TMI Blog2022 (1) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... .No.118/2015 - - - Dated:- 23-11-2021 - HON BLE MRS.JUSTICE S.SUJATHA AND HON BLE MR. JUSTICE HANCHATE SANJEEVKUMAR APPELLANTS (COMMON) (BY SRI K.V.ARAVIND, ADV.) RESPONDENT (COMMON) (BY SRI A.SHANKAR, SENIOR ADV. A/W SRI G.VENKATESH, ADV.) J U D G M E N T S. SUJATHA, J. These appeals are filed by the Revenue under Section 260-A of the Income Tax Act, 1961 ( Act for short) challenging the common order dated 31.10.2014 passed in ITA Nos.1070 and 1071/Bang/2011 by the Income Tax Appellate Tribunal, Bangalore Bench A , Bangalore ( Tribunal for short) relating to the assessment years 2007-08 and 2008-09. 2. These appeals were admitted to consider the following substantial questions of law:- 1. Whether the Tribunal was correct in not following the settled law of the Hon ble Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizer Ltd., reported 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 ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee preferred an appeal before the CIT (Appeals) which came to be dismissed upholding the findings of the Assessing Officer. Being aggrieved by the same, the assessee preferred an appeal before the Tribunal. The Tribunal vide common order dated 31.10.2014 allowed the appeals of the assessee and reversed the order of CIT (Appeals). Being aggrieved by the 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 Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced on record to substantiate the stance taken by the assessee before the authorities as well as the Tribunal that it is at the direction of the Government of Karnataka, the unutilized funds of the project were invested in the fixed deposit and mutual funds and the same cannot partake the character of revenue income. 12. We have carefully considered the rival submissions of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 2006. The said judgment has been placed for consideration before us and we have gone through it. Essentially, the Tribunal has also placed reliance on the said judgment and accordingly held in favour of the assessee. We have no doubt in our mind that the said judgment squarely covers the issue involved in this appeal. It has been held by the Division Bench of this Court in the aforesaid 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 infrastruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid findings recorded by the Division Bench of this Court, we are of the considered opinion that there is no merit or substance in this appeal. No substantial question of law arises to be answered by this Court. Thus, the appeal is hereby dismissed. 15. In the case of Karnataka State Agricultural Produce Processing and Export Corporation Ltd., supra, the co-ordinate bench of this Court (where one of 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The object of the scheme is to facilitate the farmers and to promote export of horticultural produce. Hence, the very purpose of granting ₹ 10 crores to the assessee was to act as a nodal agency for implementation of the scheme. There is no profit motive as the entire fund entrusted and the interest accrued therefrom from deposits has to be utilised only for the purpose of the scheme originally granted. The whole of 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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