TMI Blog2012 (9) TMI 1074X X X X Extracts X X X X X X X X Extracts X X X X ..... tment and the assessee respectively relevant to the assessment year 2007-08 impugning the order of the CIT(A) dated 5.1.2011. Since all the appeals involve similar questions, they have been taken up together and decided by this single order on merits. 3. The brief facts of the case are that the assessee is a company registered under the provisions of the Companies Act, 1956. The State Government is holding 100% shares of the assessee company. The assessee company was incorporated to act as a nodal agency to receive funds from Central Government as well as State Government and disburse the same for development projects initiated by the State Government/local bodies from time to time. The assessee earned interest on the funds so advanced for the projects. Apart from this, the assessee use to park excess funds in banks and earn interest on the said funds. The interest so earned by the assessee was again invested in various development projects as per the Govt. instructions. ITA No. 700/Mds/2011 : 4. The assessee company filed its return of income for the assessment year 2003-04 on 18.11.2003 declaring Nil income. The case of the assessee was selected for scrutiny and asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the same reason, the interest on IDSMT fund will also have to be treated as non-taxable. Hence, I direct the Assessing Officer to delete the addition of interest on IDSMT. The appellant succeeds in this ground. Aggrieved against the order of the CIT(A), the Revenue has filed the present appeal before the Tribunal impugning the deletion of the additions made on account of interest from IDSMT to the tune of ₹ 1,52,71,188/-. 6. The D.R. defending the Department submitted that the assessee is following mercantile system of accounting. The assessee had made deposits of the funds received from State and Central Government and had earned interest thereon. But the interest so received by the assessee on the deposits has not been offered to tax. The D.R. submitted that similar controversy arose in the assessment year 2004-05 in the assessee's own case and the Tribunal had decided the same against the assessee vide order dated 8.2.2008 in ITA No.352/Mds/2007. The assessee has shown interest income as business income and has thereafter claimed deduction under section 36(1)(viii) which is inadmissible under the law. The D.R. contended that the CIT(A) while deciding the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disbursement of the funds for the development and the infrastructure projects is as per the directions of the Government from time to time. The controversy involved in the present appeal is with regard to accrued interest on the funds advanced to the local bodies /IDSMT funds programme. The Hon'ble Karnataka High Court in Karnataka Urban Infrastructure Development Finance Corpn. (supra) has held as under:- 4. 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. 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment year 2004-05 in ITA No.352/Mds/2007 decided on 8.2.2008. In the aforementioned case, the issue involved was with regard to claim of the assessee to treat its entire income as expenditure under section 10(23G) of the Income Tax Act and has also claimed deduction under section 36(1)(viii) of the Act to the extent of 40% of the business income without approval from CBDT. We are of the considered opinion that the controversy involved in the present case is different from the one which has been decided by the Tribunal in ITA No.352/Mds/2007 relevant to the assessment year 2004-05. However, the present case of the assessee is squarely covered by the Division Bench judgement of the Hon'ble Karnataka High Court, wherein it has been held that since interest earned is again utilized for implementation of the mega-city Scheme, the same cannot be treated as income of the assessee. The interest is earned out of the money given by the Government of India for the purpose of implementation of mega-city Scheme. 10. We, therefore, uphold the findings of the CIT(A) and dismiss the appeal of the Revenue being devoid of merits. ITA No. 5 6/Mds/2010 (Assessee - A.Y. 2005- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. 14. Similarly, with respect to second ground raised by the assessee regarding deduction under section 36(1)(viii) in respect of interest on short term deposits, the D.R. submitted that this issue has also been decided against the assessee by the Tribunal in the aforementioned appeals relevant to the assessment years 2003-04 and 2004-05. The counsel for the assessee submitted that the assessee after receiving funds from the Central and State Governments use to park excess funds in the bank in short term deposits. The interest earned on the said deposits is again utilized for advancing funds under the various schemes as per the instructions of the Government from time to time. Therefore, the same should be considered at par with the accrued interest from Integrated Development of Small Medium Town and Mega-city projects. 15. We do not agree with the contentions of the counsel for the assessee on this issue. The income earned from deposits with the bank etc. cannot be treated as income from business. The said interest income has to be treated as Income from other sources . By no stretch of imagination the income earned from interest on short term deposits can be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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