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TMI Blog2022 (1) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in 227 ITR 172 wherein it has been clearly held that if the capital of the company in fruitfully utilized instead of keeping it idle, the income generated will be of revenue nature and not accretion to capital. 2. Whether the Tribunal is correct in holding that the company is a nodal agency for the government to implement the infrastructure project relying on an indifferent decision in the case of KUIFDC without appreciating that the assessee company has been incorporated as a joint venture company between the Government of Karnataka and Government of India for providing transport facility and to earn income from sale of tickets and to earn income from sale of tickets to customers, thus profit motive is germane to the project as against the welfare of KUIDFC." 3. The assessee is a company incorporated under the Companies Act, 1956 and is wholly owned undertaking of the Government of Karnataka. It was established with the approval of Government of India, for the implementation of a rail-based Mass rapid Transit System which was called as 'Bangalore Metro Rail Project' in five years in five stages. The cost of the project was to be financed by both the Union and the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation (KUIDFC) reported in (2009) 315 ITR 301 (Karn) and (2006) 284 ITR 582 (Karn) without appreciating that the assessee company has been incorporated as a joint venture company between the Government of Karnataka and Government of India for providing transport facility and to earn income from the sale of tickets to the customers, thus profit motive is germane to the project. 8. Learned Senior Counsel Sri. A. Shankar representing the respondent - assessee argued that the assessee is a Special Purpose Vehicle to the Government of Karnataka and is acting as a nodal agency for the implementation of a rail based Mass Rapid Transport System. The assessee was not carrying out any business on its own while implementing the scheme in question, in fact commercial operation commenced only on October, 20th 2011. In order to keep the unutilized money received for the purpose of the rail project, in accordance with the Government directive, the same was invested in fixed deposit and mutual funds. Thus, in computing the total income of the assessee, the interest earned on the deposits made out of unutilized funds cannot be treated as the income of the assessee as the same partakes the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of the tax reference case before the Hon'ble Apex Court. The following question of law was referred to the Court for the decision:- "Whether, on the facts and in the circumstances of the case, interest derived by the assessee from the borrowed funds which were invested in short-term deposits with banks would be chargeable to tax under the head "Income from other sources" or would go to reduce the interest payable by the assessee on the term loans secured by the assessee from financial institutions, which would be capitalised after the commencement of commercial production." In that context, it was held thus: "4. The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income tax. Profits and gains of business or profession is only one of the heads under which the company's income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Centrally sponsored scheme of infra-structural development for the mega city of Bangalore. Funds of one wing of the Government are distributed to the other wing of the Government for public purpose as per the guidelines issued. The monies so received, till they are utilised, are 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 the 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 sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r made clear that the State Government has categorically specified that any interest earned on those grants originally granted has to be considered as an additional grant and not an income of the assessee-Company. As explained by the Apex Court, in Bongaigaon Refinary and Petrochemicals Ltd. case, (supra), in Tuticorin's case, the investment in deposits was made by the Company during its formative period by investments and in Bokaro Steels Ltd., case (supra) the inextricable link between the interest earned and the set up of the plant was established. Thus, in the present case we are of the view that this is not an investment made subsequent to the setting up of the project but this is the unutilized income parked in fixed deposits for a temporary period and inextricable link for the interest earned on the grants and the original grant made by the State Government to set up a project is established as in Bokaro Steel case. Thus we are of the view that the facts and circumstances of the present case is squarely covered by Bokaro Steel Ltd.,(supra) and it is not the case of the Revenue that the said interest earned on these fixed deposits was utilized by the Company for an ..... 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