Taxability of interest on project advances turned on the agreed project-cost treatment of the funds.

Interest earned on deposits of advances received for a project was examined in light of a memorandum of understanding requiring the interest to form part of project cost. The Tribunal's view that taxability depended on the agreed treatment of the funds, rather than any later use, was upheld as consistent with the arrangement and free from legal infirmity. The Revenue was unable to show any substantial question of law arising from the order, so the appeal was dismissed.

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Issues: Whether the Tribunal erred in holding that the taxability of interest income earned on deposits of advances received for the project would depend on its subsequent use.

Analysis: The interest income was earned on deposits of advances received from REC Ltd. under a memorandum of understanding that required the interest to be used as part of the project cost. The concurrent view of the Commissioner (Appeals) and the Tribunal was found to be consistent with the agreed arrangement and free from legal infirmity.

Conclusion: The Revenue failed to show any substantial question of law arising from the Tribunal's order, and the appeal was dismissed.

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