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TMI Blog2018 (5) TMI 1868X X X X Extracts X X X X X X X X Extracts X X X X ..... vate Limited and Security Printing and Minting Corporation of India Ltd. which is set up for the purpose of developing, designing, manufacturing and supplying the currency paper and bank note paper. During the year relevant to the assessment year under consideration, the assessee was in process of setting up of a plant at Mysore for the purpose of manufacturing currency paper. The assessee had received share capital from the Govt. of India and Reserve Bank of India (RBI) for the purpose of setting up of plant. The funds which were not immediately required for the purpose of setting up of a plant were utilized for the purpose of making deposit with the Bank, on which interest income of Rs. 21,52,81,724 was earned by the assessee. The interest so earned was reduced from pre-operative expenses on construction, etc. of the plant. Therefore the interest income was not offered to tax. 3.2 The Assessing Officer not accepted the stand of the assessee and placing reliance on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilisers Ltd. Vs. CIT 227 ITR 1721 and brought to tax, the interest income under head 'income from other sources'. Being aggriev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical issue had come up for consideration before the Hon'ble Jurisdictional High Court in the case of CITA vs. Karnataka State Agricultural Produce Processing and Export Corporation Ltd.(377 ITR 496). In that case the State Government Corporation earned interest on deposits temporarily kept out of grants received from the State Government was taxable or not? The facts are that the State Government Corporation earned interest during the construction period on the fixed deposits temporarily made out of State Government grants. The issue before the Hon'ble High Court was whether such interest income was taxable or should go to reduce the capital cost of the project. The Hon'ble High Court, after considering the decisions of the Hon'ble Supreme Court in the case of Bongaigaon Refinary Petrochemicals Ltd. v. CIT (251 ITR 329)(SC), Bokara Steel Ltd. (supra), and Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) and its own decision in the case of CIT v. Karnataka Power Corporation, (247 ITR 268) and CIT vs. Karnataka Urban Infrastructure and Development and Finance Corporation (284 ITR 582) held that such interest income would go to reduce the capital cost of the project, is on the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 infrastructure 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 utilised, is parked in a bank. The finding recorded by the Tribunal clearly shows that the entire money in question is received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd.'s case (supra) and Bokaro Steel Ltd.'s case (supra) has held that in Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case, the question related was with the interest earned by the Company during its formative period by investments while in Bokaro Steel Ltd.'s case (supra), it is so confined and did not apply where the receipts were directly connected with or were incidental to the work of construction of the assessee's plant. Accordingly, applying the law enunciated in Bokaro Steel Limited case allowed the appeal. 14. In the light of the judgments referred to above, we have examined the case on hand. It is clear that the assessee has received the grant of Rs. 10.00 crores from the Government of Karnataka for a particular project i.e., for improvement of infrastructure and to promote export of horticultural produce. Before the said grant was utilized for the specific purpose it was parked in fixed deposits and the interest was earned and by the subsequent additional evidence produced by the assessee before the Tribunal, it is further made clear that the State Government has categorically specified that any interest earned on those grants originally gran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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