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TMI Blog2013 (12) TMI 1668X X X X Extracts X X X X X X X X Extracts X X X X ..... at pages 6 to 8 of 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 namely, "Support to KAPPEC" (2401-00-800-2-29) during 2006-07. 2. The Director of Horticulture is permitted to release Rs. 10.00 crores (Rupees Ten crores only) to KAPPEC for creation, of infrastructure facilities in various parts of the State for increasing the export of horticultural produce. 3. KAPPEC shall make earnest efforts to get matching contribution from Government of India through its agencies/ schemes such as ASIDE, National Horticulture Mission for the purpose. 4. KAPPEC shall prepare viable and implementable schemes and obtain approval from the KAPPEC Board. The approved schemes will be submitted to the Department of Horticulture. 5. KAPPEC shall submit progress reports on physical and financial achievements to the Director of Horticulture every month, which will reviewed in the monthly MMR meetings. 6. No part of the funds shall be utilised by KAPPEC for meeting expenses towards salary and establishment. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts received are treated as capital grants and shown under 'reserves & surplus'. Therefore there is an overstatement of liability and understatement of reserves & surplus. The assessee also pointed out that the Expert Advisory Committee of ICAI, on a query with regard to treatment of interest accruing on short term deposits made with the banks out of grants-in-aid received from Govt. of India, has opined that the treatment of such interest income would depend on the terms of the agreement under which the grant was given. If the agreement provides that the interest will be used only for the same purpose for which the grant 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 general income and not for specific purpose of the grant, then it should be shown 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 fund by routing it through the income & expenditure account. The Assessee also pointed out that the Government has threatened to take b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes, interest earned on deployment of such funds should also be capitalised and not treated as revenue receipt. The CIT(A) thereafter referred to the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali & Chemicals Ltd. v. CIT, 227 ITR 172 (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 chargeable 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 assessee has preferred the present appeal before the Tribunal. 12. We have heard the submissions of the ld. counsel for the assessee, who reiterated the stand of the assessee as taken before the CIT(A). Further reliance was placed by the ld. counsel for the assessee on the decision of the Hon'ble Karnataka High Court in the case of CIT v. M/s. India Telephone Industries v. CIT, ITA 739/2009 dated 18.03.2013, wherein the substantial question of law considered by the Hon'ble Karnataka High Court was as to whether grant in aid given by the Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional documents that Government of Karnataka has informed the assessee vide letter dated 12.11.2013 and 18.06.2013 that interest earned on Government grants 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 8th Meeting of the State Level Sanction Committee of Rashtriya Krishi Vikas Yojana held on 16.03.2012. In the aforesaid proceedings, the Committee considered the utilization of interest on unspent grants and directed that such interest should also be spent for the purpose for which the grants were given. The ld. counsel for the assessee thus submitted that the aforesaid documents 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 letters emanated after the grant in aid was granted by the Government of Karnataka and will therefore have no effect. According to him, the proceedings of Government of Karnataka by which a sum of Rs. 10 crores was granted did not contain any such condition and the aforesaid correspondence cannot alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the accounts. The assessee has been involved in other projects of development of infrastructure apart from the activity as a nodal agency for the implementation of the mega-city scheme undertaken by the Government of India. The interest earned and received by the assessee out of the amount which it had received from the Central and State Governments and deposited in various banks, was treated as an income of the assessee and the AO brought the aforesaid amounts to tax. The Tribunal held that the assessee was merely a trustee of funds entrusted to carry out the objects of the Government while implementing the scheme. The assessee in fact acted as an agent of the Governments of both the Central and the State for implementing the scheme of the Government. This being the factual position, the lower authorities committed serious error in treating the interest as income of the assessee and bringing the same to tax. On further appeal by the Revenue to the High Court, the Hon'ble 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 the Planning Commission. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. Therefore, there is no error in the conclusion reached by the Tribunal that there was no income earned by way of interest by the assessee and setting aside the order of AO which is affirmed by the first appellate authority. The finding given by the Tribunal is purely 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 Hon'ble Karnataka High Court will clear apply to the facts of the present case. The CIT(A) has not followed the aforesaid decision on the basis that KUIDFC was engaged in welfare activities to transform Bangalore to a mega city, whereas the assessee was engaged in trading of agricultural 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 engaged in welfare activity wholly owned by State Government. KUIDFC is also a company. The assessee is also engaged in welfare activity and formed for the purpose of helping the agricultural produce and procession of export. Therefore the ratio laid down by the Hon'ble Karnataka Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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