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TMI Blog2021 (11) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... ight through the funds transferred belong to DRDO/ISRO, and, as a corollary, interest earned belongs to DRDO/ISRO. The Fixed Deposits are opened in the name of assessee, the Banks are correct in effecting TDS and issuing TDS certificate to the assessee. The assessee once establishing no tax liability on this component, the TDS is referred to be made over to DRDO/ISRO. In the armchair of revenue, the above aspects sound atypical to taxation. The Government Departments, since are not under obligation to pay income tax, the funds merely because are in the hands of the assessee and earn interest, the reasoning whichever way it is stated is not convincing to tax the interest income in assessee s return and the Revenue looked at the transactions from the kaleidoscope of the letter of Income Tax Department but without appreciating the spirit of documents which have bearing on the adjudication of the issue. It is appropriate to observe that an assessee is under obligation to pay tax on its real income or income derived from one source or the other by the assessee, but not on every receipt recognized in the books of the assessee. The circumstances in Vizhinjam International Seaport [ 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 260A of the Income Tax Act, 1961 (for short, 'the Act'), being aggrieved by the rejection of its claim on the income from the nature of interest received by the assessee in DRDO/ISRO accounts (for short FD A/cs ). The details of the Assessment Years etc are stated in the following tabular form: Sl. No. Assessment Year Date of Assessment Order Order of Commissioner of Income Tax Income Tax Appellate Tribunal ITA No. 1 2009-10; 30.03.2014 ITA NO.25/TVM/CIT(A), TVPM/2014-15 DT.06.01.2016 ITA NO.100/COCH/2016 DTD 1.12.2017 15/2018 2 2010-11; 21.03.2013 ITA NO.8/TVM/CIT(A), TVPM/2013-14 DT.06.01.2016 ITA NO.101/COCH/2016 DTD 1.12.2017 17/2018 3 2011-12; 27.03.2014 ITA NO.26/TVM/CIT(A), TVPM/2014-15 DT.06.01.2016 ITA NO.102/COCH/2016 DTD 1.12.2017 16/2018 2.2 The circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at Thiruvananthapuram by the appellant, DRDO and ISRO have availed the services of assessee-company for establishing facilities at the premises of the assessee for the benefit and utility of respective organization. In the subject appeals, we are concerned with a sum of ₹ 50 crores transferred or made available by DRDO and a sum of ₹ 25 crores by ISRO to the assessee account, through its holding company, which were deposited in FD A/cs. 3.3 In October 2008 a Memorandum of Understanding (MoU) between the DRDO, Ministry of Defence, Government of India and assessee were entered into. In terms of the said MoU the DRDO recognized/empowered the assessee to act as the implementing agent of DRDO in the Integrated Guided Missile Development Programme for achieving the indigenous capability to launch operational Missiles and support the Missile Programmes by manufacturing and delivering Motor Cases, Nozzles, Booster Motors, Control system Components, Reaction Control Systems, Propellant Tankages, Gas Bottles etc. Considering the strategic importance of the project and the role the assessee has undertaken to play as the implementing agent of DRDO in the Integrated Guided M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identical to the conditions with which the MoU was entered into between the assessee and DRDO in October 2008. Hence for brevity, we avoid referring to these conditions once again. Under the above said Memorandums of Understanding the assessee received in its account a sum of ₹ 75 crores in the previous year ending on 31.03.2008. The assessee for better management of the funds kept at its disposal by DRDO/ISRO under separate accounts deposited the said sum with nationalized banks. The assessee earned interest on the Fixed Deposit amount of ₹ 75 crores kept and maintained by it as custodian of DRDO and ISRO. The account in the assessee books of account is separate and the deposit since is made by the assessee, the Banks have effected TDS and issued a TDS certificate in favour of the assessee during the Assessment Years 2009-10, 2010-11 and 2011-12. 3.6 On 26.09.2009, the assessee filed tax return for the Assessment Year 2009-10 declaring total loss of ₹ 1,21,56,832/-. The assessment was completed vide order dated 23.12.2011 determining Nil income. The Revenue initiated proceedings under Section 147 and issued notice under Section 148 to the assessee on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence the Tax Appeal at the instance of the assessee. 4.1 The Tribunal paraphrased the conclusions recorded by the Assessing Officer and the Commissioner of Income Tax and further recorded that the MoUs, between the Departments and the assessee, do not direct or enable assessee to deposit the surplus funds of the Government Departments in the Fixed Deposit accounts, and a stipulation that the interest earned on these deposits would belong to ISRO and the DRDO. The Tribunal referred to a situation that there could have been a case of diversion of income by an overriding title, i.e., the title of DRDO/ISRO with regard to the interest. Further, there is no diversion of interest income by an overriding title in favour of DRDO/ISRO. The record discloses that the interest received by the assessee was shown as income in the books of account of the assessee-Company and tax deducted at-source was claimed by the assessee in the returns of income filed by the assessee for the respective Assessment Years. The Tribunal, to appreciate whether the interest income is computable to the assessee or DRDO/ISRO observed that if at all it is the income of DRDO/ISRO the interest ought to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A/cs was and would be the amount of DRDO/ISRO, and the sanction in favour of assessee is to utilise the transferred fund for the execution of projects or DRDO/ISRO and utilisation of fund since is on Treasury account, was made subject to C AG audit. 