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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 ..... y the Tribunal answering the substantial questions of law in favour of the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... e said order of the Tribunal, the Revenue has preferred these appeals. 6. Learned counsel Sri. K.V. Aravind appearing for the Revenue argued that the Tribunal grossly erred in not following the settled principles of law enunciated by the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., vs. Commissioner of Income Tax reported in (1997) 227 ITR 172. Placing reliance on the said judgment, the learned counsel argued that if the capital of the company is fruitfully utilized instead of keeping it idle, the income generated will be of revenue nature and is liable to tax. 7. It was further argued that the Tribunal erred in holding the assessee as a nodal agency for the Government to implement the infrastructure project relying on an indifferent decisions in the case of Commissioner of Income Tax and another vs. Karnataka Urban Infrastructure Development and Finance Corporation (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel appearing for the parties and perused the material on record. 13. In Tuticorin Alkali Chemicals and Fertilizers Ltd., supra, the facts were that M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd., which was incorporated on 03.12.1971 for the purpose of, inter alia, manufacturing heavy chemicals such as ammonium chloride and soda ash, begun its production during June, 1982. The term loans taken from various banks and financial institutions for the purpose of setting up the factories, which was not immediately required by the company, were kept invested in short-term deposits with banks, which was specifically permitted by the Memorandum and Articles of Association of the Company. Interest earned by the company from the various loans given by the company and also from the bank deposits which were considered by the departmental authorities as income and brought to tax was the subject 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id judgment in the relevant paragraph as under (page 584): "The material on record shows that the very purpose of constitution of the assessee was to act as a nodal agency for implementation of the mega city scheme worked out by the Planning Commission. Both the Central and the State Governments are expected to provide requisite finances for implementation of the said project. The funds from the Central and State Governments will flow directly to the specialised institutions/nodal agencies 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 ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us the Hon'ble SSJ was a member) following the judgments in the case of KUIDFC [(2006) 284 ITR 582], Tuticorin Alkali Chemicals and Fertilizers Ltd., supra, as well as Bongaigaon Refinery and Petrochemicals Ltd., vs. Commissioner of Income-tax reported in (2001) 251 ITR 329 (SC) and Commissioner of Income-tax vs. Bokaro Steel Ltd., reported in (1999) 236 ITR 315 (SC), has held thus:- "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 ₹ 10 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 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 Petrochemi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fund belongs to the State exchequer and the assessee has to channelise them to achieve the objects of centrally sponsored scheme of infrastructural development as specified in the Government Order. Hence, interest on all these fixed deposits are considered to be capitalized and not revenue receipts to treat it as an income. The Tribunal considering these aspects and more particularly, following the judgment of this Court in KUIDC case has held that the interest earned on these grants is not an income, which we do not find fault with." 16. As could be seen from the Government Order dated 25.03.2008 now placed on record, it is ex-facie apparent that the unutilized funds of the project, before the commencement of the functional operation of the project, was invested by the assessee in fixed deposits and mutual funds as per the directions of the Government. It is apt to refer to the said Government Order, the relevant portion of which reads thus:- "The income generated out of earlier release of State Government to BMRCL before the commencement of BMRCL project would have to be converted into State's equity towards the project and therefore cannot be counted as income of BMRCL. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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