the addition of interest income of Rs. 191,34,88,102 made by the Assessing Officer. The Tribunal examined the nature of the funds received by the company from GOI and the purpose for which they were utilized. The company, NHIDCL, held the funds provided by GOI in a fiduciary capacity and the interest generated on these funds was credited to the government fund, not to the company. The Tribunal noted that the ownership of the interest earned clearly belonged to GOI, as evidenced by the company depositing the interest in the Consolidated Fund of India. The Tribunal relied on various judicial pronouncements and held that the interest income was not the income of the company but of GOI. Therefore, the Tribunal dismissed the appeal of the Revenue, concluding that no addition was warranted in the hands of the assessee.

Issue 2: Treatment of TDS
Regarding the treatment of TDS claimed by the company on the interest income, the Tribunal directed the company to furnish details of the interest income earned, TDS deducted, and amounts deposited in the Consolidated Fund of India to the Assessing Officer for verification and reconciliation. The Tribunal emphasized that since the entire interest earned had been deposited in the Consolidated Fund of India, no addition was required in the hands of the company. The Tribunal upheld the decision of the CIT(A) that the interest income was not taxable in the hands of the company, as it belonged to GOI.

In conclusion, the Appellate Tribunal, after considering the submissions and evidence presented by the company and the Revenue, held that the interest income generated on funds received from GOI was not taxable in the hands of the company, as the ownership of the interest income belonged to GOI. The Tribunal dismissed the appeals of the Revenue and directed the company to provide details for reconciliation of the interest income earned and deposited in the Consolidated Fund of India.