5.1 Ex post facto , it is a matter of accounting that the amount together with interest has been returned to the respective Departments. Hence, he argues that the assessee under the respective MoUs was under obligation to maintain separate accounts and return the balance unspent amount together with interest to the respective Departments. The assessee has accordingly returned the balance unspent amount to DRDO/ISRO. The assessee is called upon by the respective Departments to claim refund of TDS, for neither DRDO nor ISRO, being Government Departments, is not under any obligation to pay income tax. The refunded TDS was directed to the returned to the respective Departments. Therefore, he contends that after the entire amount was returned, upon receipt from the Department the income tax if is levied on the assessee, the assessee would be paying tax on an element which does not constitute income from any standpoint of view and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee towards interest from deposits made of the funds received from the Government was held as unsustainable. In spite of the said decision being brought to the notice of the Tribunal, the Tribunal ought not to have taken the view assailed in the appeals. 4. Learned Standing Counsel Mr Christopher Abraham sustains the orders under appeal by inviting our attention to the very conclusion recorded, on one hand by the primary and appellate authorities and on the other confirming order by the Tribunal in continuation thereof. He does not dispute that the assessee is the subsidiary of BATL and the funds have emanated from DRDO and ISRO, Government of India. According to him, the recognition of interest in the books of account of the assessee, as has been rightly held by the Assessing Officer, could make all the difference for determining whether interest income constitutes computable income of the assessee or not. The TDS was received by the assessee, the Tribunal has taken note of the effect of the concept of overriding title, and for all the reasons recorded in the orders under appeal, he prays for dismissing the appeal. 5. The appellant raises the following substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnments. The funds are utilized by the nodal agency as per the schemes approved by the Central and State Governments. In the implementation of the work as the nodal agency, there is no profit motive as the funds entrusted and the interest accrued therefrom and deposits in banks though in the name of the assessee have to be applied only for the purpose of welfare of the Nation/State as provided in the guidelines. After all, the interest earned was again utilized for the implementation of the mega-city scheme as permitted under the scheme. Therefore, while computing the total income of the assessee for any previous year, the interest accrued on the bank deposits cannot be treated as income of the assessee as the interest is earned out of the money given by the Government of India and the Government of Karnataka only for the purpose of implementation of megacity scheme. By independently examining the circumstances and appreciating the finding recorded by the Tribunal, the Division Bench dismissed the appeal filed by the Revenue. The decision appreciates the claim of assessee that the substance of the receipt of transferred funds is an aspect for reckoning. 6. The decision of Kar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the petitioner for the relevant years, hence this court would not like to give a definite and positive finding over the issues involved, at this stage. Hence, the orders contained in annexures 3 and 4 are quashed and the matter is remitted back to the concerned authority of the Income-tax Department, i.e., Assistant Commissioner of Income-tax, TDS Circle, Patna for passing fresh order in accordance with law and after due application of mind to all relevant facts, some of which have been noticed in this order. The said authority should pass a fresh order in respect of the petitioner's application under section 197 of the Act without any delay and preferably within one month from today. Till then no coercive action shall be taken to realise tax deduction at source in respect of interest income which the petitioner may receive. 8. The ITAT, Cochin Bench in M/s.Vizhinjam International Seaport Ltd v. The Income Tax Officer, Ward 2(4), Trivandrum Order dated 15.06.2016 in ITA No.07/Coch/2016 of ITAT, Cochin Bench has taken a similar view while appreciating the character of interest received by the assessee, whether constitutes income or not. Keeping the above d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the task entrusted to the assessee by DRDO/ISRO. The purchase of plant and machinery, enhancement of equipment facility etc are decided by DRDO/ISRO. Resultantly, the assessee was required to be the custodian of the funds received from respective Government Departments for carrying out the designs. The assessee instead of investing the amount in its credit account has invested them in Fixed Deposits in a separate account and earned interest on that. This treatment in the books of account of assessee adheres to the condition with which the funds were transferred. The DRDO and ISRO have called upon the assessee to return the unspent amount together with not only the interest accrued therein but also claim refund from Income Tax Department the TDS amount as well, and, upon receipt from the Department, transfer to DRDO/ISRO. From the documents which are not disputed by the Revenue, it is very clear that the assessee was merely allowed to operate the funds for the exclusive benefit of respective Government Departments and funds do not belong to the assessee. The assessee will not have any claim over the funds it was holding for and on behalf of DRDO/ISRO. 9.2 Further, the respectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated is not convincing to tax the interest income in assessee s return and the Revenue looked at the transactions from the kaleidoscope of the letter of Income Tax Department but without appreciating the spirit of documents which have bearing on the adjudication of the issue. It is appropriate to observe that an assessee is under obligation to pay tax on its real income or income derived from one source or the other by the assessee, but not on every receipt recognized in the books of the assessee. 9.3 As rightly pointed out by Senior Advocate Mr Joseph Markos, we have one option or the other to appreciate the orders under appeal before us. We prefer to examine the claim of the assessee that the interest received by it does not form part of its income by referring to the undisputed and admitted documents on which the assessee is relying on, and we arrive at the conclusion that the interest received by the assessee could not be treated as computable income of the assessee during the subject Assessment Year. The circumstances in Vizhinjam International Seaport are similar to the case on hand and there is inconsistency in approach by the Tribunal in the findings recorded in s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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