2018 (6) TMI 696 - AT - Income Tax

Accrual of interest income - Exclusion of interest accrued on the funds received from the State Government towards Lift Irrigation Scheme Funds LIS - Held that - The funds are clearly allocated for a specific purpose and assessee has no control over the funds, except utilizing them for the scheme for which it was granted. These funds are also kept separately and the interest was also accounted for on behalf of the Government and has kept separately from assessee s transactions. Following case of M/s Bokaro Steel 1998 (12) TMI 4 - SUPREME COURT the decision of Ld.CIT(A) does not require any modification. Nothing was placed on record to counter the findings of CIT(A) both on facts and on law. In the result, all the Revenue appeals are dismissed.

Summary

Issues:
Appeal by Revenue against exclusion of interest accrued on funds received from State Government towards Lift Irrigation Scheme Funds.

Analysis:
The Revenue contested the exclusion of interest accrued on funds received from the State Government for Lift Irrigation Scheme Funds. The Assessing Officer (AO) added interest earned on Fixed Deposits from unutilized funds in all assessment years. The Assessee argued that the funds were tagged grants for specific projects and the interest earned was to be used only for the designated projects. The AO disagreed, asserting the interest accrued to the Assessee and should be taxed. The Assessee presented various communications from the Government supporting their position. The Commissioner of Income Tax (Appeals) [CIT(A)] considered the submissions and ruled in favor of the Assessee.

The CIT(A) noted that the funds were Grants-in-Aid for specific projects and the interest earned was connected to these grants. The Board meetings of the Assessee Company, a State Government undertaking, discussed the treatment of interest earned, with nominees of the State Government present. The CIT(A) found no evidence that the interest was used for purposes other than the designated projects. The CIT(A) concluded that the interest income should not be assessed as business income but should increase the grants received from the Government. The Revenue's grounds were dismissed based on legal principles and case law cited by the Assessee.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the funds were allocated for a specific purpose, and the Assessee had no control over them beyond the designated scheme. The funds were maintained separately, and the interest was accounted for on behalf of the Government. Relying on legal precedents, including the Supreme Court's ruling in M/s Bokaro Steel case, the Tribunal found no merit in the Revenue's arguments. The Tribunal dismissed all Revenue appeals and cross-objections, affirming the CIT(A)'s order.